GWG Holdings filed a Chapter 11 bankruptcy petition in the United States Bankruptcy Court of the Southern District of Texas on April 20, 2022 (Bankruptcy Petition No 22-90032, 4;2022bk90032). GWG L Bond investors are devastated by the bankruptcy filing. It raises serious questions about investors’ ability to get their principals back.
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After the company claimed that it had received a letter from Nasdaq Stock Market’s Listing Qualifications Department stating it was not in compliance with a Nasdaq listing rule, the stock was stopped during premarket trading.
According to the asset manager, the restructuring will allow it to increase liquidity and its ability to meet financial obligations while also increasing the assets’ value. GWG Life LLC and GWG Life USA LLC are the Chapter 11 debtors.
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The Wall Street Journal reported that GWG was planning to file for bankruptcy on April 4. Additionally, the company stated that it secured debtor-in-possession financing to facilitate the restructuring and that it had filed a motion with the court for approval.
National Founders LP will provide the DIP credit agreement. It is a multi-draw term loan facility with a maximum amount of $65 million.
The proceeds of all or part of the DIP credit agreement can be used, among others, for general corporate purposes including working capital, permitted acquisitions, administrative expenses, premiums and fees for transactions contemplated in Chapter 11 cases, and other purposes consistent with the DIP Credit Agreement.
GWG Holdings intends to continue its day-to-day operations as debtor-in-possession.
GWG L Bond investors are likely to experience a painful and lengthy process. Chapter 11 bankruptcy cases can take from 17 months to five years for more complicated cases. It can also take months for debtors and creditors to start distributing payments to the highest priority classes of creditors. GWG had over $2 billion in total liabilities as of September 2021. This includes $1.55 billion in L Bonds.
According to the GWG L Bond Prospectus, the L Bonds security interest is subordinated to other debt obligations. GWG L Bond investors are unlikely to see their principal in full due to the bankruptcy process and the language of the prospectus.
GWG L Bond investors will be able to file individual arbitration claims against the brokerage that sold them the high-risk, speculative and illiquid L Bonds. Retail investors can file an arbitration claim against the selling brokerage without affecting their potential recovery from GWG Holding Inc.’s bankruptcy proceedings or any class action lawsuits against GWG Holdings.