On February 14, 2022, GWG Holdings (GWGH) offered investors a letter informing them that it had defaulted on the $3.25 million in principle payments as well as $10.35 million in interest payments owed to L Bond investors.
Beginning on January 15, 2022, GWG Holdings had a grace period of 30-days to make the payments. Furthermore, the Texas-based alternative asset company stated that requests for redemptions would be delayed. This implies that L Bond investors are left with high-yield junk bonds that do not meet the income expectations. These are investments that can’t be redeemed or sold.
It was reported that most brokerage firms may have misled customers about the potential risks when selling these high-yield bonds. They may have even sold them to retail consumers and novices who could not comprehend the risks involved.
What Are L Bonds?
GWG Holdings informed the SEC that it had failed to pay $13.6 million to shareholders due to a reduction in L Bond sales on January 18, 2022. An L Bond is classified as a private position and an unrated life insurance bond. Such investments are used for purchasing and paying for the premium on life insurance settlement contracts bought on the secondary markets.
It places a high yield on the table in exchange for taking on the risk that the benefits or insurance premium might not be paid. L Bonds are not liquid and cannot be sold on the secondary market. Any attempt by a holder of L Bonds to redeem them before maturity or the death or disability of the policy’s original beneficiary will result in a 6% fine.
The Monthly And Maturity Payments To Investors Have Been Halted
In a February 14, 2022 letter to L Bond investors, GWG stated that it was considering restructuring proceedings. The firm also announced that it was looking at “strategic alternatives to conserve and maximize the value of GWGH’s assets” to “benefit investors and satisfy financial obligations.
According to WG Holdings, this procedure may take another three to four weeks. Additionally, the alternative asset firm also stated that monthly and maturity payments would not be made during this time.
According to GWG Holdings, the company has total outstanding liabilities of around $327.7 million in senior credit facilities and another $1.552 billion in L Bonds. This is approximately double the company’s reported $794.7 million intangible assets, $67.7 million in cash and restricted cash, and $226.1 million in alternative investments’ fair worth.
The GWGH’s Form 10-K statement for the year ending December 31, 2020, reports a net loss of nearly $530 million. The company said it was concerned about its ability to raise capital, its “recurring losses,” negative cash flow, and other factors.
GWG Holding Lawsuit & Investigation
As a result of the failure of GWG Holdings to pay interest and default on their L Bonds, investors have started filing claims and lawsuits to recover losses. Haselkorn & Thibaut (InvestmentFraudLawyers.com) is currently talking to GWG investors to discuss options on recovering investment losses. They can be reached at 1-800-856-3352 for a free consultation on investment loss recovery options including lawsuits and FINRA claims.