Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of The J.G. Wentworth Company
We have audited the accompanying consolidated balance sheets of The J.G. Wentworth Company (the Company) as of
December 31, 2016
and
2015
, and the related consolidated statements of operations, comprehensive (loss) income, changes in stockholders' (deficit) equity and cash flows for each of the three years in the period ended
December 31, 2016
. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The J.G. Wentworth Company at
December 31, 2016
and
2015
, and the consolidated results of its operations and its cash flows for each of the three years in the period ended
December 31, 2016
, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, MA
March 29, 2017
The J.G. Wentworth Company
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
(Dollars in thousands, except per share data)
|
ASSETS
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
80,166
|
|
|
$
|
57,322
|
|
Restricted cash and investments
|
195,588
|
|
|
136,780
|
|
VIE finance receivables, at fair value
(1)
|
4,143,903
|
|
|
4,376,458
|
|
Other finance receivables, at fair value
|
13,134
|
|
|
9,689
|
|
VIE finance receivables, net of allowances for losses of $9,023 and $8,659, respectively
(1)
|
85,325
|
|
|
99,874
|
|
Other finance receivables, net of allowances for losses of $2,061 and $1,707, respectively
|
8,619
|
|
|
10,468
|
|
Other receivables, net of allowances for losses of $280 and $273, respectively
|
17,771
|
|
|
16,285
|
|
Mortgage loans held for sale, at fair value
(2)
|
232,770
|
|
|
124,508
|
|
Mortgage servicing rights, at fair value
(2)
|
41,697
|
|
|
29,287
|
|
Premises and equipment, net of accumulated depreciation of $10,697 and $7,961, respectively
|
4,005
|
|
|
5,674
|
|
Intangible assets, net of accumulated amortization of $22,778 and $20,700, respectively
|
22,868
|
|
|
30,429
|
|
Goodwill
|
8,369
|
|
|
8,369
|
|
Marketable securities, at fair value
|
76,687
|
|
|
84,994
|
|
Deferred tax assets, net
|
405
|
|
|
2,250
|
|
Other assets
|
61,600
|
|
|
58,711
|
|
Total Assets
|
$
|
4,992,907
|
|
|
$
|
5,051,098
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
|
|
|
|
|
|
Accrued expenses and accounts payable
|
$
|
28,929
|
|
|
$
|
21,548
|
|
Accrued interest
|
28,123
|
|
|
22,380
|
|
Term loan payable
|
431,872
|
|
|
423,504
|
|
VIE derivative liabilities, at fair value
|
50,432
|
|
|
66,519
|
|
VIE borrowings under revolving credit facilities and other similar borrowings
|
56,432
|
|
|
44,339
|
|
Other borrowings under revolving credit facilities and other similar borrowings
|
229,588
|
|
|
122,243
|
|
VIE long-term debt
|
62,939
|
|
|
196,663
|
|
VIE long-term debt issued by securitization and permanent financing trusts, at fair value
|
4,014,450
|
|
|
3,928,818
|
|
Other liabilities
|
52,448
|
|
|
65,106
|
|
Deferred tax liabilities, net
|
1,415
|
|
|
18,825
|
|
Installment obligations payable
|
76,687
|
|
|
84,994
|
|
Total Liabilities
|
$
|
5,033,315
|
|
|
$
|
4,994,939
|
|
|
|
|
|
Commitments and contingencies (Note 26)
|
|
|
|
|
|
|
|
|
|
Class A common stock, par value $0.00001 per share; 500,000,000 shares authorized, 16,272,545 and 15,730,473 issued and outstanding as of December 31, 2016, respectively, 16,076,444 and 15,534,372 issued and outstanding as of December 31, 2015, respectively
|
$
|
—
|
|
|
$
|
—
|
|
Class B common stock, par value $0.00001 per share; 500,000,000 shares authorized, 8,710,158 issued and outstanding as of December 31, 2016, 8,908,698 issued and outstanding as of December 31, 2015, respectively
|
—
|
|
|
—
|
|
Class C common stock, par value $0.00001 per share; 500,000,000 shares authorized, 0 issued and outstanding as of December 31, 2016 and December 31, 2015, respectively
|
—
|
|
|
—
|
|
Additional paid-in-capital
|
105,823
|
|
|
104,713
|
|
Accumulated deficit
|
(117,622
|
)
|
|
(70,765
|
)
|
|
(11,799
|
)
|
|
33,948
|
|
Less: treasury stock at cost, 542,072 shares as of December 31, 2016 and December 31, 2015, respectively
|
(2,138
|
)
|
|
(2,138
|
)
|
Total stockholders' equity, The J.G. Wentworth Company
|
(13,937
|
)
|
|
31,810
|
|
Non-controlling interests
|
(26,471
|
)
|
|
24,349
|
|
Total Stockholders' (Deficit) Equity
|
$
|
(40,408
|
)
|
|
$
|
56,159
|
|
Total Liabilities and Stockholders’ (Deficit) Equity
|
$
|
4,992,907
|
|
|
$
|
5,051,098
|
|
(1)
Refer to Note 7 "VIE and Other Finance Receivables, at Fair Value" and Note 8 "VIE and Other Finance Receivables, net of Allowance for Losses" for further details on assets pledged as collateral.
(2)
Pledged as collateral to Other borrowings under revolving credit facilities and other similar borrowings. Refer to Note 10 "Mortgage Loans Held for Sale, at Fair Value" and Note 11 "Mortgage Servicing Rights, at Fair Value."
The accompanying notes are an integral part of these consolidated financial statements.
The J.G. Wentworth Company
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
(Dollars in thousands, except per share data)
|
REVENUES
|
|
|
|
|
|
|
|
|
Interest income
|
$
|
193,032
|
|
|
$
|
190,203
|
|
|
$
|
186,958
|
|
Realized and unrealized gains on VIE and other finance receivables, long-term debt and derivatives
|
17,225
|
|
|
80,023
|
|
|
300,344
|
|
Realized and unrealized gains on sale of mortgage loans held for sale, net of direct costs
|
75,102
|
|
|
18,590
|
|
|
—
|
|
Changes in mortgage servicing rights, net
|
12,410
|
|
|
1,649
|
|
|
—
|
|
Servicing, broker, and other fees
|
13,824
|
|
|
8,000
|
|
|
4,088
|
|
Loan origination fees
|
8,996
|
|
|
2,543
|
|
|
—
|
|
Realized and unrealized gains (losses) on marketable securities, net
|
4,083
|
|
|
(4,641
|
)
|
|
888
|
|
Realized gain on notes receivable, at fair value
|
—
|
|
|
—
|
|
|
2,098
|
|
Total revenues
|
$
|
324,672
|
|
|
$
|
296,367
|
|
|
$
|
494,376
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
Advertising
|
$
|
55,223
|
|
|
$
|
63,820
|
|
|
$
|
68,489
|
|
Interest expense
|
224,499
|
|
|
208,545
|
|
|
200,798
|
|
Compensation and benefits
|
79,750
|
|
|
52,656
|
|
|
41,108
|
|
General and administrative
|
26,870
|
|
|
21,057
|
|
|
18,567
|
|
Professional and consulting
|
14,755
|
|
|
21,486
|
|
|
18,452
|
|
Debt issuance
|
5,117
|
|
|
6,741
|
|
|
8,683
|
|
Securitization debt maintenance
|
5,605
|
|
|
5,912
|
|
|
6,161
|
|
Provision for losses
|
5,958
|
|
|
5,576
|
|
|
4,806
|
|
Direct subservicing costs
|
3,415
|
|
|
948
|
|
|
—
|
|
Depreciation and amortization
|
4,814
|
|
|
4,613
|
|
|
4,168
|
|
Installment obligations expense (income), net
|
6,538
|
|
|
(1,225
|
)
|
|
5,322
|
|
Impairment charges and loss on disposal of assets
|
5,483
|
|
|
121,594
|
|
|
69
|
|
Total expenses
|
$
|
438,027
|
|
|
$
|
511,723
|
|
|
$
|
376,623
|
|
(Loss) income before income taxes
|
(113,355
|
)
|
|
(215,356
|
)
|
|
117,753
|
|
(Benefit) provision for income taxes
|
(15,340
|
)
|
|
(18,216
|
)
|
|
21,140
|
|
Net (loss) income
|
$
|
(98,015
|
)
|
|
$
|
(197,140
|
)
|
|
$
|
96,613
|
|
Less: net (loss) income attributable to non-controlling interests
|
(51,158
|
)
|
|
(101,828
|
)
|
|
65,402
|
|
Net (loss) income attributable to The J.G. Wentworth Company
|
$
|
(46,857
|
)
|
|
$
|
(95,312
|
)
|
|
$
|
31,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Weighted average shares of Class A common stock outstanding:
|
|
|
|
|
|
|
Basic
|
15,649,474
|
|
|
14,690,746
|
|
|
12,986,058
|
|
Diluted
|
15,649,474
|
|
|
14,690,746
|
|
|
12,988,781
|
|
Net (loss) income per share attributable to stockholders of Class A common stock of The J.G. Wentworth Company
|
|
|
|
|
|
|
|
Basic
|
$
|
(2.99
|
)
|
|
$
|
(6.49
|
)
|
|
2.40
|
|
Diluted
|
$
|
(2.99
|
)
|
|
$
|
(6.49
|
)
|
|
2.40
|
|
The accompanying notes are an integral part of these consolidated financial statements.
The J.G. Wentworth Company
Consolidated Statements of Comprehensive (Loss) Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
Net (loss) income
|
$
|
(98,015
|
)
|
|
$
|
(197,140
|
)
|
|
$
|
96,613
|
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
Reclassification adjustment for gain in net income
|
—
|
|
|
—
|
|
|
(2,098
|
)
|
Unrealized gains on notes receivable arising during the year
|
—
|
|
|
—
|
|
|
480
|
|
Total other comprehensive loss
|
—
|
|
|
—
|
|
|
(1,618
|
)
|
Total comprehensive (loss) income
|
(98,015
|
)
|
|
(197,140
|
)
|
|
94,995
|
|
Less: comprehensive (loss) income allocated to non-controlling interests
|
(51,158
|
)
|
|
(101,828
|
)
|
|
64,396
|
|
Comprehensive (loss) income attributable to The J.G. Wentworth Company
|
$
|
(46,857
|
)
|
|
$
|
(95,312
|
)
|
|
$
|
30,599
|
|
The accompanying notes are an integral part of these consolidated financial statements.
The J.G. Wentworth Company
Consolidated Statements of Changes in Stockholders’ (Deficit) Equity
(Dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Other
Comprehensive
Income
|
|
Non-controlling
Interest
|
|
(Accumulated
Deficit)
Retained Earnings
|
|
Additional Paid-In-
Capital
|
|
Treasury Stock
|
|
Common Stock - Class A
|
|
Common Stock - Class B
|
|
Total
Stockholders’
(Deficit)
Equity
|
|
|
|
|
|
|
Shares
|
|
Dollars
|
|
Shares
|
|
Dollars
|
|
Shares
|
|
Dollars
|
|
Balance as of December 31, 2013
|
|
$
|
612
|
|
|
$
|
108,111
|
|
|
$
|
(5,577
|
)
|
|
$
|
70,236
|
|
|
3,929
|
|
|
$
|
—
|
|
|
11,216,429
|
|
|
$
|
—
|
|
|
13,984,065
|
|
|
$
|
—
|
|
|
$
|
173,382
|
|
Net income
|
|
—
|
|
|
65,402
|
|
|
31,211
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
96,613
|
|
Share-based compensation
|
|
—
|
|
|
1,324
|
|
|
—
|
|
|
1,060
|
|
|
—
|
|
|
—
|
|
|
8,796
|
|
|
—
|
|
|
(180,882
|
)
|
|
—
|
|
|
2,384
|
|
Unrealized gains on notes receivable arising during the period
|
|
191
|
|
|
289
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
480
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
(803
|
)
|
|
(1,295
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,098
|
)
|
Net impact of Blocker Merger
|
|
—
|
|
|
(12,215
|
)
|
|
—
|
|
|
1,270
|
|
|
138,121
|
|
|
(518
|
)
|
|
530,355
|
|
|
—
|
|
|
(715,916
|
)
|
|
—
|
|
|
(11,463
|
)
|
Exchange of JGW LLC common interests into Class A common stock
|
|
—
|
|
|
(23,418
|
)
|
|
—
|
|
|
23,418
|
|
|
—
|
|
|
—
|
|
|
3,123,517
|
|
|
—
|
|
|
(3,123,517
|
)
|
|
—
|
|
|
—
|
|
Equity financing costs
|
|
—
|
|
|
(666
|
)
|
|
—
|
|
|
(531
|
)
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,197
|
)
|
Repurchases of Class A common stock
|
|
—
|
|
|
(2,541
|
)
|
|
—
|
|
|
—
|
|
|
458,705
|
|
|
(1,925
|
)
|
|
(458,705
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,466
|
)
|
Balance as of December 31, 2014
|
|
—
|
|
|
134,991
|
|
|
25,634
|
|
|
95,453
|
|
|
600,755
|
|
|
(2,443
|
)
|
|
14,420,392
|
|
|
—
|
|
|
9,963,750
|
|
|
—
|
|
|
253,635
|
|
Net loss
|
|
—
|
|
|
(101,828
|
)
|
|
(95,312
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(197,140
|
)
|
Share-based compensation
|
|
—
|
|
|
638
|
|
|
—
|
|
|
653
|
|
|
—
|
|
|
—
|
|
|
70,348
|
|
|
—
|
|
|
(70,103
|
)
|
|
—
|
|
|
1,291
|
|
Repurchases of Class A common stock
|
|
—
|
|
|
(7,113
|
)
|
|
—
|
|
|
—
|
|
|
1,513,644
|
|
|
(7,358
|
)
|
|
(1,513,644
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(14,471
|
)
|
Equity financing costs
|
|
—
|
|
|
(53
|
)
|
|
—
|
|
|
(59
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(112
|
)
|
Re-issuance of treasury stock in connection with the Home Lending Acquisition
|
|
—
|
|
|
6,380
|
|
|
(1,087
|
)
|
|
—
|
|
|
(1,572,327
|
)
|
|
7,663
|
|
|
1,572,327
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,956
|
|
Exchange of JGW LLC common interests into Class A common stock
|
|
—
|
|
|
(8,666
|
)
|
|
—
|
|
|
8,666
|
|
|
—
|
|
|
—
|
|
|
984,949
|
|
|
—
|
|
|
(984,949
|
)
|
|
—
|
|
|
—
|
|
Balance as of December 31, 2015
|
|
—
|
|
|
24,349
|
|
|
(70,765
|
)
|
|
104,713
|
|
|
542,072
|
|
|
(2,138
|
)
|
|
15,534,372
|
|
|
—
|
|
|
8,908,698
|
|
|
—
|
|
|
56,159
|
|
Net loss
|
|
—
|
|
|
(51,158
|
)
|
|
(46,857
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(98,015
|
)
|
Share-based compensation
|
|
—
|
|
|
659
|
|
|
—
|
|
|
789
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,439
|
)
|
|
—
|
|
|
1,448
|
|
Exchange of JGW LLC common interests into Class A common stock
|
|
—
|
|
|
(321
|
)
|
|
—
|
|
|
321
|
|
|
—
|
|
|
—
|
|
|
196,101
|
|
|
—
|
|
|
(196,101
|
)
|
|
—
|
|
|
—
|
|
Balance as of December 31, 2016
|
|
$
|
—
|
|
|
$
|
(26,471
|
)
|
|
$
|
(117,622
|
)
|
|
$
|
105,823
|
|
|
542,072
|
|
|
$
|
(2,138
|
)
|
|
15,730,473
|
|
|
$
|
—
|
|
|
8,710,158
|
|
|
$
|
—
|
|
|
$
|
(40,408
|
)
|
The accompanying notes are an integral part of these consolidated financial statements.
The J.G. Wentworth Company
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net (loss) income
|
$
|
(98,015
|
)
|
|
$
|
(197,140
|
)
|
|
$
|
96,613
|
|
Adjustments to reconcile net (loss) income to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Provision for losses
|
5,958
|
|
|
5,576
|
|
|
4,806
|
|
Depreciation
|
2,736
|
|
|
2,365
|
|
|
1,676
|
|
Impairment charges and loss on disposal of fixed assets
|
5,483
|
|
|
121,594
|
|
|
69
|
|
Changes in mortgage servicing rights, net
|
(12,410
|
)
|
|
(1,649
|
)
|
|
—
|
|
Amortization of finance receivables acquisition costs
|
53
|
|
|
622
|
|
|
518
|
|
Amortization of intangibles
|
2,078
|
|
|
2,248
|
|
|
2,492
|
|
Amortization of debt issuance costs
|
12,955
|
|
|
7,949
|
|
|
7,901
|
|
Proceeds from sale of and principal payments on mortgage loans held for sale
|
3,408,065
|
|
|
872,526
|
|
|
—
|
|
Originations and purchases of mortgage loans held for sale
|
(3,441,939
|
)
|
|
(847,917
|
)
|
|
—
|
|
Change in realized and unrealized gains/losses on finance receivables
|
(33,698
|
)
|
|
164,311
|
|
|
(551,676
|
)
|
Change in unrealized gains/losses on long-term debt
|
97,829
|
|
|
(229,635
|
)
|
|
245,355
|
|
Change in unrealized gains/losses on derivatives
|
(16,297
|
)
|
|
(9,346
|
)
|
|
5,619
|
|
Net proceeds from sale of finance receivables
|
271,331
|
|
|
21,949
|
|
|
—
|
|
Gain on notes receivable, at fair value
|
—
|
|
|
—
|
|
|
(2,098
|
)
|
Realized and unrealized gains on sale of mortgage loans held for sale, net of direct costs
|
(75,102
|
)
|
|
(18,590
|
)
|
|
—
|
|
Purchases of finance receivables
|
(273,298
|
)
|
|
(395,986
|
)
|
|
(450,106
|
)
|
Collections on finance receivables
|
531,741
|
|
|
554,464
|
|
|
527,487
|
|
Gain on sale of finance receivables
|
(69,598
|
)
|
|
(4,950
|
)
|
|
—
|
|
Recoveries of finance receivables
|
147
|
|
|
1
|
|
|
69
|
|
Accretion of interest income
|
(187,498
|
)
|
|
(189,736
|
)
|
|
(186,861
|
)
|
Accretion of interest expense
|
(25,942
|
)
|
|
(40,074
|
)
|
|
(35,924
|
)
|
Gain on extinguishment of debt
|
—
|
|
|
(593
|
)
|
|
(270
|
)
|
Share-based compensation expense
|
1,448
|
|
|
1,291
|
|
|
2,384
|
|
Change in marketable securities
|
(4,083
|
)
|
|
4,641
|
|
|
(888
|
)
|
Installment obligations expense (income), net
|
6,538
|
|
|
(1,225
|
)
|
|
5,322
|
|
Deferred income taxes, net
|
(15,566
|
)
|
|
(17,911
|
)
|
|
21,023
|
|
(Increase) decrease in operating assets:
|
|
|
|
|
|
|
|
|
Restricted cash and investments
|
(58,808
|
)
|
|
66,182
|
|
|
(88,868
|
)
|
Other assets
|
(2,947
|
)
|
|
919
|
|
|
219
|
|
Other receivables
|
(1,498
|
)
|
|
1,683
|
|
|
(793
|
)
|
(Decrease) increase in operating liabilities:
|
|
|
|
|
|
|
|
|
Accrued expenses and accounts payable
|
7,838
|
|
|
(1,021
|
)
|
|
(5,828
|
)
|
Accrued interest
|
5,743
|
|
|
4,658
|
|
|
2,931
|
|
Other liabilities
|
(718
|
)
|
|
(2,902
|
)
|
|
(969
|
)
|
Net cash provided by (used in) operating activities
|
$
|
42,526
|
|
|
$
|
(125,696
|
)
|
|
$
|
(399,797
|
)
|
The accompanying notes are an integral part of these consolidated financial statements.
The J.G. Wentworth Company
Consolidated Statements of Cash Flows (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of Home Lending, net of cash acquired
|
$
|
(7,630
|
)
|
|
$
|
(47,408
|
)
|
|
$
|
—
|
|
Receipts from notes receivable
|
—
|
|
|
—
|
|
|
6,093
|
|
Purchases of intangible assets
|
—
|
|
|
—
|
|
|
(50
|
)
|
Purchases of premises and equipment, net of sales proceeds
|
(1,067
|
)
|
|
(3,092
|
)
|
|
(2,391
|
)
|
Cash received in connection with the Blocker Merger
|
—
|
|
|
—
|
|
|
2,136
|
|
Net cash (used in) provided by investing activities
|
$
|
(8,697
|
)
|
|
$
|
(50,500
|
)
|
|
$
|
5,788
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Payments of equity financing costs
|
$
|
—
|
|
|
$
|
(112
|
)
|
|
$
|
(1,197
|
)
|
Purchases of treasury stock
|
—
|
|
|
(14,471
|
)
|
|
(4,466
|
)
|
Issuance of VIE long-term debt
|
337,667
|
|
|
514,699
|
|
|
795,436
|
|
Payments for debt issuance costs
|
(1,150
|
)
|
|
(742
|
)
|
|
(2,438
|
)
|
Payments on capital lease obligations
|
(50
|
)
|
|
(4
|
)
|
|
—
|
|
Repayments of long-term debt and derivatives
|
(464,282
|
)
|
|
(330,745
|
)
|
|
(368,804
|
)
|
Gross proceeds from revolving credit facilities
|
3,668,185
|
|
|
1,140,012
|
|
|
270,294
|
|
Repayments of revolving credit facilities
|
(3,551,355
|
)
|
|
(1,116,767
|
)
|
|
(292,229
|
)
|
Issuance of installment obligations payable
|
3,471
|
|
|
1,419
|
|
|
100
|
|
Purchase of marketable securities
|
(3,471
|
)
|
|
(1,419
|
)
|
|
(100
|
)
|
Repayments of installment obligations payable
|
(18,316
|
)
|
|
(18,620
|
)
|
|
(23,957
|
)
|
Proceeds from sale of marketable securities
|
18,316
|
|
|
18,620
|
|
|
23,957
|
|
Net cash (used in) provided by financing activities
|
$
|
(10,985
|
)
|
|
$
|
191,870
|
|
|
$
|
396,596
|
|
Net increase in cash
|
22,844
|
|
|
15,674
|
|
|
2,587
|
|
Cash and cash equivalents at beginning of year
|
57,322
|
|
|
41,648
|
|
|
39,061
|
|
Cash and cash equivalents at end of year
|
$
|
80,166
|
|
|
$
|
57,322
|
|
|
$
|
41,648
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
$
|
224,086
|
|
|
$
|
236,075
|
|
|
$
|
225,803
|
|
Cash paid for income taxes
|
$
|
96
|
|
|
$
|
128
|
|
|
$
|
4
|
|
Supplemental disclosure of noncash items:
|
|
|
|
|
|
|
|
|
Retained mortgage servicing rights in connection with sale of mortgage loans
|
$
|
17,294
|
|
|
$
|
3,752
|
|
|
$
|
—
|
|
Mortgage loans subject to repurchase rights from Ginnie Mae
|
$
|
(6,130
|
)
|
|
$
|
23,121
|
|
|
$
|
—
|
|
Exchange of LLC Common Interests for shares of Class A common stock
|
$
|
321
|
|
|
$
|
8,666
|
|
|
$
|
23,418
|
|
Re-issuance of Treasury stock in connection with acquisition
|
$
|
—
|
|
|
$
|
12,956
|
|
|
$
|
—
|
|
Amount due to sellers in connection with acquisition
|
$
|
—
|
|
|
$
|
8,443
|
|
|
$
|
—
|
|
Net deferred tax liability assumed in connection with the Blocker Merger
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13,599
|
|
Capital lease obligation assumed
|
$
|
—
|
|
|
$
|
281
|
|
|
$
|
—
|
|
The accompanying notes are an integral part of these consolidated financial statements.
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
1. Background and Basis of Presentation
Organization and Description of Business Activities
The J.G. Wentworth Company (the "Corporation") is a Delaware holding company that was incorporated on June 21, 2013. The Corporation operates through its managing membership in The J.G. Wentworth Company, LLC ("JGW LLC"), the Corporation's sole operating asset. JGW LLC is a controlled and consolidated subsidiary of the Corporation whose sole asset is its membership interest in J.G. Wentworth, LLC. The "Company" refers collectively to the Corporation and, unless otherwise stated, all of its subsidiaries. The Company, operating through its subsidiaries and affiliates, has its principal offices in Radnor, Pennsylvania and Woodbridge, Virginia.
The Company is focused on providing direct-to-consumer access to financing solutions through a variety of avenues, including: mortgage lending, structured settlement, annuity and lottery payment purchasing, prepaid cards, and access to providers of personal loans. Our direct-to-consumer businesses use digital channels, television, direct mail, and other channels to offer access to financing solutions. The Company warehouses, securitizes, sells or otherwise finances the financial assets that they purchase in transactions that are structured to ultimately generate cash proceeds to us that exceed the purchase price paid for those assets.
The Company has identified the following
two
reportable segments in accordance with Accounting Standards Codification ("ASC") 280,
Segment Reporting
("ASC 280"):
(i) Structured Settlement Payments ("Structured Settlements") - Structured Settlements provides liquidity to individuals with financial assets such as structured settlements, annuities, and lottery winnings by either purchasing these financial assets for a lump-sum payment, issuing installment obligations payable over time, or serving as a broker to other purchasers of those financial assets. The Company engages in warehousing and subsequent resale or securitization of these various financial assets. Structured Settlements also includes corporate activities, payment solutions, pre-settlements and providing (i) access to providers of personal lending and (ii) access to providers of funding for pre-settled legal claims.
(ii) Home Lending ("Home Lending") - Home Lending is primarily engaged in retail mortgage lending, originating primarily Federal Housing Administration ("FHA"), U.S. Department of Veterans Affairs ("VA") and conventional mortgage loans and is approved as a Title II, non-supervised direct endorsement mortgagee with the U.S. Department of Housing and Urban Development ("HUD"). In addition, Home Lending is an approved issuer with the Government National Mortgage Association ("Ginnie Mae"), Federal Home Loan Mortgage Corporation ("Freddie Mac"), and U.S. Department of Agriculture ("USDA"), as well as an approved seller and servicer with the Federal National Mortgage Association ("Fannie Mae").
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). In the opinion of management, the consolidated financial statements reflect all adjustments which are necessary for a fair presentation of financial position, results of operations, and cash flows for the periods presented. All such adjustments are of a normal and recurring nature.
The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the amounts of revenues and expenses during the reporting periods. The most significant balance sheet accounts that could be affected by such estimates are variable interest entity ("VIE") finance receivables, at fair value; other finance receivables, at fair value; mortgage loans held for sale, at fair value; mortgage servicing rights, at fair value; intangible assets, net of accumulated amortization; goodwill; VIE derivative liabilities, at fair value; and VIE long-term debt issued by securitization and permanent financing trusts, at fair value. Actual results could differ from those estimates and such differences could be material.
The accompanying consolidated financial statements include the accounts of the Corporation, its wholly-owned subsidiaries, other entities in which the Company has a controlling financial interest and those entities that are considered VIEs where the Company has been determined to be the primary beneficiary in accordance with ASC 810,
Consolidation
("ASC 810").
JGW LLC meets the definition of a VIE under ASC 810. Further, the Corporation is the primary beneficiary of JGW LLC as a result of its control over JGW LLC. As the primary beneficiary of JGW LLC, the Corporation consolidates the financial results of JGW LLC and records a non-controlling interest for the economic interest in JGW LLC not owned by the Corporation. The Corporation's and the non-controlling interests' economic interest in JGW LLC was
54.6%
and
45.4%
, respectively, as of
December 31, 2016
. The Corporation's and the non-controlling interests' economic interest in JGW LLC was
53.9%
and
46.1%
, respectively, as of
December 31, 2015
.
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
Net (loss) income attributable to the non-controlling interests in the Company's consolidated statements of operations represents the portion of (loss) earnings attributable to the economic interest in JGW LLC held by entities and individuals other than the Corporation. The allocation of net (loss) income attributable to the non-controlling interests is based on the weighted average percentage of JGW LLC owned by the non-controlling interests during the reporting period. The non-controlling interests' weighted average economic interests in JGW LLC for the years ended
December 31, 2016
,
2015
and
2014
was
45.5%
,
48.3%
and
55.7%
, respectively.
The net (loss) income attributable to The J.G. Wentworth Company in the consolidated statements of operations for the years ended
December 31, 2016
,
2015
and
2014
does not necessarily reflect the Corporation's weighted average economic interests in JGW LLC for the respective periods because the majority of the (benefit) provision for income taxes was specifically attributable to the legal entity The J.G. Wentworth Company, and thus was not allocated to the non-controlling interests. For the year ended
December 31, 2016
,
$14.5 million
of the
$15.3 million
total tax benefit was specifically attributable to The J.G. Wentworth Company. For the year ended
December 31, 2015
,
$19.0 million
of the
$18.2 million
total tax benefit was specifically attributable to The J.G. Wentworth Company. For the year ended
December 31, 2014
,
$20.0 million
of the
$21.1 million
total tax provision was specifically attributable to The J.G. Wentworth Company. Refer to Note 21 for a description of the Company's income taxes.
Non-controlling interests on the Company's consolidated balance sheets represent the portion of (deficit) equity attributable to the non-controlling interests of JGW LLC. The allocation of (deficit) equity to the non-controlling interests in JGW LLC is based on the percentage owned by the non-controlling interests in the entity.
All material inter-company balances and transactions are eliminated in consolidation. Refer to Note 3 for a summary of significant accounting policies. Certain prior-period amounts have been reclassified to conform to current-period presentation.
2. Business Changes and Developments
JLL Blocker Merger
On October 7, 2014, the Company executed a merger ("the Blocker Merger") pursuant to which a subsidiary of the Company merged with and into JGW Holdings, Inc., a wholly-owned subsidiary of JLL Fund V AIF II, L.P. ("JLL"), a related party, with JGW Holdings, Inc. surviving the merger and becoming a wholly-owned subsidiary of the Corporation. In connection with the merger, JLL received
715,916
shares of Class A common stock, par value
$0.00001
per share (the "Class A common stock"), and subsequently transferred to the Company
715,916
shares of "vote-only" Class B common stock, par value
$0.00001
per share (the "Class B common stock"), and an equal number of common membership interests in JGW LLC (the "Common Interests", and the holders of such Common Interests, the "Common Interestholders"). The Company also received from JLL
$2.1 million
in cash and
185,561
shares of Class A common stock,
47,440
of which were cancelled by the Company, in consideration for the assumption of approximately
$13.6 million
of JGW Holdings, Inc.'s contingent future tax obligation the parties agreed had a present value of approximately
$4.4 million
. The Company accounted for the Blocker Merger as a common control transaction and recorded the assets and liabilities received at their carrying values within the accounts of JLL as of the date of the merger.
Home Lending Acquisition
On July 31, 2015, the Company acquired all of the issued and outstanding capital stock of WestStar Mortgage Inc. ("WestStar"), a company primarily engaged in originating, selling and servicing residential mortgage loans, for a purchase price of
$74.6 million
. Immediately following the acquisition date, WestStar began to operate as the newly-branded subsidiary J.G. Wentworth Home Lending, Inc. In 2016, J.G. Wentworth Home Lending, Inc. converted to a limited liability company and now operates as J.G. Wentworth Home Lending, LLC.
Refer to Note 4 for a discussion of the Company's accounting for its acquisition of Home Lending in accordance with ASC 805,
Business Combinations
("ASC 805").
3. Summary of Significant Accounting Policies and Recently Adopted Accounting Pronouncements
Summary of Significant Accounting Policies
Business Combinations
The Company records the identifiable assets acquired, the liabilities assumed, and any non-controlling interests of companies that are acquired at their estimated fair value as of the date of acquisition, and includes the results of operations from the date of the acquisition in the consolidated statement of operations. The Company recognizes, as goodwill, the excess of the acquisition price over the estimated fair value of the net assets acquired.
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
Fair Value Measurements
Under ASC 820,
Fair Value Measurements and Disclosure
("ASC 820"), fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the orderly transaction between market participants at the measurement date. Fair value measurement establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value. These three levels of fair value hierarchy are defined as follows:
|
|
•
|
Level 1 - inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that are accessible at the measurement date.
|
|
|
•
|
Level 2 - inputs to the valuation methodology include quoted prices in markets that are not active or quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
|
|
•
|
Level 3 - inputs to the valuation methodology are unobservable, reflecting the entity's own assumptions about assumptions market participants would use in pricing the asset or liability.
|
A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Fair value is a market based measure considered from the perspective of a market participant who holds the assets or owes the liabilities rather than an entity specific measure. Therefore, even when market assumptions are not readily available, the Company's own assumptions are set to reflect those that market participants would use in pricing the assets or liabilities at the measurement date. The Company uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The Company also evaluates various factors to determine whether certain transactions are orderly and may make adjustments to transactions or quoted prices when the volume and level of activity for an asset or liability have decreased significantly.
The above conditions could cause certain assets and liabilities to be reclassified from Level 1 to Level 2 or Level 3 or reclassified from Level 2 to Level 3. The inputs or methodology used for valuing the assets or liabilities are not necessarily an indication of the risk associated with the assets and liabilities.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when the following conditions have been satisfied: (1) the transferred assets have been isolated from the Company, beyond the reach of the Company and its creditors; (2) the transferee obtains the right to pledge or exchange the transferred assets; and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets or through an agreement that permits the transferee to require the transferor to repurchase the transferred financial assets that is so favorable to the transferee that it is probable that the transferee will require the transferor to repurchase them. Transfers that do not meet the criteria to be accounted for as sales are accounted for as secured borrowings.
The amendments to ASC 860,
Transfers and Servicing
("ASC 860"), eliminated the concept of a qualified special purpose entity, changed the requirements for derecognizing financial assets, and required additional disclosures about transfers of financial assets, including securitization transactions and continuing involvement with transferred financial assets.
Cash and Cash Equivalents
The Company considers all cash accounts, which are not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments purchased with an initial maturity of three months or less to be cash equivalents.
Restricted Cash and Investments
Restricted cash balances represent the use of trust or escrow accounts to secure the cash assets managed by the Company, certificates of deposit supporting letters of credit and warehouse lines of credit, customer purchase holdbacks, collateral collections and split payment collections, cash held in association with securitizations pending delivery of the second pool of assets and collateral for broker dealer margin calls. The Structured Settlements segment acts as the master servicer and/or the subservicer for structured settlements and annuities, lottery winnings and pre-settlements. The Home Lending segment acts as master servicer for its mortgage loan servicing portfolio. Trust accounts are established for collections with payments being made from the restricted cash accounts to the lenders and other appropriate parties on a monthly basis in accordance with the applicable loan agreements or indentures. At certain times, the Company has cash balances in excess of FDIC insurance limits of
$250,000
for interest-bearing accounts, which potentially subject the Company to market and credit risks. The Company has not experienced any losses to date as a result of these risks.
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
Restricted investments in the amounts of
$4.6 million
and
$3.2 million
as of December 31,
2016
and
2015
, respectively, include certificates of deposit which are pledged to meet certain state requirements in order to conduct business in certain states. The certificates of deposit are carried at face value inclusive of interest, which approximates fair value as such instruments are renewed annually.
Consolidation
The consolidated financial statements include the accounts of The J.G. Wentworth Company, its wholly-owned subsidiaries, and other entities in which the Company has a controlling financial interest, and those variable interest entities where the Company's wholly-owned subsidiaries are the primary beneficiaries. All material intercompany balances and transactions are eliminated in consolidation.
In the normal course of business, the Company is involved with various entities that are considered to be VIEs. A VIE is an entity that has either a total investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support or whose equity investors lack the characteristics of a controlling financial interest under the voting interest model of consolidation. The Company is required to consolidate any VIE for which it is determined to be the primary beneficiary. The primary beneficiary is the entity that has the power to direct those activities of the VIE that most significantly impact the VIE's economic performance and has the obligation to absorb losses from or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company reviews all significant interests in the VIEs it is involved with including consideration of the activities of the VIEs that most significantly impact the VIEs' economic performance and whether the Company has control over those activities. As a result of adopting ASC 810,
the Company determined it was the primary beneficiary of the VIEs used to securitize its finance receivables ("VIE finance receivables"). The Company elected the fair value option with respect to assets and liabilities in its securitization VIEs as part of their initial consolidation on January 1, 2010.
On an ongoing basis, the Company assesses whether or not it is the primary beneficiary of a VIE or whether the Company has acquired or divested the power to direct the activities of the VIE through changes in governing documents or other circumstances. The reassessment also considers whether the Company has acquired or disposed of a financial interest that could be significant to the VIE. As a result of this assessment, the consolidation status of the legal entities with which the Company is involved may change.
The debt issued by the Company's securitization VIEs is reported on the Company's consolidated balance sheets as VIE long-term debt issued by securitization and permanent financing trusts, at fair value ("VIE securitization debt"). The VIE securitization debt is recourse solely to the VIE finance receivables held by such SPEs and is non-recourse to the Company and its other consolidated subsidiaries. The VIEs will continue in operation until all securitization debt is paid and all residual cash flows are collected. As a result of the long lives of many finance receivables purchased and securitized by the Company, most consolidated VIEs have expected lives in excess of
20
years.
The Company acquires receivables associated with structured settlement payments from individuals in exchange for cash, and these receivables are carried at fair value in VIE finance receivables, at fair value, and Other finance receivables, at fair value, on the Company's consolidated balance sheets. Unearned income is calculated as the amount the fair value exceeds the cost basis of the receivables. Unearned income on VIE and other finance receivables is recognized as interest income using the effective interest method over the life of the related structured settlement. Changes in fair value are recorded in realized and unrealized gains on VIE and other finance receivables, long-term debt and derivatives in the Company's consolidated statements of operations.
The Company, through its subsidiaries, sells finance receivables to SPEs. An SPE issues notes secured by undivided interests in the receivables. Payments due on these notes generally correspond to receipts from the receivables in terms of the timing of payments due. The Company retains an interest in the SPEs and is deemed to have control over these SPEs due to the Company's servicing or subservicing role and therefore consolidates these SPEs.
Allowance for Losses on Receivables
The Company maintains an allowance for losses on receivables which represents management's estimate for losses inherent in the portfolio. The Company determines the adequacy of its allowance based upon an evaluation of the finance receivables' collateral, the financial strength of the related insurance company that issued the structured settlement, current economic conditions, historical loss experience, known and inherent risks in the portfolios and other relevant factors. Defaulted payment balances that are deemed uncollectible are charged against the allowance for losses on receivables, and subsequent recoveries, if any, are credited to the allowance.
On an ongoing basis, the Company reviews the ability to collect all amounts owed on VIE and other finance receivables carried at amortized cost.
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
Mortgage Loans Held for Sale, at Fair Value
Mortgage loans held for sale are carried at fair value with changes in the fair value recognized in current period earnings and included within realized and unrealized gains on sale of mortgage loans held for sale, net of direct costs in the consolidated statements of operations. At the date of funding of the mortgage loan held for sale, the funded amount of the loan plus the related derivative asset or liability of the associated interest rate lock commitment ("IRLC") becomes the initial recorded investment in the mortgage loan held for sale. Such amount is expected to approximate the fair value of the loan.
The fair value of mortgage loans held for sale is calculated using observable market information including pricing from actual market transactions, investor commitment prices, or broker quotations.
Gains and losses from the sale of mortgages are recognized in earnings based upon the difference between the sales proceeds and carrying value of the related loans upon sale. Origination fees and costs are recognized in earnings at the time of funding. Gains and losses from the sale of mortgages and origination fees and costs are recorded in realized and unrealized gains on sale of mortgage loans held for sale, net of direct costs in the Company's consolidated statements of operations.
Mortgage Servicing Rights, at Fair Value
Mortgage servicing rights ("MSRs") are contractual arrangements where the rights to service existing mortgages are either retained by the original lender or sold to other parties who specialize in the various functions of servicing mortgages. MSRs are initially recorded at fair value at the time the underlying loans are sold. The Company records the changes in fair value in changes in mortgage servicing rights, net, in the Company's consolidated statements of operations. To determine the fair value of the MSRs, the Company uses a discounted cash flow approach incorporating assumptions that management believes market participants would use in estimating future net servicing income, including estimates of the contractual service fees, ancillary income and late fees, the cost of servicing, the discount rate, float earning value, inflation rate, prepayment speeds and default rates. The Company elected to subsequently measure its existing MSRs portfolio using the fair value method, in which MSRs are measured at fair value each reporting period and changes in fair value are recorded in earnings in the period in which changes in value occur. Changes in the fair value of MSRs are included in the changes in mortgage servicing rights, net, in the consolidated statements of operations.
Premises and equipment
Premises and equipment are stated at cost, net of accumulated depreciation or amortization and are comprised primarily of computer equipment, office furniture and software licensed from third parties. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the individual assets. For leasehold improvements, amortization is computed over the lesser of the estimated useful lives of the improvements or the lease term. The estimated useful lives of the assets range from
3
to
10
years.
Intangible Assets
The Company has both finite lived and indefinite lived intangible assets, which are accounted for under ASC 350,
Intangibles - Goodwill and Other
("ASC 350"). Indefinite-lived intangible assets are tested for impairment whenever events or changes in circumstances suggest that an asset's carrying value may not be fully recoverable, and are tested at least annually. An impairment loss, if any, calculated as the difference between the estimated fair value and the carrying value of an asset, is recognized if the sum of the estimated undiscounted cash flows relating to the asset is less than the corresponding carrying value. The Company's indefinite-lived intangible assets consist of licenses and approvals.
Finite-lived intangible assets consist primarily of databases, customer relationships, trade names and affinity relationships. The Company's databases are amortized over their estimated useful lives of
10 years
. Customer relationships are amortized over their estimated useful lives of
3 years
to
15 years
. Amortizable trade names are amortized over their useful life of
3 years
. Affinity relationships are amortized over their estimated useful life of
10 years
.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in a business combination, and is accounted for under ASC 350. Goodwill has an indefinite useful life and is evaluated for impairment at the reporting-unit level on an annual basis during the fourth quarter or more frequently if events or changes in circumstances indicate potential impairment between annual measurement dates. The Company has the option of performing a qualitative assessment of impairment to determine whether any further quantitative testing for impairment is necessary. The initial qualitative approach assesses whether the existence of events or circumstances lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, the Company determines it is more likely than not that the fair value is less than carrying value, a two step quantitative impairment test is performed. A step 1 analysis
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
involves calculating the fair value of the associated reporting unit and comparing it to the reporting unit's carrying value. If the fair value of the reporting unit exceeds the carrying value of the reporting unit including goodwill and the carrying value of the reporting unit is positive, goodwill is considered not to be impaired and no further analysis is required. If the fair value of the reporting unit is less than its carrying value, step 2 of the impairment test must be performed. Step 2 involves calculating and comparing the implied fair value of the reporting unit's goodwill with its carrying value. Impairment is recognized if the estimated fair value of the reporting unit is less than its net book value. Such loss is calculated as the difference between the estimated implied fair value of goodwill and its carrying amount.
Marketable Securities
Assets acquired through the Company's installment sale transaction structure are invested in a diverse portfolio of marketable debt and equity securities. Marketable securities are considered trading securities and are carried using the fair value method in accordance with ASC 820 with realized and unrealized gains and losses included in realized and unrealized gains (losses) on marketable securities, net, in the Company's consolidated statements of operations and classified as Level 1 or Level 2 assets in the valuation hierarchy of fair value measurements. Marketable securities are held for resale in anticipation of fluctuations in market prices. Marketable securities are recorded in marketable securities, at fair value, on the Company's consolidated balance sheets.
Interest on debt securities is recognized in interest income as earned and dividend income on marketable equity securities is recognized in interest income on the ex-dividend date in the Company's consolidated statements of operations. For the years ended
December 31, 2016
,
2015
and
2014
, the Company earned
$2.5 million
,
$3.4 million
and
$4.4 million
, respectively, related to interest and dividends on marketable securities.
Derivative Instruments and Hedging Activities
The Company holds derivative instruments that do not qualify for hedge accounting treatment as defined by ASC 815,
Derivatives and Hedging
("ASC 815"). The objective for holding these instruments is to economically offset variability in forecasted cash flows associated with interest rate fluctuations.
Interest rate swaps are recorded at fair value in VIE derivative liabilities, at fair value, on the Company's consolidated balance sheets with changes in fair value recorded in realized and unrealized gains on VIE and other finance receivables, long-term debt and derivatives in the Company's consolidated statements of operations.
The Company also enters into commitments to originate and purchase mortgage loans at interest rates that are determined prior to the funding or purchase of the loan. IRLCs are considered freestanding derivatives and are recorded at fair value at inception. Changes in fair value subsequent to inception are based on the change in fair value of the underlying loan and changes in the probability that the loan will fund within the terms of the commitment.
The Company uses derivative financial instruments, primarily forward sales commitments, to manage exposure to interest rate risk and changes in the fair value of IRLCs and mortgage loans held for sale. The Company may also enter into commitments to sell MBS as part of its overall hedging strategy. The Company has elected not to apply hedge accounting to these freestanding derivatives. The fair value of freestanding derivatives is recorded in other assets or other liabilities on the Company's consolidated balance sheets with changes in fair value included in realized and unrealized gains on sale of mortgage loans held for sale, net of direct costs, in the consolidated statements of operations.
Notes Receivable, at Fair Value
Notes receivable represented fixed rate obligations of a third party collateralized by retained interests from certain securitizations sponsored by the Company. Under the agreements, the obligor had the right to redeem the notes at fair value. The notes receivable were treated as debt securities, classified as available-for-sale, and carried at fair value in accordance with ASC 320,
Investments – Debt and Equity Securities
. Unrealized gains and losses on notes receivable arising during the year were reflected within accumulated other comprehensive (loss) gain in the Company's consolidated statements of comprehensive (loss) income and consolidated statements of changes in stockholders' equity. The notes receivable were fully repaid in June of 2014.
The notes receivable were analyzed on an annual basis for other than temporary impairment.
No
impairment expense was recognized during the year ended December 31, 2014.
Loans Eligible for Repurchase from Ginnie Mae
For certain loans that the Company securitized with Ginnie Mae, the Company has the unilateral right to repurchase any individual loan if that loan meets certain criteria, including being delinquent greater than
90
days or in default. As a result of this unilateral right, the Company must recognize the delinquent loans on its consolidated balance sheets and establish a corresponding
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
liability regardless of the Company's intention to repurchase the loan. The amount of loans eligible for repurchase from Ginnie Mae and the liability for loans eligible for repurchase from Ginnie Mae are included in other assets and other liabilities, respectively, on the Company's consolidated balance sheets.
Income Taxes
JGW LLC and the majority of its subsidiaries operate in the U.S. as non-tax paying entities, and are treated as disregarded entities for U.S. federal and state income tax purposes and generally as corporate entities in non-U.S. jurisdictions. In addition, certain of JGW LLC's wholly-owned subsidiaries are operating as corporations within the U.S. and subject to U.S. federal and state tax. As non-tax paying entities, the majority of JGW LLC's net income or loss is attributable to its members and included in their tax returns. The current and deferred income tax provision (benefit) relates to both the income (loss) attributable to the Corporation from JGW LLC and to the tax-paying subsidiaries of JGW LLC.
Income taxes are accounted for using the liability method of accounting in accordance with ASC 740,
Income Taxes
. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of the differences between the carrying amounts of assets and liabilities and their respective tax basis, using currently enacted tax rates. The effect on deferred assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The Company analyzes its tax filing positions in all of the U.S. federal, state and local tax jurisdictions where it is required to file income tax returns, as well as for all open tax years in these jurisdictions. If, based on this analysis, the Company determines that uncertainties in tax positions exist, a reserve will be established. The Company will recognize accrued interest and penalties related to uncertain tax positions in the Company's consolidated statements of operations.
Tax laws are complex and subject to different interpretations by the taxpayer and respective taxing authorities. Significant judgment is required in determining tax expense and evaluating tax positions, including evaluating uncertainties under U.S. GAAP. Management reviews its tax positions periodically and adjusts its tax balances as new information becomes available.
Segment Reporting
The Company reports operating segments in accordance with ASC 280. Operating segments are components of an entity for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess performance. ASC 280 requires that a public entity report a measure of segment profit or loss, certain specific revenue and expense items, segment assets, and information on the way that the Company identified its operating segments. The Company's business segments are determined based on products and services offered, as well as the nature of the related business activities, and they reflect the manner in which financial information is currently evaluated by management. The Company has identified the following
two
reportable segments: (i) Structured Settlements and (ii) Home Lending. The Company's Structured Settlements segment also includes corporate activities, payment solutions, pre-settlements and providing (i) access to providers of personal lending and (ii) access to providers of funding for pre-settled legal claims.
Interest Income
Interest income on mortgage loans held for sale is accrued and is based upon the principal amount outstanding and contractual interest rates. Income recognition is discontinued when loans become
90
days delinquent or when, in management's opinion, the collectability of principal and interest becomes doubtful and the mortgage loans held for sale are put on a non-accrual basis. When the loan is placed on non-accrual status, the related interest receivable is reversed against interest income of the current period. If a non-accrual loan is returned to accrual status, the accrued interest existing at the date the residential loan is placed on non-accrual status and interest during the non-accrual period are recorded as interest income as of the date the loan no longer meets the non-accrual criteria.
For finance receivables, the Company suspends recognizing interest income when it is probable that the Company will be unable to collect all payments according to the contractual terms of the underlying agreements. Management considers all information available in assessing collectability. Collectability is measured on a receivable-by-receivable basis by either the present value of estimated future cash flows discounted at the effective rate, the observable market price for the receivable or the fair value of the collateral if the receivable is collateral dependent. Large groups of smaller balance homogeneous receivables, such as pre-settlement funding transactions, are collectively assessed for collectability. A receivable is charged off when in our judgment, the receivable or portion of the receivable is considered uncollectible.
Payments received on past due receivables and finance receivables the Company has suspended recognizing interest income on are applied first to principal and then to accrued interest. Additionally, the Company generally does not resume recognition
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
of interest income once it has been suspended.
Loan Servicing Fees
Loan servicing fees associated with mortgage loan operations represent revenue earned for servicing loans for various investors and are included in servicing, broker, and other fees in the consolidated statements of operations. The loan servicing fees are based on a contractual percentage of the outstanding principal balance and are recognized into income when earned. Loan servicing expenses are charged to operations as incurred, and included in direct subservicing costs in the Company's consolidated statements of operations.
Share-Based Compensation
The Company applies ASC 718,
Compensation - Stock Compensation
("ASC 718"), which requires that the compensation cost relating to share-based payment transactions, based on the fair value of the equity or liability instruments issued, be included in the Company's consolidated statements of operations. The Company has determined that these share-based payment transactions represent equity awards under ASC 718 and therefore measures the cost of employee services received in exchange for share-based compensation on the grant-date fair value of the award, and recognizes the cost over the period the employee is required to provide services for the award. For all grants or modifications of stock options, the fair value at the grant date is calculated using option pricing models based on the value of the entity's shares at the award or modification date. Compensation expense for performance-based restricted stock units is recognized ratably from the date of the grant until the date the restrictions lapse and is based on the trading price of the Class A common stock on the date of grant or modification and the probability of achievement of the specific performance-based goals.
In 2016, the Company modified the terms of stock options granted to its employees and may do so again in the future. The Company accounts for the incremental increase in the fair value over the original award on the date of the modification as an expense for vested awards and over the remaining service (vesting) period for unvested awards. The incremental compensation cost is the excess of the fair value of the modified award on the date of modification over the fair value of the original award immediately before the modification.
Share-based compensation expense is included in compensation and benefits expense in the Company's consolidated statements of operations.
Debt Issuance Costs
Debt issuance costs related to liabilities for which the Company has elected the fair value option are expensed when incurred. Debt issuance costs related to liabilities for which the Company has not elected the fair value option are capitalized and amortized over the expected term of the borrowing or debt issuance. With the adoption of Accounting Standards Update ("ASU") No. 2015-03,
Simplifying the Presentation of Debt Issuance Costs
("ASU 2015-03") and ASU No. 2015-15,
Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements
("ASU 2015-15"), capitalized amounts are netted against the related debt facility on the Company's consolidated balance sheets and amortization of such costs is included in interest expense in the Company's consolidated statements of operations over the life of the debt facility.
Advertising Expenses
Advertising costs are expensed as incurred. The costs are included in advertising expense in the Company's consolidated statements of operations.
Recently Adopted Accounting Pronouncements
Effective in the fourth quarter of fiscal 2016, the Company adopted ASU No. 2014-13,
Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity,
which allows for the entity to measure both the financial assets and the financial liabilities of its collateralized financing entities in its consolidated financial statements using the more observable fair value of either the financial assets or financial liabilities, or under ASC 820. The adoption of this ASU did not have a material impact on the Company's results of operations, cash flows or financial position.
Effective in the fourth quarter of fiscal 2016, the Company adopted ASU No. 2014-15,
Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern,
which requires management to assess an entity's ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. The Company performed the required assessment. The adoption of this ASU did not have a material impact on the Company's results of operations, cash flows, financial position or disclosures.
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
Effective in the fourth quarter of fiscal 2016, the Company adopted ASU 2015-03 and ASU 2015-15. ASU 2015-03 requires an entity to recognize debt issuance costs related to a recognized debt liability on the balance sheet as a direct deduction from the carrying amount of that debt liability. The standard requires the new guidance to be adopted on a retrospective basis wherein the balance sheet of each individual period presented is adjusted to reflect the period-specific effects of applying this ASU. ASU 2015-15 allows companies to present debt issuance costs related to warehouse lines of credit as an asset. The Company reclassified debt issuance costs related to debt liabilities, including warehouse lines of credit, as a reduction of the associated debt liability. The adoption of these ASUs did not have a material impact on the Company's results of operations, cash flows or financial position.
The following table reconciles the balance sheet line items impacted by the adoption of these ASUs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Line Item as of December 31, 2015
|
|
Historical Accounting Method
|
|
Effect of Adoption of ASU 2015-3 and ASU 2015-15
|
|
2015 as Adjusted
|
|
|
(In thousands)
|
Other assets
|
|
$
|
82,577
|
|
|
$
|
(23,866
|
)
|
|
$
|
58,711
|
|
Total assets
|
|
$
|
82,577
|
|
|
$
|
(23,866
|
)
|
|
$
|
58,711
|
|
|
|
|
|
|
|
|
Term loan payable
|
|
$
|
440,181
|
|
|
$
|
(16,677
|
)
|
|
$
|
423,504
|
|
VIE borrowings under revolving credit facilities and other similar borrowings
|
|
48,828
|
|
|
(4,489
|
)
|
|
44,339
|
|
VIE long-term debt
|
|
199,363
|
|
|
(2,700
|
)
|
|
196,663
|
|
Total liabilities
|
|
$
|
688,372
|
|
|
$
|
(23,866
|
)
|
|
$
|
664,506
|
|
4. Business Combinations
In accordance with ASC 805, the Company accounts for acquisitions by applying the acquisition method of accounting, which requires, among other things, that the assets acquired and liabilities assumed in a business combination be measured at their fair values as of the closing date of the acquisition.
On July 31, 2015, the Company completed its acquisition of Home Lending. The results of Home Lending are included in the Company's consolidated statements of operations from the date of acquisition and are reported as a separate reportable segment. Home Lending is primarily engaged in originating, selling and servicing residential mortgage loans. Its acquisition represented a major step in the Company's strategy to become a more diversified financial services company.
The final acquisition fair value of the consideration paid was
$74.6 million
, which consisted of
$53.2 million
that was initially paid in cash and
$13.0 million
that was paid through the issuance of
1,572,327
shares of the Company's Class A common stock. The fair value of the
1,572,327
Class A common shares issued was calculated using the closing trading price of the Company's common shares on the acquisition date. An additional
$8.4 million
of consideration was accrued to reflect the estimated outcome of certain post-close adjustments included in the stock purchase agreement, of which
$7.6 million
and
$0.8 million
was paid in the three months ended March 31, 2016 and December 31, 2015, respectively, and thereby concluded the measurement-period adjustments.
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
The following table sets forth the final acquisition-date fair value of the consideration and the identified net assets acquired and liabilities assumed as of July 31, 2015.
|
|
|
|
|
|
|
|
As of July 31, 2015
|
|
|
(In thousands)
|
Consideration:
|
|
|
Cash
|
|
$
|
61,648
|
|
Equity instruments issued (1,572,327 shares of Class A common stock)
|
|
12,956
|
|
Fair value of total consideration
|
|
$
|
74,604
|
|
|
|
|
Recognized amounts of identifiable assets acquired and liabilities assumed:
|
|
|
Cash and cash equivalents
|
|
$
|
6,610
|
|
Restricted cash
|
|
4,756
|
|
Mortgage loans held for sale
|
|
131,325
|
|
Mortgage servicing rights
|
|
27,638
|
|
Premises and equipment
|
|
908
|
|
Intangible assets
|
|
23,842
|
|
Other assets
|
|
31,701
|
|
Other borrowings under revolving credit facilities and other similar borrowings
|
|
(128,487
|
)
|
Other liabilities
|
|
(32,058
|
)
|
Total identifiable net assets
|
|
$
|
66,235
|
|
Goodwill
|
|
$
|
8,369
|
|
Of the
$23.8 million
of acquired intangible assets,
$13.2 million
were assigned to licenses and approvals that are not subject to amortization. The remaining
$10.6 million
of acquired intangible assets were assigned a weighted-average useful life of
9.3
years. These finite-lived assets included affinity relationships of
$9.5 million
(
10
-year useful life) and a trade name of
$1.1 million
(
3
-year useful life).
The excess of the consideration paid over the fair value of net assets acquired was recorded as goodwill in the amount of
$8.4 million
, which was assigned to the Home Lending reporting segment. The Company elected to treat the acquisition of the stock as an asset acquisition, and, consequently, the goodwill and the intangible assets are expected to be deductible for income tax purposes under section 197 of the Internal Revenue Code of 1986.
Acquisition-related costs of
$3.1 million
were included in professional and consulting fees in the Company's consolidated statements of operations for the year ending December 31, 2015.
The following table summarizes the actual amounts of Home Lending's revenues and earnings included in the Company's consolidated statements of operations for the year ended December 31, 2015 from July 31, 2015:
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
|
|
|
(In thousands)
|
Total revenues
|
|
$
|
26,732
|
|
Net income before income taxes
|
|
$
|
1,992
|
|
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
The following table summarizes the supplemental unaudited pro forma information of the combined Company for the years ended December 31, 2015 and 2014, respectively, as if the acquisition of Home Lending occurred on January 1, 2014.
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2015
|
|
2014
|
|
|
(In thousands, unaudited)
|
Pro forma total revenues
|
|
$
|
343,238
|
|
|
$
|
554,247
|
|
Pro forma net (loss) income before income taxes
(1)
|
|
$
|
(202,745
|
)
|
|
$
|
129,877
|
|
(1) Includes adjustments for acquisition related costs of
$3.9 million
for the year ended December 31, 2014.
These unaudited pro forma results are presented for illustrative purposes and are not intended to represent or be indicative of the actual consolidated results of operations of the Company that would have been achieved had the acquisition been consummated on January 1, 2014, nor are they intended to represent or be indicative of future results of operations.
5. Goodwill and Intangible Assets
The goodwill of the Company consists of
$8.4 million
related to the Home Lending segment as of
December 31, 2016
and
2015
. There is no goodwill related to the Structured Settlements segment as of
December 31, 2016
and
2015
.
Intangible assets subject to amortization include the following as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Structured Settlements
|
|
Home Lending
|
|
Cost
|
|
Accumulated
Amortization
|
|
Cost
|
|
Accumulated
Amortization
|
|
(In thousands)
|
December 31, 2016
|
|
|
|
|
|
|
|
Database
|
$
|
4,609
|
|
|
$
|
(4,356
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Customer relationships
|
16,096
|
|
|
(15,750
|
)
|
|
—
|
|
|
—
|
|
Domain names
|
486
|
|
|
(461
|
)
|
|
—
|
|
|
—
|
|
Trade name
(1)
|
613
|
|
|
(157
|
)
|
|
1,095
|
|
|
(700
|
)
|
Affinity relationships
|
—
|
|
|
—
|
|
|
9,547
|
|
|
(1,354
|
)
|
Intangible assets subject to amortization
|
$
|
21,804
|
|
|
$
|
(20,724
|
)
|
|
$
|
10,642
|
|
|
$
|
(2,054
|
)
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
Database
|
$
|
4,609
|
|
|
$
|
(4,250
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Customer relationships
|
18,844
|
|
|
(15,375
|
)
|
|
—
|
|
|
—
|
|
Domain names
|
486
|
|
|
(450
|
)
|
|
—
|
|
|
—
|
|
Trade name
|
—
|
|
|
—
|
|
|
1,095
|
|
|
(228
|
)
|
Affinity relationships
|
—
|
|
|
—
|
|
|
9,547
|
|
|
(397
|
)
|
Intangible assets subject to amortization
|
$
|
23,939
|
|
|
$
|
(20,075
|
)
|
|
$
|
10,642
|
|
|
$
|
(625
|
)
|
(1) During the three months ended June 30, 2016, the trade name the Company acquired in connection with the Company's 2011 acquisition of Orchard Acquisition Company ("OAC") was determined to be a finite-lived asset, subject to amortization. As of
December 31, 2016
and
2015
, the carrying value of this trade name was
$0.5 million
and
$3.3 million
, respectively.
As of
December 31, 2016
and
2015
, the carrying value of Home Lending's indefinite-lived licenses and approvals intangible asset was
$13.2 million
.
Amortization of intangible assets is included in depreciation and amortization in the Company's consolidated statements of operations. Amortization expense for the years ended
December 31, 2016
,
2015
and
2014
was
$2.1 million
,
$2.2 million
, and
$2.5 million
, respectively. As of
December 31, 2016
, the weighted average remaining useful lives of the databases, customer relationships, domain names and trade names are
two years
and affinity relationships is
nine years
.
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
Estimated future amortization expense for amortizable intangible assets for each of the succeeding five calendar years and thereafter is as follows:
|
|
|
|
|
|
Year Ending December 31,
|
|
Estimated Future Amortization Expense
|
|
|
(In thousands)
|
2017
|
|
$
|
1,743
|
|
2018
|
|
1,560
|
|
2019
|
|
1,035
|
|
2020
|
|
957
|
|
2021
|
|
954
|
|
Thereafter
|
|
3,419
|
|
Total future amortization expense
|
|
$
|
9,668
|
|
The Company evaluates its long-lived assets, including finite and indefinite-lived intangible assets, for impairment on an annual basis during the fourth quarter, or more frequently if events or changes in circumstances indicate a potential impairment between annual measurement dates. Management qualitatively determines whether it is more likely than not (i.e., a likelihood of greater than 50%) that the fair value of the Company's reporting units and intangible assets are less than their carrying amounts prior to performing the two-step process to evaluate the potential impairment of goodwill and intangible assets with indefinite useful lives.
In the fourth quarter of 2016, the Company performed a qualitative assessment based, in part, on the factors outlined below:
|
|
•
|
Macroeconomic factors including the interest rate environment and the securitization and warehouse credit market;
|
|
|
•
|
Industry specific factors including significant changes in competition and regulatory impediments;
|
|
|
•
|
Cost-related factors including an increase in labor and other operating costs;
|
|
|
•
|
Overall financial performance which incorporates cash flows, revenues and earnings; and
|
|
|
•
|
Other relevant entity-specific events such as changes in management, changes in stock price, and counterparty risks.
|
In performing the qualitative assessment, the Company identified and considered all relevant events and circumstances, including the Company's reporting units' recent financial performance and projected operating results, and the Company’s market capitalization. Based on the weight of evidence and the significance of the identified factors, the Company determined that it was not more likely than not that the fair value of the Company's goodwill, indefinite-lived intangible assets and long-lived assets were less than their carrying values as of December 31, 2016.
During the three months ended June 30, 2016, due to (i) the operating results of the Structured Settlements reporting unit (which is the same as the Structured Settlements reportable segment for segment reporting purposes) being lower than the forecasted results included in its 2015 annual impairment testing conducted as of October 1, 2015, combined with (ii) a continued decline in the stock price of the Company's Class A common stock, the Company determined indicators of impairment to be present resulting in the performance of: (a) a test for potential impairment for Structured Settlements' indefinite-lived intangibles, (b) a test for potential impairment for Structured Settlements' finite-lived intangibles assets and (c) a step-1 impairment analysis on the goodwill for the Home Lending reporting unit.
The fair value of the indefinite-lived trade name asset acquired by the Company in connection with the 2011 acquisition of OAC was determined primarily using a discounted cash flow approach that required considerable management judgment and long-term assumptions, and is considered a Level 3 (unobservable) fair value determination in the fair value hierarchy. Specifically, the "relief from royalty" method was used, which incorporated the following key assumptions: (i) projected long-term revenues directly attributable to the trade name; (ii) a discount rate developed using a weighted average cost of capital analysis; and (iii) a royalty rate based on an analysis of royalty licensing data. As a result of this analysis, the Company determined the trade name within the Structured Settlements reporting unit was impaired and recorded an impairment charge of
$2.8 million
in the Company's consolidated statements of operations for the three and six months ended June 30, 2016. The Company also determined that its trade name asset was a finite-lived intangible asset, and, consequently, its carrying value of
$0.6 million
as of June 30, 2016 will be amortized over
three
years, which is the period the Company expects the asset to contribute directly or indirectly to future cash flows of the Company.
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
The fair value of the finite-lived customer relationships asset within the Structured Settlements reporting unit was determined primarily using a discounted cash flow approach that required considerable management judgment and long-term assumptions, and is also considered a Level 3 (unobservable) fair value determination in the fair value hierarchy. Specifically, the income approach was used, which incorporated the following key assumptions: (i) projected long-term revenues directly attributable to the customer relationships; (ii) a discount rate developed using a cost of equity analysis; and (iii) contributory asset charges attributable to the asset. As a result of this analysis, the Company determined the customer relationships finite-lived intangible asset within the Structured Settlements reporting unit was impaired and recorded an impairment charge of
$2.7 million
in the Company's consolidated statements of operations for the three and six months ended June 30, 2016.
The Company continually evaluates whether events or changes in circumstances have occurred that may warrant revision to the estimated useful lives of its finite and indefinite-lived intangible assets. During the three months ended June 30, 2016, the Company determined that the remaining useful lives of its finite-lived intangible assets within the Structured Settlements reporting unit, namely databases and customer relationships, were less than previously assigned and consequently revised them to their currently estimated useful lives of approximately
three
years.
The Company used a combination of income and market approaches to estimate the fair value of the Company's Home Lending reporting unit as of April 1, 2016. The income approach utilized multi-year cash flow projections that incorporated projected long-term growth rates and a discount rate based on a cost of equity analysis. The market approach estimated the reporting unit's fair value based on various prices and financial ratios from similar publicly traded companies and market transactions. As a result of this analysis, the fair value of the Home Lending reporting unit exceeded its carrying value by approximately
29%
.
As a result of the above actions, the Company recorded in the aggregate an intangible assets impairment charge of
$5.5 million
during the year ended December 31, 2016.
During the three months ended September 30, 2015, the Company re-evaluated its internal projections for its Structured Settlements reporting unit based on lower than anticipated results, a significant decline in the stock price of the Company's Class A common stock, and a re-assessment of the reporting unit's brand strategy. Accordingly, the Company determined these events constituted a triggering event requiring the Company to: (i) test the related indefinite-lived trade name for potential impairment, and (ii) perform a step-1 impairment analysis of the goodwill reporting units. As a result of the analysis, the Company determined the trade name within the Structured Settlements reporting unit was impaired and recorded an impairment charge of
$29.9 million
in the Company's consolidated statements of operations. Goodwill was determined not to be impaired at that time.
During the three months ended December 31, 2015, the Company performed its annual goodwill and indefinite-lived impairment review as of October 1, 2015. Step-1 of the goodwill impairment test involves calculating the fair value of the reporting units and comparing them to their respective carrying values. If the fair value of a reporting unit is less than its carrying value, step-2 of the impairment test must be performed. Step-2 involves calculating and comparing the implied fair value of the reporting unit's goodwill with its carrying value. If the implied fair value of the goodwill is less than its carrying value, an impairment loss is recognized in an amount equal to the difference.
To estimate the fair value of the Company's Structured Settlements reporting unit, the Company used a combination of income (i.e., discounted cash flow) and market approaches. The income approach utilized multi-year cash flow projections that incorporated projected long-term growth rates and a discount rate based on a cost of equity analysis which (i) reflected a reconciliation of the fair value of the individual reporting units to the Company's total market capitalization and (ii) took into consideration the decline in the stock's price after the measurement date through December 31, 2015. The market approach estimated the reporting unit's fair value based on various prices and financial ratios from similar publicly traded companies and market transactions. Based on the Company's goodwill assessment, the implied fair value of the Structured Settlements reporting unit was less than its carrying value, and, as a result, a step-2 goodwill impairment test was performed to measure the impairment charge. Consequently, the Company recorded a goodwill impairment charge of
$85.0 million
in the Company's consolidated statements of operations, representing all goodwill associated with the Structured Settlements reporting unit.
To estimate the fair value of the Company's Home Lending reporting unit as of October 1, 2015, the Company also used a combination of income and market approaches. The income approach utilized multi-year cash flow projections that incorporated projected long-term growth rates and a discount rate based on a cost of equity analysis. The market approach estimated the reporting unit's fair value based on various prices and financial ratios from similar publicly traded companies and market transactions. As a result of this analysis, the fair value of the Home Lending reporting unit exceeded its carrying value by
$1.3 million
, or
1.7%
.
The fair value of the Structured Settlements reporting unit's indefinite-lived trade-name was determined primarily using a discounted cash flow approach that required considerable management judgment and long-term assumptions, and is considered a Level 3 (unobservable) fair value determination in the fair value hierarchy. Specifically, the "relief from royalty" method was
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
used that incorporated multi-year revenue projections. Key assumptions utilized in the fair value analysis included the following: (i) projected long-term growth rates in revenues directly attributable to the trade name; (ii) a discount rate developed using a weighted average cost of capital analysis; and (iii) a royalty rate based on an analysis of royalty licensing data. As a result of this analysis, the Company determined the indefinite-lived trade name within the Structured Settlements reporting unit was impaired and recorded an additional impairment charge of
$5.6 million
in the Company's consolidated statements of operations during the three months ended December 31, 2015. In addition, the Company determined that other finite-lived intangible assets were also impaired and recorded an impairment charge of
$1.1 million
in the Company's consolidated statements of operations during the three months ended December 31, 2015.
As a result of the above actions, the Company recorded in the aggregate a goodwill and intangible asset impairment charge of
$121.6 million
during the year ended December 31, 2015.
No
impairment was recognized for goodwill and intangible assets for the year ended December 31,
2014
.
While management believes the assumptions used in its annual impairment assessment are reasonable and will continuously evaluate for future potential impairment indicators, there can be no assurance that estimates and assumptions made for purposes of impairment testing will prove to be accurate predictions of the future. Less than anticipated revenues generated by the Company's intangible assets and reporting units, an increase in the discount rate, and/or a decrease in the internal projected revenues used in the discounted cash flow model, among other items, could result in future impairment charges.
6. Fair Value Measurements
Under ASC 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard focuses on the exit price in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. U.S. GAAP establishes a fair value reporting hierarchy to maximize the use of observable inputs when measuring fair value and defines the three levels of inputs as noted below:
|
|
•
|
Level 1 — inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that are accessible at the measurement date.
|
|
|
•
|
Level 2 — inputs to the valuation methodology include quoted prices in markets that are not active or quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
|
|
•
|
Level 3 — inputs to the valuation methodology are unobservable, reflecting the entity's own assumptions about assumptions market participants would use in pricing the asset or liability.
|
A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Fair value is a market based measure considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity specific measure. Therefore, even when market assumptions are not readily available, the Company's own assumptions are set to reflect those that market participants would use in pricing the assets or liabilities at the measurement date. The Company uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The Company also evaluates various factors to determine whether certain transactions are orderly and may make adjustments to transactions or quoted prices when the volume and level of activity for an asset or liability have decreased significantly.
The above conditions could cause certain assets and liabilities to be reclassified from Level 1 to Level 2 or Level 3 or reclassified from Level 2 to Level 3. The inputs or methodology used for valuing the assets or liabilities are not necessarily an indication of the risk associated with the assets and liabilities.
The Company uses various valuation techniques and assumptions in estimating fair value. The assumptions used to estimate the value of the Company’s assets and liabilities have varying degrees of impact to the overall fair value. This process involves the gathering of multiple sources of information, including broker quotes, values provided by pricing services, market indices and pricing matrices. When observable market prices for the asset or liability are not available, the Company employs various modeling techniques, such as discounted cash flow analysis, to estimate the fair value of the Company’s assets and liabilities. For certain assets and liabilities, the Company developed internal models which are validated and calibrated regularly by management with assistance from third parties, as appropriate. Any models used to determine fair values, including the inputs and the assumptions therein, are reviewed as part of the Company’s model validation process. The following describes the methods used in estimating the fair values of certain financial statement items:
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
For assets and liabilities measured at fair value in the consolidated financial statements:
Marketable securities, at fair value
- The fair value of investments in marketable securities is based on quoted market prices, which primarily consist of equity and fixed income securities.
VIE and other finance receivables, at fair value, and VIE long-term debt issued by securitization and permanent financing trusts, at fair value
– The estimated fair value of VIE finance receivables, at fair value, other finance receivables, at fair value, and VIE long-term debt issued by securitization and permanent financing trusts, at fair value, is determined based on a discounted cash flow model using expected future collections and payments discounted at a calculated rate as described below.
For guaranteed structured settlements and annuities, the Company allocates the projected cash flows based on the waterfall of the securitization and permanent financing trusts (collectivity the "Trusts"). The waterfall includes fees to operate the Trusts (servicing fees, administrative fees, etc.), note holder principal and note holder interest. Many of the Trusts have various tranches of debt that have varying subordinations in the waterfall calculation. Refer to Note 19 for additional information. The remaining cash flows, net of those obligations, are considered a residual interest which is projected to be paid to the retained interest holder.
The projected finance receivable cash flows used to pay the obligations of the Trusts are discounted using a calculated rate derived from the fair value interest rates of the debt in the Trusts. The fair value interest rate of the debt is derived using a swap curve and applying a calculated spread that is based on either: (i) market indices that are highly correlated with the spreads from the Company's previous securitizations and asset sales or (ii) the Company's most recent securitization or asset sale if it occurs within close proximity to the reporting date. The calculated spread is adjusted for the specific attributes of the debt in the Trusts, such as years to maturity and credit grade. The debt's fair value interest rates are applied to the projected future cash payments paid on the principal and interest to derive the debt's fair value. The debt's fair value interest rates are blended using the debt's principal balance to obtain a weighted average fair value interest rate which is used to determine the value of the finance receivables' asset cash flows. In addition, the Company considers transformation costs and profit margin associated with its securitizations to derive the fair value of its finance receivables' asset cash flows. The finance receivables' residual cash flows remaining after the projected obligations of the Trusts are satisfied are discounted using a separate calculated rate (
9.75%
and
8.30%
at
December 31, 2016
and
December 31, 2015
, respectively, with a weighted average life of
20 years
as of both dates) that is derived from the fair value interest rates of the related debt.
The residual cash flows are adjusted for a loss assumption of
0.25%
over the life of the finance receivables in its fair value calculation. Finance receivable cash flows, including the residual asset cash flows, are included in VIE and other finance receivables, at fair value, on the Company's consolidated balance sheets. In connection with the refinancing of the Company's Residual Term Facility, the Company issued
$207.5 million
in notes collateralized by the residual asset cash flows and elected the fair value option, as permitted by ASC 825,
Financial Instruments
("ASC 825"). The fair value interest rate of the debt is derived using the swap curve and applying a calculated spread based on market indices that are highly correlated with the spread from the related debt issued. Refer to Notes 18 and 19 for additional information. The associated debt's projected future cash payments for principal and interest are included in VIE long-term debt issued by securitization and permanent financing trusts, at fair value.
For finance receivables not yet securitized, the Company uses the calculated spreads based on market indices, while also considering transformation costs and profit margin to determine the fair value yield adjusting for expected losses and applying the residual yield for the cash flows the Company projects would make up the retained interest in a securitization. There are no material differences in valuation techniques, assumptions and inputs used to develop the Company’s fair value measurements for finance receivables not securitized and those that are securitized.
For the Company's Life Contingent Structured Settlements ("LCSS") receivables and long-term debt issued by its related permanent financing trusts, the blended weighted average discount rate of the LCSS receivables at the time of borrowing (which occurs frequently throughout the year) is used to determine the fair value of the receivables' cash flows. The residual cash flows relating to the LCSS receivables are discounted using a separate yield based on the assumed rating of the residual tranche reflecting the life contingent feature of these receivables.
Mortgage loans held for sale, at fair value
- The fair value of mortgage loans held for sale is calculated using observable market information including pricing from actual market transactions, investor commitment prices, or broker quotations.
Mortgage servicing rights, at fair value
- The Company uses a discounted cash flow approach to estimate the fair value of MSRs incorporating assumptions management believes market participants would use in determining fair value. The assumptions used in the estimation of the fair value of MSRs include contractual service fees, ancillary income and late fees, the cost of servicing, the discount rate, the float rate, the inflation rate, prepayment speeds and default rates.
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
Interest rate lock commitments, at fair value
- The Company estimates the fair value of IRLCs based on the value of the underlying mortgage loan, quoted MBS prices and estimates of the fair value of the MSRs and the probability, commonly referred to as the "pull-through" rates, that the mortgage loan will close within the terms of the IRLCs. These "pull-through" rates are based on the Company's historical data and reflect the Company's best estimate of the likelihood that a commitment will ultimately result in a closed loan.
VIE derivative liabilities, at fair value
– The fair value of interest rate swaps is based on pricing models which consider current interest rates and the amount and timing of cash flows.
Forward sale commitments, at fair value
– The fair value of forward sale commitments is based on pricing models which consider current interest rates and the amount and timing of cash flows.
Assets and liabilities for which fair value is only disclosed in the notes to consolidated financial statements:
VIE and other finance receivables, net of allowances for losses
– The fair value of structured settlement, annuity, and lottery receivables is estimated based on the present value of future expected cash flows using discount rates commensurate with the risks involved. The fair value of pre-settlement funding transactions and attorney cost financing is based on expected losses and historical loss experience associated with the respective receivables using management's best estimate of key assumptions regarding credit losses.
Other receivables, net of allowances for losses
– The estimated fair value of advances receivable and certain other receivables, which are generally recovered in less than
three
months, is equal to the carrying amount. The carrying value of other receivables which have expected recoverability of greater than
three
months, which consist primarily of a note receivable, are estimated based on the present value of future expected cash flows using management's best estimate of certain key assumptions, including discount rates commensurate with the risks involved.
Term loan payable
– The estimated fair value of the term loan payable is based on recently executed transactions and market price quotations obtained from third parties.
VIE borrowings under revolving credit facilities and other similar borrowings
– The estimated fair value of borrowings under revolving credit facilities and other similar borrowings is based on the borrowing rates for debt with similar terms and remaining maturities.
Other borrowings under revolving credit facilities and other similar borrowings
– The estimated fair value of borrowings under revolving credit facilities and similar borrowings is based on the borrowing rates for debt with similar terms and remaining maturities.
VIE long-term debt
– The estimated fair value of VIE long-term debt is based on fair value borrowing rates available to the Company based on recently executed transactions with similar underlying collateral characteristics, reflecting the specific terms and conditions of the debt.
Installment obligations payable
– Installment obligations payable is reported at contract value determined based on changes in the measuring indices selected by the obligees under the terms of the obligations over the length of the obligations. The fair value of installment obligations payable is estimated to be equal to the carrying value.
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
The following table sets forth the Company's assets and liabilities that are carried at fair value on the Company's consolidated balance sheets as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in Active
Markets for Identical Assets
Level 1
|
|
Significant Other
Observable Inputs
Level 2
|
|
Significant
Unobservable Inputs
Level 3
|
|
Total at
Fair Value
|
|
(In thousands)
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities, at fair value
|
$
|
74,421
|
|
|
$
|
2,266
|
|
|
$
|
—
|
|
|
$
|
76,687
|
|
VIE and other finance receivables, at fair value
|
—
|
|
|
—
|
|
|
4,157,037
|
|
|
4,157,037
|
|
Mortgage loans held for sale, at fair value
|
—
|
|
|
232,770
|
|
|
—
|
|
|
232,770
|
|
Mortgage servicing rights, at fair value
|
—
|
|
|
—
|
|
|
41,697
|
|
|
41,697
|
|
Interest rate lock commitments, at fair value
(1)
|
—
|
|
|
—
|
|
|
6,072
|
|
|
6,072
|
|
Forward sale commitments, at fair value
(1)
|
—
|
|
|
659
|
|
|
—
|
|
|
659
|
|
Total Assets
|
$
|
74,421
|
|
|
$
|
235,695
|
|
|
$
|
4,204,806
|
|
|
$
|
4,514,922
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
VIE derivative liabilities, at fair value
|
$
|
—
|
|
|
$
|
50,432
|
|
|
$
|
—
|
|
|
$
|
50,432
|
|
VIE long-term debt issued by securitization and permanent financing trusts, at fair value
|
—
|
|
|
—
|
|
|
4,014,450
|
|
|
4,014,450
|
|
Total Liabilities
|
$
|
—
|
|
|
$
|
50,432
|
|
|
$
|
4,014,450
|
|
|
$
|
4,064,882
|
|
(1) Included in other assets on the Company's consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in Active
Markets for Identical Assets
Level 1
|
|
Significant Other
Observable Inputs
Level 2
|
|
Significant
Unobservable Inputs
Level 3
|
|
Total at
Fair Value
|
|
(In thousands)
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities, at fair value
|
$
|
82,693
|
|
|
$
|
2,301
|
|
|
$
|
—
|
|
|
$
|
84,994
|
|
VIE and other finance receivables, at fair value
|
—
|
|
|
—
|
|
|
4,386,147
|
|
|
4,386,147
|
|
Mortgage loans held for sale, at fair value
|
—
|
|
|
124,508
|
|
|
—
|
|
|
124,508
|
|
Mortgage servicing rights, at fair value
|
—
|
|
|
—
|
|
|
29,287
|
|
|
29,287
|
|
Interest rate lock commitments, at fair value
(1)
|
—
|
|
|
—
|
|
|
4,934
|
|
|
4,934
|
|
Total Assets
|
$
|
82,693
|
|
|
$
|
126,809
|
|
|
$
|
4,420,368
|
|
|
$
|
4,629,870
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
VIE derivative liabilities, at fair value
|
$
|
—
|
|
|
$
|
66,519
|
|
|
$
|
—
|
|
|
$
|
66,519
|
|
VIE long-term debt issued by securitization and permanent financing trusts, at fair value
|
—
|
|
|
—
|
|
|
3,928,818
|
|
|
3,928,818
|
|
Forward sale commitments, at fair value
(2)
|
—
|
|
|
147
|
|
|
—
|
|
|
147
|
|
Total Liabilities
|
$
|
—
|
|
|
$
|
66,666
|
|
|
$
|
3,928,818
|
|
|
$
|
3,995,484
|
|
(1) Included in other assets on the Company's consolidated balance sheets.
(2) Included in other liabilities on the Company's consolidated balance sheets.
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
The following table sets forth the Company's quantitative information about its Level 3 fair value measurements as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Valuation Technique
|
|
Significant Unobservable Input
|
|
Range
(Weighted Average)
|
|
|
(In thousands)
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
VIE and other finance receivables, at fair value
|
|
$
|
4,157,037
|
|
|
Discounted cash flow
|
|
Discount rate
|
|
3.16% - 12.77% (4.32%)
|
Mortgage servicing rights, at fair value
|
|
41,697
|
|
|
Discounted cash flow
|
|
Discount rate
|
|
9.50% - 14.06% (10.11%)
|
Prepayment speed
|
6.04% - 21.82% (7.96%)
|
Cost of servicing
|
$65 - $90 ($73)
|
Interest rate lock commitments, at fair value
|
|
6,072
|
|
|
Internal model
|
|
Pull-through rate
|
|
37.25% - 97.00% (79.53%)
|
Total Assets
|
|
$
|
4,204,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
VIE long-term debt issued by securitization and permanent financing trusts, at fair value
|
|
4,014,450
|
|
|
Discounted cash flow
|
|
Discount rate
|
|
1.47% - 11.91% (4.25%)
|
Total Liabilities
|
|
$
|
4,014,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
VIE and other finance receivables, at fair value
|
|
$
|
4,386,147
|
|
|
Discounted cash flow
|
|
Discount rate
|
|
3.33% - 12.30% (4.47%)
|
Mortgage servicing rights, at fair value
|
|
29,287
|
|
|
Discounted cash flow
|
|
Discount rate
|
|
9.54% - 14.06% (10.27%)
|
Prepayment speed
|
8.24% - 20.56% (9.06%)
|
Cost of servicing
|
$65 - $90 ($75)
|
Interest rate lock commitments, at fair value
|
|
4,934
|
|
|
Internal model
|
|
Pull-through rate
|
|
37.44% - 100.00% (74.91%)
|
Total Assets
|
|
$
|
4,420,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
VIE long-term debt issued by securitization and permanent financing trusts, at fair value
|
|
3,928,818
|
|
|
Discounted cash flow
|
|
Discount rate
|
|
1.69% - 12.30% (4.13%)
|
Total Liabilities
|
|
$
|
3,928,818
|
|
|
|
|
|
|
|
A significant unobservable input used in the fair value measurement of most of the Company's assets and liabilities measured at fair value using unobservable inputs (Level 3) is the discount rate. Significant increases (decreases) in the discount rate used to estimate fair value in isolation would result in a significantly lower (higher) fair value measurement of the corresponding asset or liability. An additional significant unobservable input used in the fair value measurement of mortgage servicing rights, at fair value, is prepayment speed. Significant increases (decreases) in the prepayment speed used to estimate the fair value of MSRs
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
in isolation would result in a significantly lower (higher) fair value measurement. Significant increases (decreases) in the cost of servicing used to estimate the fair value of MSRs in isolation would result in a significantly lower (higher) fair value measurement. Significant increases (decreases) in the pull-through rate used to estimate the fair value of IRLCs in isolation would result in a significantly higher (lower) fair value measurement.
The changes in assets measured at fair value using significant unobservable inputs (Level 3) during the years ended December 31,
2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VIE and other
finance receivables,
at fair value
|
|
Mortgage servicing rights, at fair value
|
|
Interest rate lock commitments, at fair value
|
|
Total
|
|
|
|
Balance as of December 31, 2015
|
|
$
|
4,386,147
|
|
|
$
|
29,287
|
|
|
$
|
4,934
|
|
|
$
|
4,420,368
|
|
Total included in earnings (losses):
|
|
|
|
|
|
|
0
|
|
|
|
|
Unrealized gains
|
|
33,241
|
|
|
12,410
|
|
|
6,072
|
|
|
51,723
|
|
Realized gain on sale of finance receivable
|
|
69,598
|
|
|
—
|
|
|
—
|
|
|
69,598
|
|
Included in other comprehensive gain
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Purchases of finance receivables
|
|
273,298
|
|
|
—
|
|
|
—
|
|
|
273,298
|
|
Interest accreted
|
|
173,194
|
|
|
—
|
|
|
—
|
|
|
173,194
|
|
Payments received
|
|
(507,110
|
)
|
|
—
|
|
|
—
|
|
|
(507,110
|
)
|
Sale of finance receivables
|
|
(271,331
|
)
|
|
—
|
|
|
—
|
|
|
(271,331
|
)
|
Transfers to/from other balance sheet line items
|
|
—
|
|
|
—
|
|
|
(4,934
|
)
|
|
(4,934
|
)
|
Transfers in and/or out of Level 3
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance as of December 31, 2016
|
|
$
|
4,157,037
|
|
|
$
|
41,697
|
|
|
$
|
6,072
|
|
|
$
|
4,204,806
|
|
The amount of net gains for the period included in revenues attributable to the change in unrealized gains or losses relating to assets still held as of:
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
$
|
33,241
|
|
|
$
|
12,410
|
|
|
$
|
6,072
|
|
|
$
|
51,723
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2014
|
|
$
|
4,523,835
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,523,835
|
|
Total included in earnings (losses):
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains
|
|
(164,311
|
)
|
|
1,649
|
|
|
4,934
|
|
|
(157,728
|
)
|
Realized gain on sale of finance receivable
|
|
5,013
|
|
|
—
|
|
|
—
|
|
|
5,013
|
|
Included in other comprehensive gain
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Purchases of finance receivables
|
|
385,288
|
|
|
—
|
|
|
—
|
|
|
385,288
|
|
Interest accreted
|
|
168,998
|
|
|
—
|
|
|
—
|
|
|
168,998
|
|
Payments received
|
|
(511,867
|
)
|
|
—
|
|
|
—
|
|
|
(511,867
|
)
|
Sale of finance receivables
|
|
(20,809
|
)
|
|
—
|
|
|
—
|
|
|
(20,809
|
)
|
Assets acquired in connection with the Home Lending acquisition
|
|
—
|
|
|
27,638
|
|
|
7,051
|
|
|
34,689
|
|
Transfers to/from other balance sheet line items
|
|
—
|
|
|
—
|
|
|
(7,051
|
)
|
|
(7,051
|
)
|
Transfers in and/or out of Level 3
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance as of December 31, 2015
|
|
$
|
4,386,147
|
|
|
$
|
29,287
|
|
|
$
|
4,934
|
|
|
$
|
4,420,368
|
|
The amount of total (losses) gains for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held as of:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
$
|
(164,311
|
)
|
|
$
|
1,649
|
|
|
$
|
4,934
|
|
|
$
|
(157,728
|
)
|
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
The changes in liabilities measured at fair value using significant unobservable inputs (Level 3) during the years ended December 31,
2016
and
2015
were as follows:
|
|
|
|
|
|
VIE long-term debt issued
by securitizations and
permanent financing
trusts, at fair value
|
|
(In thousands)
|
Balance as of December 31, 2015
|
$
|
3,928,818
|
|
Total included in (earnings) losses:
|
|
|
Unrealized losses
|
97,829
|
|
Issuances
|
337,667
|
|
Interest accreted
|
(30,234
|
)
|
Repayments
|
(319,630
|
)
|
Transfers in and/or out of Level 3
|
—
|
|
Balance as of December 31, 2016
|
$
|
4,014,450
|
|
The amount of net losses for the period included in revenues attributable to the change in unrealized gains or losses relating to long-term debt still held as of:
|
|
December 31, 2016
|
$
|
97,829
|
|
|
|
Balance as of December 31, 2014
|
$
|
4,031,864
|
|
Total included in (earnings) losses:
|
|
|
Unrealized gains
|
(230,228
|
)
|
Issuances
|
489,699
|
|
Interest accreted
|
(44,425
|
)
|
Repayments
|
(318,092
|
)
|
Transfers in and/or out of Level 3
|
—
|
|
Balance as of December 31, 2015
|
$
|
3,928,818
|
|
The amount of net gains for the period included in revenues attributable to the change in unrealized gains or losses relating to long-term debt still held as of:
|
|
|
December 31, 2015
|
$
|
(229,635
|
)
|
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
Realized and unrealized gains and losses included in revenues in the accompanying consolidated statements of operations for the years ended December 31,
2016
,
2015
, and
2014
are reported in the following revenue categories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VIE and other finance receivables and long-term debt, at fair value
|
|
Mortgage servicing rights, at fair value
|
|
Interest rate lock commitments, at fair value
|
|
(In thousands)
|
Net gains in revenues for the year ended December 31, 2016
|
$
|
5,010
|
|
|
$
|
12,410
|
|
|
$
|
6,072
|
|
Unrealized (losses) gains for the year ended December 31, 2016 relating to assets still held as of December 31, 2016
|
$
|
(64,588
|
)
|
|
$
|
12,410
|
|
|
$
|
6,072
|
|
Net gains in revenues for the year ended December 31, 2015
|
$
|
70,930
|
|
|
$
|
1,649
|
|
|
$
|
4,934
|
|
Unrealized gains for the year ended December 31, 2015 relating to assets still held as of December 31, 2015
|
$
|
65,324
|
|
|
$
|
1,649
|
|
|
$
|
4,934
|
|
Net gains in revenues for the year ended December 31, 2014
|
$
|
306,671
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Unrealized gains for the year ended December 31, 2014 relating to assets still held as of December 31, 2014
|
$
|
306,424
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
The Company discloses fair value information about financial instruments, whether or not recorded at fair value on the Company's consolidated balance sheets, for which it is practicable to estimate that value. As such, the estimated fair values of the Company's financial instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
(In thousands)
|
|
Estimated
Fair
Value
|
|
Carrying
Amount
|
|
Estimated
Fair
Value
|
|
Carrying
Amount
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
VIE and other finance receivables, at fair value
|
$
|
4,157,037
|
|
|
$
|
4,157,037
|
|
|
$
|
4,386,147
|
|
|
$
|
4,386,147
|
|
VIE and other finance receivables, net of allowance for losses
(1)
|
88,300
|
|
|
93,944
|
|
|
103,609
|
|
|
110,342
|
|
Other receivables, net of allowance for losses
(1)
|
17,771
|
|
|
17,771
|
|
|
16,285
|
|
|
16,285
|
|
Mortgage loans held for sale, at fair value
|
232,770
|
|
|
232,770
|
|
|
124,508
|
|
|
124,508
|
|
Mortgage servicing rights, at fair value
|
41,697
|
|
|
41,697
|
|
|
29,287
|
|
|
29,287
|
|
Marketable securities, at fair value
|
76,687
|
|
|
76,687
|
|
|
84,994
|
|
|
84,994
|
|
Interest rate lock commitments, at fair value
(2)
|
6,072
|
|
|
6,072
|
|
|
4,934
|
|
|
4,934
|
|
Forward sale commitments, at fair value
(2)
|
659
|
|
|
659
|
|
|
—
|
|
|
—
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Term loan payable
(1)
|
242,730
|
|
|
431,872
|
|
|
325,558
|
|
|
423,504
|
|
VIE derivative liabilities, at fair value
|
50,432
|
|
|
50,432
|
|
|
66,519
|
|
|
66,519
|
|
VIE borrowings under revolving credit facilities and other similar borrowings
(1)
|
58,798
|
|
|
56,432
|
|
|
53,737
|
|
|
44,339
|
|
Other borrowings under revolving credit facilities and other similar borrowings
(1)
|
229,221
|
|
|
229,588
|
|
|
122,243
|
|
|
122,243
|
|
VIE long-term debt
(1)
|
57,268
|
|
|
62,939
|
|
|
194,211
|
|
|
196,663
|
|
VIE long-term debt issued by securitization and permanent financing trusts, at fair value
|
4,014,450
|
|
|
4,014,450
|
|
|
3,928,818
|
|
|
3,928,818
|
|
Forward sale commitments, at fair value
(3)
|
—
|
|
|
—
|
|
|
147
|
|
|
147
|
|
Installment obligations payable
(1)
|
76,687
|
|
|
76,687
|
|
|
84,994
|
|
|
84,994
|
|
(1)These represent financial instruments not recorded on the consolidated balance sheets at fair value. Such financial instruments would be classified as Level 3 within the fair value hierarchy.
(2) Included in other assets on the Company's consolidated balance sheets.
(3) Included in other liabilities on the Company's consolidated balance sheets.
7. VIE and Other Finance Receivables, at Fair Value
The Company has elected to fair value newly originated guaranteed structured settlements in accordance with ASC 825. The Company also elected to fair value newly originated lottery winnings effective January 1, 2013. VIE and other finance receivables for which the fair value option was elected consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
|
(In thousands)
|
Maturity value
|
|
$
|
6,584,344
|
|
|
$
|
6,876,687
|
|
Unearned income
|
|
(2,427,307
|
)
|
|
(2,490,540
|
)
|
Net carrying amount
|
|
$
|
4,157,037
|
|
|
$
|
4,386,147
|
|
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
Encumbrances on VIE and other finance receivables, at fair value, were as follows:
|
|
|
|
|
|
|
|
|
|
Encumbrance
|
|
December 31, 2016
|
|
December 31, 2015
|
|
|
(In thousands)
|
VIE long-term debt issued by securitization and permanent financing trusts
(2)
|
|
$
|
4,060,069
|
|
|
$
|
4,320,488
|
|
$100.0 million credit facility (JGW-S III)
(1)
|
|
27,966
|
|
|
1,664
|
|
$300.0 million credit facility (JGW V)
(1)
|
|
55,868
|
|
|
54,306
|
|
Encumbered VIE finance receivables
|
|
4,143,903
|
|
|
4,376,458
|
|
Not encumbered
|
|
13,134
|
|
|
9,689
|
|
Total VIE and other finance receivables, at fair value
|
|
$
|
4,157,037
|
|
|
$
|
4,386,147
|
|
(1) Refer to Note 16.
(2) Refer to Note 19.
As of
December 31, 2016
, the residual cash flows from the Company's finance receivables, at fair value, were pledged as collateral for one of the Company's permanent financing VIEs. Refer to Note 19 for additional information. As of
December 31, 2015
, the residual cash flows from the Company's finance receivables, at fair value, were pledged as collateral for the Residual Term Facility. Refer to Note 18 for additional information. As of
December 31, 2016
and 2015, the unsecuritized finance receivables, at fair value, were
$97.0 million
and
$65.7 million
, respectively, and were included within other finance receivables, at fair value on the Company’s consolidated balance sheets.
As of
December 31, 2016
, the expected cash flows of VIE and other finance receivables, at fair value, based on maturity value for the next five years and thereafter were as follows:
|
|
|
|
|
|
Year ended December 31,
|
|
Expected cash flows
|
|
|
(In thousands)
|
2017
|
|
$
|
498,724
|
|
2018
|
|
473,530
|
|
2019
|
|
460,148
|
|
2020
|
|
427,127
|
|
2021
|
|
405,690
|
|
Thereafter
|
|
4,319,125
|
|
Total
|
|
$
|
6,584,344
|
|
In February 2016, the Company completed a sale of the first pool of assets associated with its 2016-1 direct asset sale in which
$151.5 million
of total receivable balances ("TRB") purchases were sold for
$91.3 million
and the Company recognized a
$21.7 million
gain. In April 2016, the Company completed a sale of the second pool of assets associated with its 2016-1 direct asset sale in which
$115.8 million
of TRB purchases were sold for
$70.0 million
, and the Company realized an
$18.6 million
gain. In June 2016, the Company completed a sale of the first pool of assets associated with its 2016-2 direct asset sale in which
$81.3 million
of TRB purchases were sold for
$50.8 million
. In conjunction with this transaction, the Company realized a
$13.9 million
gain. In August 2016, the Company completed a sale of the second pool of assets associated with its 2016-2 direct asset sale in which
$93.6 million
of TRB purchases were sold for
$59.2 million
, and the Company realized a
$15.4 million
gain. The aforementioned gains were included in realized and unrealized gains on VIE and other finance receivables, long-term debt and derivatives in the Company's consolidated statements of operations. No servicing asset or liability was recognized in connection with the Company's direct asset sales.
In December 2015, the Company completed a direct asset sale in which
$47.2 million
of TRB was sold for
$20.8 million
. The Company recognized a
$5.0 million
gain, which is included in realized and unrealized gains on VIE and other finance receivables, long-term debt and derivatives in the Company's consolidated statements of operations.
The Company is engaged to service certain finance receivables it sold to third parties. Servicing fee revenue related to those receivables is included in servicing, broker, and other fees in the Company's consolidated statements of operations, and was as follows:
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(In thousands)
|
Servicing fee income
|
|
$
|
929
|
|
|
$
|
811
|
|
|
$
|
914
|
|
8. VIE and Other Finance Receivables, Net of Allowance for Losses
The Company did not elect the fair value option for VIE and other finance receivables, net of allowance for losses, which consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
|
(In thousands)
|
Structured settlements and annuities
|
|
$
|
67,872
|
|
|
$
|
72,121
|
|
Less: unearned income
|
|
(42,030
|
)
|
|
(45,825
|
)
|
|
|
25,842
|
|
|
26,296
|
|
Lottery winnings
|
|
63,957
|
|
|
70,589
|
|
Less: unearned income
|
|
(16,799
|
)
|
|
(20,153
|
)
|
|
|
47,158
|
|
|
50,436
|
|
Pre-settlement funding transactions
|
|
31,853
|
|
|
44,299
|
|
Less: unearned income
|
|
(441
|
)
|
|
(1,144
|
)
|
|
|
31,412
|
|
|
43,155
|
|
Attorney cost financing
|
|
616
|
|
|
821
|
|
Less: unearned income
|
|
—
|
|
|
—
|
|
|
|
616
|
|
|
821
|
|
VIE and other finance receivables
|
|
105,028
|
|
|
120,708
|
|
Less: allowance for losses
|
|
(11,084
|
)
|
|
(10,366
|
)
|
VIE and other finance receivables, net of allowances
|
|
$
|
93,944
|
|
|
$
|
110,342
|
|
Encumbrances on VIE and other finance receivables, net of allowance for losses, are as follows:
|
|
|
|
|
|
|
|
|
|
Encumbrance
|
|
December 31, 2016
|
|
December 31, 2015
|
|
|
(In thousands)
|
VIE long-term debt
(2)
|
|
$
|
69,354
|
|
|
$
|
74,473
|
|
$35 million pre-settlement credit facility
(1)
|
|
—
|
|
|
25,401
|
|
VIE and encumbered securitized debt
|
|
69,354
|
|
|
99,874
|
|
VIE unencumbered assets
|
|
15,971
|
|
|
—
|
|
Non-VIE unencumbered assets
|
|
8,619
|
|
|
10,468
|
|
Not encumbered
|
|
24,590
|
|
|
10,468
|
|
Total VIE and other finance receivables, net of allowances
|
|
$
|
93,944
|
|
|
$
|
110,342
|
|
(1) Refer to Note 16.
(2) Refer to Note 18.
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
As of
December 31, 2016
, the expected cash flows of structured settlements, annuities and lottery winnings based on maturity value for the next five years and thereafter are as follows:
|
|
|
|
|
|
Year Ended December 31,
|
|
Expected cash flows
|
|
|
(In thousands)
|
2017
|
|
$
|
13,209
|
|
2018
|
|
10,326
|
|
2019
|
|
10,241
|
|
2020
|
|
10,422
|
|
2021
|
|
10,674
|
|
Thereafter
|
|
76,957
|
|
Total
|
|
$
|
131,829
|
|
Excluded from the above table are pre-settlement funding transactions and attorney cost financing receivable balances of
$32.5 million
as of
December 31, 2016
, which do not have specified maturity dates.
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
Activity in the allowance for losses for VIE and other finance receivables is as follows
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Structured
settlements and
annuities
|
|
Lottery winnings
|
|
Pre-settlement
funding
transactions
|
|
Attorney cost
financing
|
|
Total
|
|
(In thousands)
|
For the year ended December 31, 2016
|
|
Allowance for losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015
|
$
|
(69
|
)
|
|
$
|
—
|
|
|
$
|
(10,013
|
)
|
|
$
|
(284
|
)
|
|
$
|
(10,366
|
)
|
Credit (provision) for loss
|
91
|
|
|
(7
|
)
|
|
(3,515
|
)
|
|
—
|
|
|
(3,431
|
)
|
Charge-offs
|
32
|
|
|
7
|
|
|
2,821
|
|
|
—
|
|
|
2,860
|
|
Recoveries
|
(147
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(147
|
)
|
Balance as of December 31, 2016
|
$
|
(93
|
)
|
|
$
|
—
|
|
|
$
|
(10,707
|
)
|
|
$
|
(284
|
)
|
|
$
|
(11,084
|
)
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
(93
|
)
|
|
$
|
—
|
|
|
$
|
(2,091
|
)
|
|
$
|
(284
|
)
|
|
$
|
(2,468
|
)
|
Collectively evaluated for impairment
|
—
|
|
|
—
|
|
|
(8,616
|
)
|
|
—
|
|
|
(8,616
|
)
|
Balance as of December 31, 2016
|
$
|
(93
|
)
|
|
$
|
—
|
|
|
$
|
(10,707
|
)
|
|
$
|
(284
|
)
|
|
$
|
(11,084
|
)
|
|
|
|
|
|
|
|
|
|
|
VIE and other finance receivables, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
25,749
|
|
|
$
|
47,158
|
|
|
$
|
85
|
|
|
$
|
332
|
|
|
$
|
73,324
|
|
Collectively evaluated for impairment
|
—
|
|
|
—
|
|
|
20,620
|
|
|
—
|
|
|
20,620
|
|
Balance as of December 31, 2016
|
$
|
25,749
|
|
|
$
|
47,158
|
|
|
$
|
20,705
|
|
|
$
|
332
|
|
|
$
|
93,944
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2014
|
$
|
(56
|
)
|
|
$
|
(3
|
)
|
|
$
|
(9,786
|
)
|
|
$
|
(283
|
)
|
|
$
|
(10,128
|
)
|
Provision for loss
|
(192
|
)
|
|
(66
|
)
|
|
(4,288
|
)
|
|
—
|
|
|
(4,546
|
)
|
Charge-offs
|
195
|
|
|
69
|
|
|
4,064
|
|
|
—
|
|
|
4,328
|
|
Recoveries
|
(16
|
)
|
|
—
|
|
|
(3
|
)
|
|
(1
|
)
|
|
(20
|
)
|
Balance as of December 31, 2015
|
$
|
(69
|
)
|
|
$
|
—
|
|
|
$
|
(10,013
|
)
|
|
$
|
(284
|
)
|
|
$
|
(10,366
|
)
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
(69
|
)
|
|
$
|
—
|
|
|
$
|
(2,243
|
)
|
|
$
|
(284
|
)
|
|
$
|
(2,596
|
)
|
Collectively evaluated for impairment
|
—
|
|
|
—
|
|
|
(7,770
|
)
|
|
—
|
|
|
(7,770
|
)
|
Balance as of December 31, 2015
|
$
|
(69
|
)
|
|
$
|
—
|
|
|
$
|
(10,013
|
)
|
|
$
|
(284
|
)
|
|
$
|
(10,366
|
)
|
|
|
|
|
|
|
|
|
|
|
VIE and other finance receivables, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
26,227
|
|
|
$
|
50,436
|
|
|
$
|
125
|
|
|
$
|
537
|
|
|
$
|
77,325
|
|
Collectively evaluated for impairment
|
—
|
|
|
—
|
|
|
33,017
|
|
|
—
|
|
|
33,017
|
|
Balance as of December 31, 2015
|
$
|
26,227
|
|
|
$
|
50,436
|
|
|
$
|
33,142
|
|
|
$
|
537
|
|
|
$
|
110,342
|
|
Management makes estimates in determining the allowance for losses on finance receivables. Consideration is given to a variety of factors in establishing these estimates, including current economic conditions and delinquency rates. Because the allowance for losses is dependent on general and other economic conditions beyond the Company's control, it is possible that the estimate for the allowance for losses could differ materially from the currently reported amount in the near term.
The Company suspends recognizing interest income on a receivable when it is probable that the Company will be unable to collect all payments according to the contractual terms of the underlying agreement. Management considers all information available in assessing collectability. Collectability is measured on a receivable-by-receivable basis by either the present value of
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
estimated future cash flows discounted at the effective rate, the observable market price for the receivable or the fair value of the collateral if the receivable is collateral dependent. Large groups of smaller balance homogeneous receivables, such as pre-settlement funding transactions, are collectively assessed for collectability.
Payments received on past due receivables and finance receivables on which the Company has suspended recognizing revenue are applied first to principal and then to accrued interest. Additionally, the Company generally does not resume recognition of interest income once it has been suspended. As of
December 31, 2016
, the Company had discontinued recognition of income on pre-settlement funding transactions in the amount of
$14.7 million
and attorney cost financing receivables in the amount of
$0.4 million
. As of
December 31, 2015
, the Company had discontinued recognition of income on pre-settlement funding transactions in the amount of
$12.2 million
and attorney cost financing receivables in the amount of
$0.4 million
.
Pre-settlement funding transactions and attorney cost financing are usually outstanding for a period of time exceeding
one
year. The Company assesses the status of the individual pre-settlement funding transactions to determine whether there are any case specific concerns that need to be addressed and included in the allowance for losses on finance receivables. The Company also analyzes pre-settlement funding transactions on a portfolio basis based on the age of the advances as the ability to collect is correlated to the duration of time the advances are outstanding.
The following table presents gross finance receivables related to pre-settlement funding transactions based on their year of origination as of:
|
|
|
|
|
|
|
|
|
|
Year of Origination
|
|
December 31, 2016
|
|
December 31, 2015
|
|
|
(In thousands
)
|
2009
|
|
$
|
690
|
|
|
$
|
1,229
|
|
2010
|
|
1,848
|
|
|
2,759
|
|
2011
|
|
3,891
|
|
|
5,597
|
|
2012
|
|
4,279
|
|
|
6,212
|
|
2013
|
|
5,390
|
|
|
6,772
|
|
2014
|
|
13,085
|
|
|
17,773
|
|
2015
|
|
2,670
|
|
|
3,957
|
|
2016
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
31,853
|
|
|
$
|
44,299
|
|
Based on historical portfolio experience, the Company reserved for pre-settlement funding transactions and attorney cost financing in the amounts of
$10.7 million
and
$0.3 million
, respectively, as of
December 31, 2016
, and in the amounts of
$10.0 million
and
$0.3 million
, respectively, as of
December 31, 2015
.
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
The following table presents portfolio delinquency status excluding pre-settlement funding transactions and attorney cost financing as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59
Days
Past Due
|
|
60-89
Days
Past Due
|
|
Greater
than
90 Days
|
|
Total
Past Due
|
|
Current
|
|
VIE and Other
Finance
Receivables, net
|
|
VIE and Other
Finance
Receivables, net
> 90 days
accruing
|
|
(In thousands)
|
December 31, 2016
|
|
Structured settlements and annuities
|
$
|
11
|
|
|
$
|
5
|
|
|
$
|
88
|
|
|
$
|
104
|
|
|
$
|
25,645
|
|
|
$
|
25,749
|
|
|
$
|
—
|
|
Lottery winnings
|
—
|
|
|
4
|
|
|
205
|
|
|
209
|
|
|
46,949
|
|
|
47,158
|
|
|
—
|
|
Total
|
$
|
11
|
|
|
$
|
9
|
|
|
$
|
293
|
|
|
$
|
313
|
|
|
$
|
72,594
|
|
|
$
|
72,907
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Structured settlements and annuities
|
$
|
9
|
|
|
$
|
8
|
|
|
$
|
481
|
|
|
$
|
498
|
|
|
$
|
25,729
|
|
|
$
|
26,227
|
|
|
$
|
—
|
|
Lottery winnings
|
3
|
|
|
3
|
|
|
206
|
|
|
212
|
|
|
50,224
|
|
|
50,436
|
|
|
—
|
|
Total
|
$
|
12
|
|
|
$
|
11
|
|
|
$
|
687
|
|
|
$
|
710
|
|
|
$
|
75,953
|
|
|
$
|
76,663
|
|
|
$
|
—
|
|
Pre-settlement funding transactions and attorney cost financing do not have set due dates as payment is dependent on the underlying case settling.
9. Other Receivables, Net of Allowances for Losses
Other receivables include the following as of:
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
(In thousands)
|
Advances receivable
|
$
|
1,800
|
|
|
$
|
2,312
|
|
Notes receivable
|
9,627
|
|
|
8,811
|
|
Tax withholding receivables on lottery winnings
|
246
|
|
|
1,157
|
|
Due from affiliates
|
—
|
|
|
24
|
|
Broker fee receivable
|
984
|
|
|
14
|
|
Other
|
5,394
|
|
|
4,240
|
|
Other receivables, gross
|
18,051
|
|
|
16,558
|
|
Less: allowance for losses
|
(280
|
)
|
|
(273
|
)
|
Other receivables, net of allowances for losses
|
$
|
17,771
|
|
|
$
|
16,285
|
|
The Company's lottery and structured settlements businesses in some cases will advance a portion of the purchase price to a customer prior to the closing of the transaction, which are included in advances receivable above.
Notes receivable represents receivables from a third party for the sale of LCSS assets.
Tax withholding receivables on lottery winnings represents the portion of lottery collections withheld for state and federal agencies. The Company obtains the withholding refund once appropriate tax filings are completed for the respective jurisdictions.
Broker fee receivable represents receivables from third parties for disbursements made in connection with brokered TRB.
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
Activity in the allowance for doubtful accounts for other receivables for the following years ended was as follows:
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
(In thousands)
|
Beginning balance
|
$
|
273
|
|
|
$
|
204
|
|
Provision for losses
|
12
|
|
|
69
|
|
Recoveries
|
(5
|
)
|
|
—
|
|
Other
|
—
|
|
|
—
|
|
Ending balance
|
$
|
280
|
|
|
$
|
273
|
|
10. Mortgage Loans Held for Sale, at Fair Value
Mortgage loans held for sale, at fair value, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
|
(In thousands)
|
Unpaid principal balance of mortgage loans held for sale
|
|
$
|
230,261
|
|
|
$
|
120,253
|
|
Fair value adjustment
|
|
2,509
|
|
|
4,255
|
|
Mortgage loans held for sale, at fair value
|
|
$
|
232,770
|
|
|
$
|
124,508
|
|
A reconciliation of the changes in mortgage loans held for sale, at fair value, is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
|
(In thousands)
|
Balance at beginning of year
|
|
$
|
124,508
|
|
|
$
|
—
|
|
Acquired through Home Lending acquisition
|
|
—
|
|
|
131,325
|
|
Originations and purchases of mortgage loans held for sale, net of fees
|
|
3,441,939
|
|
|
847,917
|
|
Proceeds from sale of and principal payments on mortgage loans held for sale
|
|
(3,408,065
|
)
|
|
(872,526
|
)
|
Net change in fair value of mortgage loans held for sale
|
|
74,388
|
|
|
17,792
|
|
Mortgage loans held for sale, at fair value
|
|
$
|
232,770
|
|
|
$
|
124,508
|
|
As the named servicer, the Company has the option to purchase any individual loan in a Ginnie Mae securitization pool if that loan meets certain criteria, including being delinquent greater than
90
days. In accordance with ASC 860, the Company recorded an asset and a corresponding liability, included within other assets and other liabilities on the Company's consolidated balance sheets, equal to the principal amount of the loans and accrued interest of
$39.7 million
and
$45.8 million
as of
December 31, 2016
and
2015
, respectively.
For the fiscal year ended December 31, 2016
, and for the period from July 31, 2015 to December 31, 2015, the Company repurchased
$17.7 million
and
$5.0 million
, respectively, of mortgage loans from Ginnie Mae securitization pools with the intent to re-pool them into new Ginnie Mae securitizations or otherwise to sell to third-party investors.
The Company did not have any mortgage loans held for sale on non-accrual status as of
December 31, 2016
or
2015
.
Loan Servicing and Repurchase Reserve
Mortgage loans sold to investors by the Company which met investor and agency underwriting guidelines at the time of sale may be subject to repurchase in the event of specific default by the borrower, subsequent discovery that underwriting standards were not met or breach of representations and warranties made by the Company. In the event of a breach of the Company's representations and warranties, the Company may be required to either repurchase the mortgage loans with identified defects or indemnify the investors. The Company has established a reserve for potential losses related to these representations and warranties. The Company has also established a reserve for potential losses related to impaired loans within its servicing portfolio. In assessing
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
the adequacy of the reserve, the Company evaluates various factors, including actual write-offs during the period, historical loss experience, known delinquent loans and GSE guidelines. Actual losses incurred are reflected as write-offs against the reserve liability. The loan servicing and repurchase reserve is included within other liabilities on the Company's consolidated balance sheets. The associated expense is included in the provision for losses in the Company's consolidated statements of operations.
The activity in the loan servicing and repurchase reserve was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
|
(In thousands)
|
Balance at beginning of year
|
|
$
|
2,575
|
|
|
$
|
—
|
|
Acquired through Home Lending acquisition
|
|
—
|
|
|
2,331
|
|
Provision for loan servicing and repurchases
|
|
2,527
|
|
|
1,030
|
|
Write-offs, net
|
|
(2,092
|
)
|
|
(786
|
)
|
Total
|
|
$
|
3,010
|
|
|
$
|
2,575
|
|
Due to the uncertainty in the various estimates with the loan servicing and repurchase reserve, there may be a range of losses in excess of the recorded loan servicing and repurchase reserve that is reasonably possible. The estimate of the range of possible loss does not represent a probable loss, and is based on current available information, significant judgment, and a number of assumptions that are subject to change.
11. Mortgage Servicing Rights, at Fair Value
The activity of MSRs was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
|
(In thousands)
|
Balance at beginning of year
|
|
$
|
29,287
|
|
|
$
|
—
|
|
Acquired through Home Lending acquisition
|
|
—
|
|
|
27,638
|
|
Additions due to loans sold, servicing retained
|
|
17,294
|
|
|
3,752
|
|
Reductions due to loan payoffs and foreclosures
|
|
(7,178
|
)
|
|
(1,637
|
)
|
Fair value adjustment
|
|
2,294
|
|
|
(466
|
)
|
Mortgage servicing rights, at fair value
|
|
$
|
41,697
|
|
|
$
|
29,287
|
|
The unpaid principal balance of mortgage loans serviced was
$4.1 billion
and
$3.0 billion
as of
December 31, 2016
and
2015
, respectively.
The key assumptions used in determining the fair value of the Company's MSRs were as follows:
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
|
Range (Weighted Average)
|
Discount rate
|
|
9.50% - 14.06% (10.11%)
|
|
9.54% - 14.06% (10.27%)
|
Prepayment speed
|
|
6.04% - 21.82% (7.96%)
|
|
8.24% - 20.56% (9.06%)
|
Cost of servicing
|
|
$65 - $90 ($73)
|
|
$65 - $90 ($75)
|
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
The hypothetical effect of an adverse change in these key assumptions that would result in a decrease in fair values are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
Discount rate:
|
|
|
|
|
Effect on value - 100 basis points adverse change
|
|
$
|
(1,612
|
)
|
|
$
|
(1,082
|
)
|
Effect on value - 200 basis points adverse change
|
|
$
|
(3,109
|
)
|
|
$
|
(2,088
|
)
|
Prepayment speed:
|
|
|
|
|
Effect on value - 5% adverse change
|
|
$
|
(686
|
)
|
|
$
|
(542
|
)
|
Effect on value - 10% adverse change
|
|
$
|
(1,370
|
)
|
|
$
|
(1,085
|
)
|
Cost of servicing:
|
|
|
|
|
Effect on value - 5% adverse change
|
|
$
|
(327
|
)
|
|
$
|
(232
|
)
|
Effect on value - 10% adverse change
|
|
$
|
(653
|
)
|
|
$
|
(463
|
)
|
These sensitivities are hypothetical and should be used with caution. As the table demonstrates, the Company's methodology for estimating the fair value of MSRs is highly sensitive to changes in assumptions. For example, actual prepayment experience may differ and any difference may have a material effect on the fair value of MSRs. Changes in fair value resulting from changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in the table, the effect of a variation in a particular assumption on the fair value of the MSRs is calculated without changing any other assumption; however, changes in one factor may be associated with changes in another (for example, decreases in market interest rates may indicate higher prepayments; however, this may be partially offset by lower prepayment due to other factors such as a borrower's diminished opportunity to refinance), which may magnify or counteract the sensitivities. Thus, any measurement of the fair value of MSRs is limited by the conditions existing and assumptions made as of a particular point in time. Those assumptions may not be appropriate if they are applied to a different point in time.
12. Premises and Equipment
Premises and equipment includes the following as of:
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
(In thousands)
|
Computer software and equipment
|
$
|
7,612
|
|
|
$
|
8,096
|
|
Furniture, fixtures and equipment
|
5,975
|
|
|
4,424
|
|
Leasehold improvements
|
1,115
|
|
|
1,115
|
|
Total fixed assets at cost
|
14,702
|
|
|
13,635
|
|
Less: accumulated depreciation
|
(10,697
|
)
|
|
(7,961
|
)
|
Premises and equipment, net of accumulated depreciation
|
$
|
4,005
|
|
|
$
|
5,674
|
|
Depreciation of premises and equipment is included in depreciation and amortization in the Company's consolidated statements of operations. Depreciation expense for the years ended
December 31, 2016
,
2015
and
2014
, which includes amortization of assets recorded under capital leases, was
$2.7 million
,
$2.4 million
and
$1.7 million
, respectively.
13. Debt Issuance Costs
Subsequent to the Company's adoption of ASUs 2015-03 and 2015-15, debt issuance costs are capitalized and included as a reduction to the related debt liability (i.e. term loan payable, VIE borrowings under revolving credit facilities and other similar borrowings and VIE long-term debt) on the Company's consolidated balance sheets.
Debt issuance costs consist of the following as of:
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
(In thousands)
|
Debt issuance costs
|
$
|
44,717
|
|
|
$
|
45,678
|
|
Less: accumulated amortization
|
(31,250
|
)
|
|
(21,812
|
)
|
Unamortized debt issuance costs
|
$
|
13,467
|
|
|
$
|
23,866
|
|
Amortization expense for the years ended
December 31, 2016
,
2015
and
2014
was
$13.3 million
,
$7.7 million
and
$7.7 million
, respectively, and is included in interest expense in the Company's consolidated statements of operations.
Debt issuance costs related to VIE long-term debt issued by securitization and permanent financing trusts, at fair value, are expensed as incurred and included in debt issuance expense in the Company's consolidated statements of operations, and were as follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
Debt issuance costs related to securitizations
|
$
|
5,117
|
|
|
$
|
6,741
|
|
|
$
|
8,683
|
|
14. Operating and Capital Leases
The Company has commitments under operating leases, principally for office space, with various expiration dates through
2022
. As of
December 31, 2016
, the following summarizes future minimum lease payments due under non-cancelable operating leases for the next five years and thereafter are as follows:
|
|
|
|
|
|
Year Ended December 31,
|
|
Operating Leases
|
|
|
(In thousands)
|
2017
|
|
$
|
3,019
|
|
2018
|
|
2,209
|
|
2019
|
|
2,007
|
|
2020
|
|
2,043
|
|
2021
|
|
2,065
|
|
Thereafter
|
|
1,515
|
|
Total
|
|
$
|
12,858
|
|
Lease expense for office and equipment is included in general and administrative expense in the Company's consolidated statements of operations and was as follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
Lease expense
|
$
|
4,119
|
|
|
$
|
2,387
|
|
|
$
|
1,695
|
|
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
As of
December 31, 2016
, the following summarizes future minimum lease payments due under capital leases for the next five years and thereafter are as follows:
|
|
|
|
|
|
Year Ended December 31,
|
|
Capital Leases
|
|
|
(In thousands)
|
2017
|
|
$
|
65
|
|
2018
|
|
65
|
|
2019
|
|
65
|
|
2020
|
|
59
|
|
2021
|
|
—
|
|
Thereafter
|
|
—
|
|
Total
|
|
$
|
254
|
|
15. Term Loan Payable
The Company has a senior secured credit facility (the "Credit Facility") that consists of a term loan (the "Term Loan") with an outstanding principal balance of
$449.5 million
as of
December 31, 2016
and
December 31, 2015
, and a
$20.0 million
revolving commitment. There are no principal payments due on the Term Loan until its maturity in February 2019. The revolving commitment matures in August 2017. Certain of the Company's subsidiaries are guarantors of the Credit Facility and substantially all of the non-securitized and non-collateralized assets of the Company are pledged as security for the repayment of borrowings outstanding under the Credit Facility.
At each interest reset date, the Company has the option to elect that the Term Loan be either a Eurodollar loan or a Base Rate loan. If a Eurodollar loan, interest on the Term Loan accrues at either Libor or
1.00%
(whichever is greater) plus a spread of
6.00%
. If a Base Rate loan, interest accrues at Prime or
2.00%
(whichever is greater) plus a spread of
5.00%
. As of
December 31, 2016
, the interest rate on the Term Loan was
7.00%
, as it is currently a Eurodollar loan. The revolving commitment has the same interest rate terms as the Term Loan. In addition, the revolving commitment is subject to an unused fee of
0.5%
per annum and provides for the issuance of letters of credit equal to
$10.0 million
, subject to customary terms and fees.
The Credit Facility requires the Company, to the extent that as of the last day of any fiscal quarter there are outstanding balances on the revolving commitment that exceed specific thresholds (generally
15%
of the
$20.0 million
borrowing capacity, or
$3.0 million
), to comply with a maximum total leverage ratio. The total leverage ratio is calculated by dividing total funded debt (as defined in the Credit Facility) less unrestricted cash and cash equivalents by Consolidated Adjusted Earnings Before Interest Expense, Income Taxes, Depreciation and Amortization (as defined in the Credit Facility) for the period of the four fiscal quarters most recently ended. The maximum required total leverage ratio was
4.75
to 1.00 as of
December 31, 2016
and
5.00
to 1.00 as of
December 31, 2015
. As of
December 31, 2016
and
2015
, there were
no
outstanding borrowings under the revolving commitment, and, as a result, the maximum total leverage ratio requirement pertaining to the
$20.0 million
revolving commitment was not applicable. Had the leverage ratio requirement been applicable as of
December 31, 2016
, the Company would not have satisfied the maximum total leverage ratio requirement and would have been required to repay the outstanding borrowings on the revolver in excess of the specified threshold. The Credit Facility also limits the Company and certain of its subsidiaries from engaging in certain activities, including incurring additional indebtedness and liens, making investments, transacting with affiliates, disposing of assets, and various other activities.
In addition, the Credit Facility limits, with certain exceptions, certain of the Company's subsidiaries from paying cash dividends and making loans to the Company, the calculation of which is performed annually as of the end of each fiscal year. As a result,
$0.3 million
of the Company's
$40.4 million
in stockholders' deficit as of
December 31, 2016
and
$56.2 million
of the Company's
$56.2 million
in stockholders' equity as of
December 31, 2015
, respectively, was free of limitations on the payment of dividends.
Interest expense relating to the Term Loan for the years ended
December 31, 2016
,
2015
and
2014
was
$40.6 million
,
$40.4 million
and
$40.4 million
, respectively.
On July 15, 2015, the Credit Facility was amended to permit mortgage financing indebtedness in connection with the acquisition of Home Lending. The Company accounted for this amendment as a debt modification. In connection with the amendment, the Company incurred
$0.7 million
in consent fees which will be deferred and amortized as an adjustment to interest
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
expense over the remaining life of the modified debt. In addition, the Company paid
$0.2 million
in fees which were included in professional and consulting fees in the Company's consolidated statements of operations.
16. VIE Borrowings Under Revolving Credit Facilities and Other Similar Borrowings
VIE borrowings under revolving credit facilities and other similar borrowings on the Company's consolidated balance sheets consist of the following as of:
|
|
|
|
|
|
|
|
|
|
|
|
Entity
|
|
December 31, 2016
|
|
December 31, 2015
|
|
|
|
(In thousands)
|
$100.0 million variable funding note facility with interest payable monthly (6.5% as of December 31, 2016 and 2015). The commitment period ends on May 19, 2018 and is collateralized by JGW-S III, LLC's ("JGW-S III") structured settlements receivables. JGW-S III is charged monthly an unused fee of 0.75% per annum for the undrawn balance of its line of credit.
|
JGW-S III
|
|
$
|
18,912
|
|
|
$
|
1,024
|
|
$50.0 million credit facility, interest payable monthly at the rate of LIBOR plus an applicable margin (3.49% at December 31, 2015). The facility was collateralized by JGW IV, LLC ("JGW IV") structured settlement and annuity receivables. JGW IV was charged monthly an unused fee of 0.50% per annum for the undrawn balance of its line of credit. The facility was terminated in January 2016.
(1)
|
JGW IV
|
|
—
|
|
|
(567
|
)
|
$300.0 million multi-tranche and lender credit facility with interest payable monthly as follows: Tranche A rate is 3.30% plus either the LIBOR or the Commercial Paper rate depending on the lender (3.92% and 4.43% at December 31, 2016 and 3.24% and 3.52% at December 31, 2015); Tranche B rate is 5.80% plus LIBOR (6.42% at December 31, 2016 and 5.74% at December 31, 2015). The commitment period ends on July 24, 2017 and is collateralized by JGW V, LLC's ("JGW V") structured settlements, annuity and lottery receivables. JGW V was charged monthly an unused fee of 0.625% per annum for the undrawn balance of its line of credit.
|
JGW V
|
|
37,520
|
|
|
36,013
|
|
$300.0 million credit facility, interest payable monthly at 2.75% plus an applicable margin (3.22% at December 31, 2015). The facility was collateralized by JGW VII, LLC's ("JGW VII") structured settlements, annuity and lottery receivables. JGW VII was charged monthly an unused fee of 0.50% per annum for the undrawn balance of its line of credit. The facility was terminated in May 2016.
(1)
|
JGW VII
|
|
—
|
|
|
(1,231
|
)
|
Term advance facility, consisting of a single class requiring minimum principal payments with interest payable monthly at the lender's "prime rate" plus 1.00%, subject to a floor of 4.50% (4.50% at December 31, 2015). The facility was collateralized by certain pre-settlement receivables. The facility was terminated on August 11, 2016.
|
Peach One
|
|
—
|
|
|
9,100
|
|
Total VIE borrowings under revolving credit facilities and other similar borrowings
|
|
|
$
|
56,432
|
|
|
$
|
44,339
|
|
(1) As of December 31, 2015, there were
no
outstanding borrowings. As a result of adopting ASU 2015-03 & ASU 2015-15, debt issuance costs related to a recognized debt liability are deducted from the carrying amount of that debt liability or shown as an asset.
In January 2016, the Company terminated a
$50.0 million
credit facility which had
no
outstanding balance as of December 31, 2015. The facility had an original maturity date of October 2, 2016 and was collateralized by JGW IV, LLC's structured settlement and annuity receivables. Interest was payable monthly at the rate of LIBOR plus an applicable margin (
3.49%
at December 31, 2015) and there was an unused fee of
0.50%
per annum for the undrawn balance of this line of credit. No fees were paid to terminate this facility. The Company expensed
$0.5 million
of unamortized debt issuance costs in connection with the termination of this credit facility, which was included in interest expense in the Company's consolidated statements of operations.
In April 2016, the Company modified the terms of the credit facility collateralized by JGW VII, LLC to decrease the availability from
$300.0 million
to
$100.0 million
. In May 2016, the Company terminated the
$100.0 million
facility. The facility had an original maturity date of November 15, 2016 and was collateralized by JGW VII, LLC's structured settlement, annuity and
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
lottery receivables. The Company expensed
$1.1 million
of unamortized debt issuance costs in connection with the termination of this credit facility, which was included in interest expense in the Company's consolidated statements of operations.
In May 2016, the Company modified the terms of its
$300.0 million
multi-tranche and lender credit facility collateralized by JGW V, extending the commitment termination date from July 24, 2016 to July 24, 2017 and changing the facility termination date to November 13, 2017. As part of the modification, the base interest rate on each tranche was increased by
0.30%
. The Company incurred
$1.5 million
in debt issuance costs in connection with the modification which will be amortized over the life of the facility and included in interest expense in the Company's consolidated statements of operations.
In June 2015, the Company amended its
$100.0 million
variable funding note facility to reduce the unused fee from
1.0%
to
0.75%
and to reduce the interest rate from
9.0%
to
6.5%
for outstanding borrowings less than
$50.0 million
. If outstanding borrowings under the facility exceed
$50.0 million
, the interest rate increases to
9.0%
on the total outstanding balance. In May 2016, the commitment period of the
$100.0 million
credit facility of JGW-S III, LLC was modified to end on May 19, 2018 followed by an
18
-month amortization period. The facility originally had a
two
-year revolving period upon notice by the issuer or the note holder with all principal and interest outstanding payable no later than October 15, 2048.
In June 2015, the counterparty to the
$35.0 million
Peach One credit facility notified the Company it would not extend the facility's revolving maturity date past December 31, 2015. As a result, the principal amount outstanding under the facility as of December 31, 2015 converted into a single class "term advance" requiring minimum principal payments over the subsequent
24
-month amortization period with interest payable monthly at
4.5%
. In August 2016, the Company made principal payments to fully repay its term advance facility and then terminated the facility which was collateralized by certain pre-settlement receivables. The Company incurred less than
$0.1 million
in fees related to the termination.
Interest expense, including unused fees, for the years ended
December 31, 2016
,
2015
and
2014
related to borrowings under revolving credit facilities and other similar borrowings was
$8.2 million
,
$9.0 million
and
$9.0 million
, respectively.
The weighted average interest rate on outstanding VIE borrowings under revolving credit facilities and other similar borrowings as of
December 31, 2016
and
2015
was
5.00%
and
4.15%
, respectively.
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
17. Other Borrowings Under Revolving Credit Facilities and Other Similar Borrowings
The Company had the following lines of credit with various financial institutions, which primarily are used for funding mortgage loans held for sale, as of:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
|
(In thousands)
|
$25.0 million warehouse line of credit maturing on January 6, 2017 with an interest rate of LIBOR plus 2.15%, subject to a floor of 2.50% (2.87% as of December 31, 2016 and 2.68% as of December 31, 2015) and a non-usage fee of 0.25%.
|
|
$
|
13,057
|
|
|
$
|
32,611
|
|
$95.0 million warehouse line of credit maturing on February 10, 2017 with an interest rate of LIBOR plus 2.35%, subject to a floor of 2.50% (3.07% as of December 31, 2016 and 2.68% as of December 31, 2015) and a non-usage fee of 0.25%.
|
|
65,565
|
|
|
33,530
|
|
$75.0 million warehouse line of credit maturing on June 16, 2017 with an interest rate of LIBOR plus 2.25%, subject to a floor of 2.50% (2.97% as of December 31, 2016 and 2.68% as of December 31, 2015). The facility does not incur a non-usage fee.
|
|
39,140
|
|
|
9,414
|
|
$70.0 million warehouse line of credit maturing on September 14, 2017 with an interest rate of LIBOR plus 2.60%, subject to a floor of 3.10% (3.32% as of December 31, 2016 and 3.50% as of December 31, 2015) and a non-usage fee of 0.25%.
|
|
39,347
|
|
|
16,031
|
|
$100.0 million warehouse line of credit maturing on September 28, 2017 with an interest rate of LIBOR plus 2.25% (2.97% as of December 31, 2016 and 2.68% as of December 31, 2015). The facility does not incur a non-usage fee.
|
|
68,479
|
|
|
26,657
|
|
$10.0 million operating line of credit maturing June 16, 2017 with an interest rate of Prime plus 0.50%, subject to a floor of 5.00% (5.00% as of December 31, 2016 and 5.00% as of December 31, 2015) and a non-usage fee of 0.50%.
|
|
4,000
|
|
|
4,000
|
|
Total other borrowings under revolving credit facilities and other similar borrowings
|
|
$
|
229,588
|
|
|
$
|
122,243
|
|
In August 2016, the Company increased the capacity of its
$6.0 million
operating line of credit to
$10.0 million
and extended the maturity date of this line of credit through June 16, 2017. The Company may only draw on a balance of
$4.0 million
until regulatory approval is obtained.
On January 2, 2017, the capacity of the
$70.0 million
warehouse line of credit decreased to
$50.0 million
and it will remain at that level until the maturity of the line. Also in January 2017, the Company (i) extended the renewal date of its
$25.0 million
warehouse line of credit from January 6, 2017 to February 5, 2017, at which time the line expired and was not renewed, (ii) increased the capacity of its
$75.0 million
warehouse line of credit to
$100.0 million
and (iii) extended the renewal date of its
$95.0 million
warehouse line of credit from February 10, 2017 to February 9, 2018. In March 2017, we canceled the
$100.0 million
warehouse line of credit that was scheduled to mature in September 2017.
Interest expense, including non-usage fees, for the years ended
December 31, 2016
and
2015
related to other borrowings under revolving credit facilities and other similar borrowings was
$5.8 million
and
$1.4 million
, respectively. The weighted average interest rate on outstanding other borrowings under revolving credit facilities and other similar borrowings as of
December 31, 2016
and
2015
was
2.86%
and
2.84%
, respectively.
As of
December 31, 2016
and
2015
, the Company had pledged mortgage loans held for sale as collateral under the above warehouse lines of credit. The above agreements also contain covenants which include certain financial requirements, including maintenance of maximum adjusted leverage ratio, minimum net worth, minimum tangible net worth, minimum liquidity, minimum current ratio, minimum unencumbered cash, positive net income, and limitations on additional indebtedness and sale of assets, as defined in the agreements. The Company was in compliance with its debt covenants as of
December 31, 2016
and
2015
. Additionally, as of
December 31, 2016
and
2015
, the Company had pledged MSRs as collateral under its operating line of credit.
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
18. VIE Long-Term Debt
The debt issued by the Company's SPEs is recourse only to the respective entities that issued the debt and is non-recourse to the Company and its other subsidiaries. Certain subsidiaries of the Company continue to receive fees for servicing the securitized assets which are eliminated upon consolidation. In addition, the risk to the Company's non-SPE subsidiaries from SPE losses is limited to cash reserves, residual interest amounts and the repurchase of structured settlement payment streams that are subsequently determined to be ineligible for inclusion in the securitization or permanent financing trusts. The VIE long-term debt consisted of the following as of:
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
(In thousands)
|
PLMT Permanent Facility
|
$
|
37,630
|
|
|
$
|
41,265
|
|
Residual Term Facility
|
—
|
|
|
128,428
|
|
Long-Term Pre-settlement Facility
|
5,427
|
|
|
6,590
|
|
2012-A Facility
|
708
|
|
|
944
|
|
LCSS Facility (2010-C)
|
12,015
|
|
|
12,375
|
|
LCSS Facility (2010-D)
|
7,159
|
|
|
7,061
|
|
Total VIE long-term debt
|
$
|
62,939
|
|
|
$
|
196,663
|
|
PLMT Permanent Facility
The Company has a
$75.0 million
floating rate asset backed loan with interest payable monthly at
one-month LIBOR
plus
1.25%
which is currently in a runoff mode with the outstanding balance being reduced by periodic cash collections on the underlying lottery receivables. The interest rate on this loan was
1.87%
and
1.68%
at
December 31, 2016
and
2015
, respectively. The loan matures on October 30, 2040.
The debt agreement with the counterparty requires Peachtree Lottery Master Trust ("PLMT") to hedge the notional amount of the debt with a pay fixed and receive variable interest rate swap with the counterparty. The swaps are included within VIE derivative liabilities, at fair value, on the Company's consolidated balance sheets.
Residual Term Facility
The Company had a
$133.0 million
Residual Term Facility (the "Residual Term Facility") that was scheduled to mature on May 15, 2021 and was collateralized by the cash flows from residual interests related to
28
securitizations. Interest accrued on the notes issued under the Residual Term Facility at a rate of
7.25%
per annum with interest and principal payable monthly from cash flows from the collateralized residual interests.
On September 2, 2016, the Company issued
$207.5 million
in notes collateralized by the residual asset cash flows and reserve cash associated with
36
of the Company's securitizations with outstanding principle balances. Proceeds from the issuance of the notes were used, in part, to repay the
$131.4 million
outstanding principal balance on the Residual Term Facility. The Company incurred
$0.4 million
in debt termination costs and expensed
$3.3 million
of unamortized debt issuance costs in connection with the termination of the Residual Term Facility, which were included in interest expense in the Company's consolidated statements of operations.
Long-Term Pre-settlement Facility
In 2011, the Company issued
three
fixed rate notes totaling
$45.1 million
collateralized by pre-settlement funding transactions, of which,
$5.4 million
and
$6.6 million
principal amount remained outstanding as of
December 31, 2016
and
2015
, respectively. In June 2016, the maturity date of each of the notes was extended until the sale of the collateral, at which point the proceeds will be distributed to the holders of the notes in full satisfaction of the Company's debt obligations. To the extent that there are sufficient cash receipts from collateralized pre-settlement funding transactions to pay for interest and principal due on the notes, interest expense will be recognized monthly on the notes at a rate of
9.25%
per annum.
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
2012-A Facility
In December 2012, the Company issued a series of notes collateralized by structured settlements. The proceeds to the Company from the issuance of the notes were
$2.5 million
and interest accrues on the notes at a fixed interest rate of
9.25%
per annum. Interest and principal are payable monthly from cash receipts of collateralized structured settlement receivables. The notes mature on June 15, 2024.
Long-Term Debt for Life Contingent Structured Settlements (2010-C & 2010-D)
Long-Term Debt (2010-C)
In November 2010, the Company issued a private asset class securitization note ("2010-C") registered under Rule 144A under the Securities Act of 1933, as amended ("Rule 144A"). The 2010-C bond issuance of
$12.9 million
is collateralized by life contingent structured settlements. 2010-C accrues interest at
10%
per annum and matures on March 15, 2039.
The interest and, if available, principal payments are payable monthly from cash receipts of collateralized life contingent structured settlements receivables.
Long-Term Debt (2010-D)
In December 2010, the Company paid
$0.2 million
to purchase the membership interests of LCSS, LLC from JLL Partners, Inc., a related party. LCSS, LLC owns
100%
of the membership interests of LCSS III, LLC, which owns
100%
of the membership interests of LCSS II, LLC ("LCSS II"). In November 2010, LCSS II issued
$7.2 million
of long-term debt ("2010-D") collateralized by life contingent structured settlements. 2010-D accrues interest at
10%
per annum and matures on July 15, 2040.
The interest and, if available, principal payments are payable monthly from cash receipts of collateralized life contingent structured settlements receivables.
VIE Long-Term Debt
As of
December 31, 2016
, estimated principal payments on VIE long-term debt for the next five years and thereafter are as follows:
|
|
|
|
|
|
Year Ending December 31,
|
|
Estimated Principal Payments
|
|
|
(In thousands)
|
2017
|
|
$
|
4,899
|
|
2018
|
|
4,732
|
|
2019
|
|
5,053
|
|
2020
|
|
5,671
|
|
2021
|
|
5,642
|
|
Thereafter
|
|
36,956
|
|
Total
|
|
$
|
62,953
|
|
Interest expense for the years ended
December 31, 2016
,
2015
and
2014
related to VIE long-term debt was
$17.6 million
,
$16.8 million
and
$14.9 million
, respectively.
19. VIE Long-Term Debt Issued by Securitization and Permanent Financing Trusts, at Fair Value
Securitization Debt
The Company elected the fair value option under ASC 825 to measure the securitization issuer debt and related finance receivables. The Company has determined that measurement of the securitization debt issued by SPEs at fair value better correlates with the value of the finance receivables held by SPEs, which are held to provide the cash flows for the note obligations. The debt issued by the Company's SPEs is recourse only to the respective entities that issued the debt and is non-recourse to the Company and its other subsidiaries. Certain subsidiaries of the Company continue to receive fees for servicing the securitized assets which are eliminated upon consolidation. In addition, the risk to the Company's non-SPE subsidiaries from SPE losses is limited to cash reserves, residual interest amounts and the repurchase of structured settlement payment streams that are subsequently determined to be ineligible for inclusion in the securitization or permanent financing trusts.
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
During the year ended
December 31, 2016
, the Company completed one asset securitization transaction that was registered under Rule 144A. The following table summarizes the securitization SPE transaction:
|
|
|
|
2016-1
|
|
(Bond proceeds in millions)
|
Issue date
|
10/26/2016
|
Bond proceeds
|
$117.3
|
Receivables securitized
|
861
|
Deal discount rate
|
3.89%
|
Retained interest %
|
5.50%
|
Class allocation (Moody's)
|
|
Aaa
|
84.00%
|
Baa2
|
10.50%
|
During the year ended
December 31, 2015
, the Company completed three asset securitization transactions that were registered under Rule 144A. The following table summarizes the securitization SPE transactions:
|
|
|
|
|
|
|
|
2015-3
|
|
2015-2
|
|
2015-1
|
|
(Bond proceeds in millions)
|
Issue date
|
11/30/2015
|
|
7/28/2015
|
|
3/31/2015
|
Bond proceeds
|
$103.3
|
|
$158.5
|
|
$214.0
|
Receivables securitized
|
1,751
|
|
2,489
|
|
3,422
|
Deal discount rate
|
4.46%
|
|
4.18%
|
|
3.64%
|
Retained interest %
|
5.50%
|
|
5.50%
|
|
5.50%
|
Class allocation (Moody's)
|
|
|
|
|
|
Aaa
|
85.00%
|
|
84.75%
|
|
85.25%
|
Baa2
|
9.50%
|
|
9.75%
|
|
9.25%
|
The following table summarizes notes issued by securitization trusts as of
December 31, 2016
and
2015
for which the Company has elected the fair value option and which are recorded as VIE long-term debt issued by securitization and permanent financing trusts, at fair value, on the Company's consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitization VIE Issuer
|
|
Note(s)
|
|
Maturity
Date
|
|
Outstanding Principal as of December 31, 2016
|
|
Fair Value as of December 31, 2016
|
|
Stated
Rate
|
|
Outstanding Principal as of December 31, 2015
|
|
Fair Value as of December 31, 2015
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
(In thousands)
|
321 Henderson Receivables I, LLC
|
|
2003-A
|
|
11/15/2033
|
|
$
|
9,971
|
|
|
$
|
10,381
|
|
|
4.86%
|
|
$
|
13,650
|
|
|
$
|
14,406
|
|
321 Henderson Receivables I, LLC
|
|
2004-A A-1
|
|
9/15/2045
|
|
20,265
|
|
|
21,084
|
|
|
Libor+0.35%
|
|
25,859
|
|
|
26,018
|
|
321 Henderson Receivables I, LLC
|
|
2004-A A-2
|
|
9/15/2045
|
|
18,581
|
|
|
19,943
|
|
|
5.54%
|
|
18,777
|
|
|
19,248
|
|
321 Henderson Receivables I, LLC
|
|
2005-1 A-1
|
|
11/15/2040
|
|
39,548
|
|
|
41,233
|
|
|
Libor+0.23%
|
|
47,963
|
|
|
47,559
|
|
321 Henderson Receivables I, LLC
|
|
2005-1 A-2
|
|
11/15/2046
|
|
35,603
|
|
|
37,344
|
|
|
5.58%
|
|
36,146
|
|
|
35,066
|
|
321 Henderson Receivables I, LLC
|
|
2005-1 B
|
|
10/15/2055
|
|
2,169
|
|
|
2,089
|
|
|
5.24%
|
|
2,203
|
|
|
2,088
|
|
321 Henderson Receivables II, LLC
|
|
2006-1 A-1
|
|
3/15/2041
|
|
7,969
|
|
|
8,439
|
|
|
Libor+0.20%
|
|
10,694
|
|
|
10,971
|
|
321 Henderson Receivables II, LLC
|
|
2006-1 A-2
|
|
3/15/2047
|
|
16,826
|
|
|
18,015
|
|
|
5.56%
|
|
17,154
|
|
|
17,452
|
|
321 Henderson Receivables II, LLC
|
|
2006-2 A-1
|
|
6/15/2041
|
|
12,011
|
|
|
12,815
|
|
|
Libor+0.20%
|
|
15,058
|
|
|
15,304
|
|
321 Henderson Receivables II, LLC
|
|
2006-2 A-2
|
|
6/15/2047
|
|
19,781
|
|
|
21,158
|
|
|
5.93%
|
|
20,066
|
|
|
19,967
|
|
321 Henderson Receivables II, LLC
|
|
2006-3 A-1
|
|
9/15/2041
|
|
11,832
|
|
|
12,630
|
|
|
Libor+0.20%
|
|
15,798
|
|
|
16,131
|
|
321 Henderson Receivables II, LLC
|
|
2006-3 A-2
|
|
9/15/2047
|
|
25,367
|
|
|
26,997
|
|
|
5.60%
|
|
25,755
|
|
|
25,703
|
|
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitization VIE Issuer
|
|
Note(s)
|
|
Maturity
Date
|
|
Outstanding Principal as of December 31, 2016
|
|
Fair Value as of December 31, 2016
|
|
Stated
Rate
|
|
Outstanding Principal as of December 31, 2015
|
|
Fair Value as of December 31, 2015
|
321 Henderson Receivables II, LLC
|
|
2006-4 A-1
|
|
12/15/2041
|
|
12,378
|
|
|
12,964
|
|
|
Libor+0.20%
|
|
15,166
|
|
|
15,419
|
|
321 Henderson Receivables II, LLC
|
|
2006-4 A-2
|
|
12/15/2047
|
|
20,587
|
|
|
21,814
|
|
|
5.43%
|
|
20,797
|
|
|
20,315
|
|
321 Henderson Receivables II, LLC
|
|
2007-1 A-1
|
|
3/15/2042
|
|
22,942
|
|
|
23,080
|
|
|
Libor+0.20%
|
|
26,887
|
|
|
25,201
|
|
321 Henderson Receivables II, LLC
|
|
2007-1 A-2
|
|
3/15/2048
|
|
16,526
|
|
|
16,281
|
|
|
5.59%
|
|
16,841
|
|
|
14,866
|
|
321 Henderson Receivables II, LLC
|
|
2007-2 A-1
|
|
6/15/2035
|
|
29,606
|
|
|
29,481
|
|
|
Libor+0.21%
|
|
33,461
|
|
|
29,351
|
|
321 Henderson Receivables II, LLC
|
|
2007-2 A-2
|
|
7/16/2040
|
|
16,367
|
|
|
16,182
|
|
|
6.21%
|
|
16,725
|
|
|
13,759
|
|
321 Henderson Receivables II, LLC
|
|
2007-3 A-1
|
|
10/15/2048
|
|
49,401
|
|
|
55,937
|
|
|
6.15%
|
|
54,273
|
|
|
58,821
|
|
321 Henderson Receivables III, LLC
|
|
2008-1 A
|
|
1/15/2044
|
|
42,759
|
|
|
48,723
|
|
|
6.19%
|
|
48,550
|
|
|
55,515
|
|
321 Henderson Receivables III, LLC
|
|
2008-1 B
|
|
1/15/2046
|
|
3,235
|
|
|
4,401
|
|
|
8.37%
|
|
3,235
|
|
|
4,325
|
|
321 Henderson Receivables III, LLC
|
|
2008-1 C
|
|
1/15/2048
|
|
3,235
|
|
|
4,746
|
|
|
9.36%
|
|
3,235
|
|
|
4,274
|
|
321 Henderson Receivables III, LLC
|
|
2008-1 D
|
|
1/15/2050
|
|
3,529
|
|
|
5,595
|
|
|
10.81%
|
|
3,529
|
|
|
4,802
|
|
321 Henderson Receivables IV, LLC
|
|
2008-2 A
|
|
11/15/2037
|
|
57,937
|
|
|
66,949
|
|
|
6.27%
|
|
63,166
|
|
|
72,306
|
|
321 Henderson Receivables IV, LLC
|
|
2008-2 B
|
|
3/15/2040
|
|
6,194
|
|
|
8,542
|
|
|
8.63%
|
|
6,194
|
|
|
7,647
|
|
321 Henderson Receivables V, LLC
|
|
2008-3 A-1
|
|
6/15/2045
|
|
40,923
|
|
|
51,960
|
|
|
8.00%
|
|
44,521
|
|
|
56,574
|
|
321 Henderson Receivables V, LLC
|
|
2008-3 A-2
|
|
6/15/2045
|
|
5,058
|
|
|
6,357
|
|
|
8.00%
|
|
5,503
|
|
|
6,777
|
|
321 Henderson Receivables V, LLC
|
|
2008-3 B
|
|
3/15/2051
|
|
4,695
|
|
|
5,937
|
|
|
10.00%
|
|
4,695
|
|
|
5,132
|
|
321 Henderson Receivables VI, LLC
|
|
2010-1 A-1
|
|
7/15/2059
|
|
109,598
|
|
|
122,048
|
|
|
5.56%
|
|
124,266
|
|
|
138,936
|
|
321 Henderson Receivables VI, LLC
|
|
2010-1 B
|
|
7/15/2061
|
|
19,550
|
|
|
24,827
|
|
|
9.31%
|
|
22,166
|
|
|
27,223
|
|
JG Wentworth XXI, LLC
|
|
2010-2 A
|
|
1/15/2048
|
|
45,655
|
|
|
48,163
|
|
|
4.07%
|
|
52,416
|
|
|
55,186
|
|
JG Wentworth XXI, LLC
|
|
2010-2 B
|
|
1/15/2050
|
|
6,517
|
|
|
7,674
|
|
|
7.45%
|
|
7,483
|
|
|
8,611
|
|
JG Wentworth XXII, LLC
|
|
2010-3 A
|
|
10/15/2048
|
|
87,140
|
|
|
91,069
|
|
|
3.82%
|
|
101,526
|
|
|
105,888
|
|
JG Wentworth XXII, LLC
|
|
2010-3 B
|
|
10/15/2050
|
|
12,663
|
|
|
14,618
|
|
|
6.85%
|
|
14,754
|
|
|
16,449
|
|
JG Wentworth XXIII, LLC
|
|
2011-1 A
|
|
10/15/2056
|
|
147,447
|
|
|
157,209
|
|
|
4.89%
|
|
161,050
|
|
|
171,059
|
|
JG Wentworth XXIII, LLC
|
|
2011-1 B
|
|
10/15/2058
|
|
18,536
|
|
|
22,063
|
|
|
7.68%
|
|
20,246
|
|
|
23,517
|
|
JGWPT XXIV, LLC
|
|
2011-2 A
|
|
1/15/2063
|
|
128,231
|
|
|
137,433
|
|
|
5.13%
|
|
137,179
|
|
|
146,205
|
|
JGWPT XXIV, LLC
|
|
2011-2 B
|
|
1/15/2065
|
|
14,564
|
|
|
18,327
|
|
|
8.54%
|
|
15,580
|
|
|
18,974
|
|
JGWPT XXV, LLC
|
|
2012-1 A
|
|
2/16/2065
|
|
155,623
|
|
|
159,282
|
|
|
4.21%
|
|
167,818
|
|
|
170,557
|
|
JGWPT XXV, LLC
|
|
2012-1 B
|
|
2/15/2067
|
|
19,460
|
|
|
22,890
|
|
|
7.14%
|
|
20,564
|
|
|
23,385
|
|
JGWPT XXVI, LLC
|
|
2012-2 A
|
|
10/15/2059
|
|
108,942
|
|
|
107,986
|
|
|
3.84%
|
|
119,044
|
|
|
117,345
|
|
JGWPT XXVI, LLC
|
|
2012-2 B
|
|
10/17/2061
|
|
13,537
|
|
|
15,328
|
|
|
6.77%
|
|
13,985
|
|
|
15,489
|
|
JGWPT XXVII, LLC
|
|
2012-3 A
|
|
9/15/2065
|
|
138,206
|
|
|
132,530
|
|
|
3.22%
|
|
151,464
|
|
|
144,129
|
|
JGWPT XXVII, LLC
|
|
2012-3 B
|
|
9/15/2067
|
|
17,071
|
|
|
18,210
|
|
|
6.17%
|
|
17,181
|
|
|
18,384
|
|
JGWPT XXVIII, LLC
|
|
2013-1 A
|
|
4/15/2067
|
|
153,545
|
|
|
146,476
|
|
|
3.22%
|
|
167,734
|
|
|
158,769
|
|
JGWPT XXVIII, LLC
|
|
2013-1 B
|
|
4/15/2069
|
|
18,589
|
|
|
18,273
|
|
|
4.94%
|
|
18,589
|
|
|
18,154
|
|
JGWPT XXIX, LLC
|
|
2013-2 A
|
|
3/15/2062
|
|
131,085
|
|
|
132,864
|
|
|
4.21%
|
|
141,592
|
|
|
142,820
|
|
JGWPT XXIX, LLC
|
|
2013-2 B
|
|
3/17/2064
|
|
14,985
|
|
|
15,298
|
|
|
5.68%
|
|
14,985
|
|
|
15,298
|
|
JGWPT XXX, LLC
|
|
2013-3 A
|
|
1/17/2073
|
|
160,527
|
|
|
161,722
|
|
|
4.08%
|
|
172,138
|
|
|
172,184
|
|
JGWPT XXX, LLC
|
|
2013-3 B
|
|
1/15/2075
|
|
18,248
|
|
|
18,462
|
|
|
5.54%
|
|
18,248
|
|
|
18,437
|
|
JGWPT XXXI, LLC
|
|
2014-1 A
|
|
3/15/2063
|
|
180,486
|
|
|
180,784
|
|
|
3.96%
|
|
195,613
|
|
|
194,775
|
|
JGWPT XXXI, LLC
|
|
2014-1 B
|
|
3/15/2065
|
|
21,776
|
|
|
21,097
|
|
|
4.94%
|
|
21,776
|
|
|
21,003
|
|
JGWPT XXXII, LLC
|
|
2014-2 A
|
|
1/17/2073
|
|
180,127
|
|
|
174,022
|
|
|
3.61%
|
|
194,302
|
|
|
186,756
|
|
JGWPT XXXII, LLC
|
|
2014-2 B
|
|
1/15/2075
|
|
25,284
|
|
|
23,260
|
|
|
4.48%
|
|
25,284
|
|
|
23,041
|
|
J.G. Wentworth XXXIII, LLC
|
|
2014-3 A
|
|
6/15/2077
|
|
167,353
|
|
|
159,993
|
|
|
3.50%
|
|
177,753
|
|
|
168,797
|
|
J.G. Wentworth XXXIII, LLC
|
|
2014-3 B
|
|
6/15/2079
|
|
21,408
|
|
|
19,396
|
|
|
4.40%
|
|
21,408
|
|
|
19,210
|
|
J.G. Wentworth XXXIV, LLC
|
|
2015-1 A
|
|
9/15/2072
|
|
177,632
|
|
|
167,124
|
|
|
3.26%
|
|
188,121
|
|
|
175,468
|
|
J.G. Wentworth XXXIV, LLC
|
|
2015-1 B
|
|
9/17/2074
|
|
20,957
|
|
|
18,730
|
|
|
4.25%
|
|
20,957
|
|
|
18,518
|
|
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitization VIE Issuer
|
|
Note(s)
|
|
Maturity
Date
|
|
Outstanding Principal as of December 31, 2016
|
|
Fair Value as of December 31, 2016
|
|
Stated
Rate
|
|
Outstanding Principal as of December 31, 2015
|
|
Fair Value as of December 31, 2015
|
J.G. Wentworth XXXV, LLC
|
|
2015-2 A
|
|
3/15/2058
|
|
139,521
|
|
|
136,423
|
|
|
3.87%
|
|
141,984
|
|
|
136,709
|
|
J.G. Wentworth XXXV, LLC
|
|
2015-2 B
|
|
3/15/2060
|
|
16,350
|
|
|
15,110
|
|
|
4.83%
|
|
16,350
|
|
|
14,992
|
|
J.G. Wentworth XXXVI, LLC
|
|
2015-3 A
|
|
3/17/2070
|
|
89,315
|
|
|
88,382
|
|
|
4.08%
|
|
92,878
|
|
|
90,413
|
|
J.G. Wentworth XXXVI, LLC
|
|
2015-3 B
|
|
3/15/2072
|
|
10,383
|
|
|
9,978
|
|
|
5.68%
|
|
10,383
|
|
|
10,033
|
|
J.G. Wentworth XXXVII, LLC
|
|
2016-1 A
|
|
6/15/2067
|
|
104,293
|
|
|
101,414
|
|
|
3.41%
|
|
—
|
|
|
—
|
|
J.G. Wentworth XXXVII, LLC
|
|
2016-1 B
|
|
6/17/2069
|
|
13,000
|
|
|
12,640
|
|
|
5.19%
|
|
—
|
|
|
—
|
|
Structured Receivables Finance #2, LLC
|
|
2005-A A
|
|
5/15/2025
|
|
5,013
|
|
|
5,138
|
|
|
5.05%
|
|
8,981
|
|
|
9,363
|
|
Structured Receivables Finance #2, LLC
|
|
2005-A B
|
|
5/15/2025
|
|
7,713
|
|
|
8,565
|
|
|
6.95%
|
|
8,413
|
|
|
9,545
|
|
Peachtree Finance Company #2, LLC
|
|
2005-B A
|
|
4/15/2048
|
|
5,154
|
|
|
5,245
|
|
|
4.71%
|
|
10,195
|
|
|
10,537
|
|
Peachtree Finance Company #2, LLC
|
|
2005-B B
|
|
4/15/2048
|
|
4,782
|
|
|
5,104
|
|
|
6.21%
|
|
5,039
|
|
|
5,422
|
|
Structured Receivables Finance #3, LLC
|
|
2006-A A
|
|
1/15/2030
|
|
19,194
|
|
|
20,726
|
|
|
5.55%
|
|
24,354
|
|
|
26,585
|
|
Structured Receivables Finance #3, LLC
|
|
2006-A B
|
|
1/15/2030
|
|
7,643
|
|
|
8,847
|
|
|
6.82%
|
|
8,397
|
|
|
9,464
|
|
Structured Receivables Finance 2006-B, LLC
|
|
2006-B A
|
|
3/15/2038
|
|
31,779
|
|
|
34,927
|
|
|
5.19%
|
|
36,406
|
|
|
40,082
|
|
Structured Receivables Finance 2006-B, LLC
|
|
2006-B B
|
|
3/15/2038
|
|
6,791
|
|
|
7,761
|
|
|
6.30%
|
|
7,305
|
|
|
7,759
|
|
Structured Receivables Finance 2010-A, LLC
|
|
2010-A A
|
|
1/16/2046
|
|
49,032
|
|
|
53,905
|
|
|
5.22%
|
|
56,516
|
|
|
62,295
|
|
Structured Receivables Finance 2010-A, LLC
|
|
2010-A B
|
|
1/16/2046
|
|
10,016
|
|
|
12,391
|
|
|
7.61%
|
|
10,709
|
|
|
13,201
|
|
Structured Receivables Finance 2010-B, LLC
|
|
2010-B A
|
|
8/15/2036
|
|
38,637
|
|
|
40,295
|
|
|
3.73%
|
|
45,150
|
|
|
46,981
|
|
Structured Receivables Finance 2010-B, LLC
|
|
2010-B B
|
|
8/15/2036
|
|
12,167
|
|
|
15,417
|
|
|
7.97%
|
|
13,048
|
|
|
15,694
|
|
Total
|
|
|
|
|
|
$
|
3,460,820
|
|
|
$
|
3,550,503
|
|
|
|
|
$
|
3,637,231
|
|
|
$
|
3,688,639
|
|
In connection with its 2015-1 securitization, the Company repaid in February 2015 approximately
$6.9 million
of long term debt issued by Structured Receivables Finance #1, LLC and recorded a gain on debt extinguishment of approximately
$0.6 million
, which was included in realized and unrealized gains on VIE and other finance receivables, long-term debt and derivatives in the Company's consolidated statements of operations.
In connection with its 2014-2 securitization, the Company repaid in September 2014 approximately
$6.1 million
of long-term debt issued by 321 Henderson Receivables I, LLC, Note 2002-A, and recorded a gain on debt extinguishment of approximately
$0.3 million
which was included in realized and unrealized gains on VIE and other finance receivables, long-term debt and derivatives in the Company's consolidated statements of operations.
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
Permanent financing facilities
The following table summarizes notes issued by permanent financing facilities as of
December 31, 2016
and
2015
, respectively, for which the Company has elected the fair value option and are recorded as VIE long-term debt issued by securitization and permanent financing trusts, at fair value, on the Company's consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitization
VIE Issuer
|
|
Maturity
Date
|
|
Note(s)
|
|
Outstanding Principal as of December 31, 2016
|
|
Stated
Rate
|
|
Fair Value as of December 31, 2016
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
(In thousands)
|
JGW-S LC II
|
|
8/15/2040
|
|
2011-A
|
|
$
|
82,997
|
|
|
12.48%
|
|
$
|
82,997
|
|
PSS
|
|
7/14/2033
|
|
—
|
|
134,742
|
|
|
Libor + 1%
|
|
128,897
|
|
Crescit
|
|
6/15/2039
|
|
—
|
|
24,512
|
|
|
8.10%
|
|
30,991
|
|
JGW Residual I, LLC
|
|
3/22/2077
|
|
—
|
|
203,088
|
|
|
9.75%
|
|
221,062
|
|
Total
|
|
|
|
|
|
$
|
445,339
|
|
|
|
|
$
|
463,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitization
VIE Issuer
|
|
Maturity
Date
|
|
Note(s)
|
|
Outstanding Principal as of December 31, 2015
|
|
Stated
Rate
|
|
Fair Value as of December 31, 2015
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
(In thousands)
|
JGW-S LC II
|
|
8/15/2040
|
|
2011-A
|
|
$
|
70,235
|
|
|
12.54%
|
|
$
|
70,235
|
|
PSS
|
|
7/14/2033
|
|
—
|
|
153,077
|
|
|
Libor + 1%
|
|
134,970
|
|
Crescit
|
|
6/15/2039
|
|
—
|
|
27,583
|
|
|
8.10%
|
|
34,974
|
|
Total
|
|
|
|
|
|
$
|
250,895
|
|
|
|
|
$
|
240,179
|
|
On September 2, 2016, the Company issued
$207.5 million
in notes collateralized by the residual asset cash flows and reserve cash associated with
36
of the Company's securitizations with outstanding principle balances. Proceeds from the issuance of the notes were used, in part, to repay the
$131.4 million
outstanding principle balance on the Residual Term Facility. The Company incurred
$2.6 million
of debt issuance costs, which were included in debt issuance expense in the Company's consolidated statements of operations. Principal and interest are paid monthly from the cash flows from these collateralized residual interests.
Future repayment of VIE long-term debt issued by securitization trusts and permanent financing facilities is dependent on the receipt of cash flows from the corresponding encumbered VIE finance receivables. As of
December 31, 2016
, estimated maturities for VIE long-term debt issued by securitization trusts and permanent financing facilities, at fair value, for the next five years and thereafter are as follows:
|
|
|
|
|
|
Year Ending December 31,
|
|
Estimated Maturities
|
|
|
(In thousands)
|
2017
|
|
$
|
323,437
|
|
2018
|
|
313,437
|
|
2019
|
|
309,614
|
|
2020
|
|
291,593
|
|
2021
|
|
276,053
|
|
Thereafter
|
|
2,392,025
|
|
Total
|
|
$
|
3,906,159
|
|
Interest expense for the years ended
December 31, 2016
,
2015
and
2014
related to VIE long-term debt issued by securitization trusts and permanent financing facilities, at fair value, was
$152.1 million
,
$140.9 million
and
$136.6 million
, respectively.
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
20. Derivative Financial Instruments
Interest Rate Swaps
The Company utilizes interest rate swaps to manage its exposure to changes in interest rates related to borrowings on its revolving credit facilities and other similar borrowings. Hedge accounting has not been applied to any of the Company's interest rate swaps.
As of
December 31, 2016
, the Company did
no
t have any outstanding interest rate swaps related to its borrowings on revolving credit facilities. During the years ended
December 31, 2016
,
2015
and
2014
and in connection with its securitizations, the Company terminated interest rate swaps with notional values of
$75.2 million
,
$61.1 million
, and
$46.5 million
, respectively. The total loss on the termination of these interest rate swaps for the years ended
December 31, 2016
,
2015
and
2014
was
$1.5 million
,
$0.2 million
, and
$0.6 million
, respectively. These losses were recorded in realized and unrealized gains on VIE and other finance receivables, long-term debt and derivatives in the Company's consolidated statements of operations. The unrealized gain for these swaps for all three of the years ended
December 31, 2016
,
2015
and
2014
was
$0
.
The Company also has interest rate swaps to manage its exposure to changes in interest rates related to its VIE long-term debt issued by securitization and permanent financing trusts. As of
December 31, 2016
, the Company had
eight
outstanding swaps for VIE long-term debt with a total notional amount of
$156.6 million
. The Company pays fixed rates ranging from
4.50%
to
5.77%
and receives floating rates equal to
one-month LIBOR
plus an applicable margin. As of
December 31, 2015
, the Company had
eight
outstanding swaps with total notional amounts of
$190.9 million
. The Company paid fixed rates ranging from
4.50%
to
5.77%
and received floating rates equal to 1-month LIBOR rate plus an applicable margin.
These interest rate swaps were designed to closely match the borrowings under the respective floating rate asset backed loans in amortization. As of
December 31, 2016
, the terms of these interest rate swaps range from approximately
5.5 years
to approximately
19.1
years. For the years ended
December 31, 2016
,
2015
and
2014
, the amount of unrealized gain recognized was
$7.0 million
,
$5.6 million
and
$2.4 million
, respectively. These gains were recorded in realized and unrealized gains on VIE and other finance receivables, long-term debt and derivatives in the Company's consolidated statements of operations.
Additionally, the Company has interest-rate swaps to manage its exposure to changes in interest rates related to its borrowings under Peachtree Structured Settlements, LLC ("PSS"), a permanent financing VIE, and PLMT. As of
December 31, 2016
, the Company had
137
outstanding swaps for PSS and PLMT with a total notional amount of
$181.2 million
. The Company pays fixed rates ranging from
4.90%
to
8.70%
and receives floating rates equal to
one-month LIBOR
plus an applicable margin. As of
December 31, 2015
, the Company had
144
outstanding swaps with total notional amount of
$211.1 million
. The Company paid fixed rates ranging from
4.80%
to
8.70%
and received floating rates equal to 1-month LIBOR rate plus an applicable margin.
The PSS and PLMT interest rate swaps were designed to closely match the borrowings under the respective floating rate asset backed loans in amortization. During the year ended
December 31, 2016
, the Company terminated an interest rate swap for PSS with a notional value of
$13.8 million
and recorded a loss on the termination of
$3.1 million
. During the years ended December 31,
2015
and
2014
, the Company did not terminate any interest rate swaps related to PSS and PLMT. As of
December 31, 2016
, the terms of the interest rate swaps for PSS and PLMT range from approximately
5 months
to approximately
17.6
years. For the years ended
December 31, 2016
,
2015
and
2014
the amount of unrealized gain (loss) recognized was
$9.3 million
,
$3.8 million
and
$(8.1) million
, respectively. These gains (losses) were recorded in realized and unrealized gains on VIE and other finance receivables, long term debt and derivatives in the Company's consolidated statements of operations.
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
The notional amounts and fair values of interest rate swaps are as follows as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
Entity
|
|
Securitization
|
|
Notional Amount
|
|
Fair Value
|
|
Notional Amount
|
|
Fair Value
|
|
|
|
|
(In thousands)
|
321 Henderson I, LLC
|
|
2004-A A-1
|
|
$
|
20,265
|
|
|
$
|
(1,610
|
)
|
|
$
|
25,859
|
|
|
$
|
(2,382
|
)
|
321 Henderson I, LLC
|
|
2005-1 A-1
|
|
39,548
|
|
|
(4,495
|
)
|
|
47,963
|
|
|
(6,186
|
)
|
321 Henderson II, LLC
|
|
2006-1 A-1
|
|
7,969
|
|
|
(714
|
)
|
|
10,694
|
|
|
(1,091
|
)
|
321 Henderson II, LLC
|
|
2006-2 A-1
|
|
12,011
|
|
|
(1,654
|
)
|
|
15,058
|
|
|
(2,239
|
)
|
321 Henderson II, LLC
|
|
2006-3 A-1
|
|
11,832
|
|
|
(1,394
|
)
|
|
15,798
|
|
|
(1,951
|
)
|
321 Henderson II, LLC
|
|
2006-4 A-1
|
|
12,378
|
|
|
(965
|
)
|
|
15,166
|
|
|
(1,489
|
)
|
321 Henderson II, LLC
|
|
2007-1 A-2
|
|
22,942
|
|
|
(3,965
|
)
|
|
26,887
|
|
|
(4,949
|
)
|
321 Henderson II, LLC
|
|
2007-2 A-3
|
|
29,606
|
|
|
(6,664
|
)
|
|
33,461
|
|
|
(8,085
|
)
|
JGW V, LLC
|
|
—
|
|
—
|
|
|
—
|
|
|
31,857
|
|
|
59
|
|
PSS
|
|
—
|
|
137,361
|
|
|
(22,190
|
)
|
|
162,546
|
|
|
(29,486
|
)
|
PLMT
|
|
—
|
|
43,792
|
|
|
(6,781
|
)
|
|
48,587
|
|
|
(8,720
|
)
|
Total
|
|
|
|
$
|
337,704
|
|
|
$
|
(50,432
|
)
|
|
$
|
433,876
|
|
|
$
|
(66,519
|
)
|
Interest Rate Lock Commitments and Forward Sale Commitments
The Company enters into IRLCs to originate residential mortgage loans held for sale, at specified interest rates and within a specified period of time (generally between
30
and
90
days), with customers who have applied for a loan and meet certain credit and underwriting criteria. These IRLCs meet the definition of a derivative and are reflected in other assets or other liabilities on the Company's consolidated balance sheets at fair value with changes in fair value recognized in the realized and unrealized gains on sale of mortgage loans held for sale, net of direct costs, in the Company's consolidated statements of operations. The fair value of the IRLCs are measured based on the value of the underlying mortgage loan, quoted Government Sponsored Enterprise MBS prices, estimates of the fair value of the MSRs and the pull-through rate, net of commission expense and broker fees.
The Company manages the interest rate price risk associated with its outstanding IRLCs and mortgage loans held for sale by entering into derivative loan instruments such as forward sale commitments and mandatory delivery commitments. Management expects these derivatives will experience changes in fair value opposite to changes in the fair value of the derivative loan commitments and mortgage loans held for sale, thereby reducing earnings volatility. The Company takes into account various factors and strategies in determining the portion of the mortgage pipeline (IRLCs) and mortgage loans held for sale it wants to economically hedge.
The notional amounts and fair values associated with IRLCs and forward sale commitments were as follows as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
|
Notional Amount
|
|
Fair Value
|
|
Notional Amount
|
|
Fair Value
|
|
|
(In thousands)
|
Derivative Assets:
|
|
|
|
|
|
|
|
|
Interest rate lock commitments
|
|
$
|
355,870
|
|
|
$
|
6,072
|
|
|
$
|
222,512
|
|
|
$
|
4,934
|
|
Forward sale commitments
|
|
406,000
|
|
|
659
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
761,870
|
|
|
$
|
6,731
|
|
|
$
|
222,512
|
|
|
$
|
4,934
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities:
|
|
|
|
|
|
|
|
|
Forward sale commitments
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
248,500
|
|
|
$
|
147
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
248,500
|
|
|
$
|
147
|
|
The Company has exposure to credit loss in the event of contractual non-performance by its trading counterparties in
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
derivative financial instruments that the Company uses in its interest rate risk management activities. The Company manages this credit risk by selecting only counterparties that the Company believes to be financially strong, by spreading the risk among multiple counterparties, by placing contractual limits on the amount of unsecured credit extended to any single counterparty and by entering into netting agreements with counterparties, as appropriate.
21. Income Taxes
The Corporation is required to file federal and applicable state corporate income tax returns and recognizes income taxes on its pre-tax income, which historically has consisted primarily of its share of JGW LLC's pre-tax income. JGW LLC is organized as a limited liability company which is treated as a "flow-through" entity for income tax purposes and therefore is not subject to income taxes. As a result, the Company's consolidated financial statements do not reflect a benefit or provision for income taxes on the pre-tax income or loss attributable to the non-controlling interests in JGW LLC.
The Company's (benefit) provision for income taxes for the years ended
December 31, 2016
,
2015
and
2014
, respectively, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
$
|
183
|
|
|
$
|
(234
|
)
|
|
$
|
107
|
|
State
|
42
|
|
|
(71
|
)
|
|
10
|
|
|
225
|
|
|
(305
|
)
|
|
117
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
(12,910
|
)
|
|
(15,062
|
)
|
|
15,313
|
|
State
|
(2,655
|
)
|
|
(2,849
|
)
|
|
5,710
|
|
|
(15,565
|
)
|
|
(17,911
|
)
|
|
21,023
|
|
Income tax (benefit) provision
|
$
|
(15,340
|
)
|
|
$
|
(18,216
|
)
|
|
$
|
21,140
|
|
The difference between the Company's effective income tax rate and the United States statutory rate is reconciled below:
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Federal
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
Income passed through to non-corporate members
|
(15.6
|
)
|
|
(15.9
|
)
|
|
(18.9
|
)
|
Permanent items
|
(2.1
|
)
|
|
(11.1
|
)
|
|
0.7
|
|
State income tax
|
3.0
|
|
|
1.4
|
|
|
3.4
|
|
Valuation allowance
|
(10.5
|
)
|
|
(1.9
|
)
|
|
(2.0
|
)
|
Other
|
3.7
|
|
|
1.0
|
|
|
(0.3
|
)
|
Effective tax rate
|
13.5
|
%
|
|
8.5
|
%
|
|
17.9
|
%
|
The Company's overall effective tax rate is less than the statutory rate due primarily to: (i) a portion of JGW LLC's income is allocated to the non-controlling interests and accordingly, a portion of the Company's earnings attributable to the non-controlling interests are not subject to corporate-level taxes, (ii) for the year ended December 31, 2015, the impact of permanent differences between book and tax losses and (iii) the increase to the valuation allowance due to the expectation that some of the deferred tax assets are not more likely than not to be realized.
The change in the Company's effective tax rate for the year ended
December 31, 2016
compared to the year ended
December 31, 2015
was primarily the result of: (i) the differences in the projected book and taxable income for the respective years as of the balance sheet dates; (ii) the impact of permanent differences between book and taxable income; (iii) a greater share of the Company's pre-tax book income (loss) being attributable to separate subsidiary entities that are taxed as corporations, of which most record a full valuation allowance; (iv) the recording of the valuation allowance discussed above; and (v) the increase
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
in state income tax liabilities for the additional states relating to the mortgage company activity that does not have historical NOLs to offset future taxable income. The difference in effective tax rates between the two legal entities arises because JGW LLC is treated as a "flow-through" entity for income tax purposes and therefore is not subject to corporate-level income taxes.
The decrease in the Company's overall effective tax rate for the year ended December 31, 2015 compared to the year ended December 31, 2014 was predominantly the result of the following: (i) the Company reported a
$215.4 million
pre-tax loss for the year ended December 31, 2015 compared to
$117.8 million
in pre-tax income for the year ended December 31, 2014, and (ii) the impact of permanent differences between book and taxable losses, including a
$121.6 million
impairment charge related to goodwill and intangible assets during the year ended December 31, 2015.
Deferred income taxes reflect the net tax effects of temporary differences that may exist between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes using the enacted tax rates for the year in which the differences are expected to reverse. A summary of the components of deferred tax assets and deferred tax liabilities follows:
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
(In thousands)
|
Deferred tax assets:
|
|
Swap liability
|
$
|
—
|
|
|
$
|
1,047
|
|
Net operating loss carryforwards
|
63,127
|
|
|
63,999
|
|
Lottery winnings
|
880
|
|
|
—
|
|
Total deferred tax assets
|
64,007
|
|
|
65,046
|
|
Valuation allowance
|
(14,893
|
)
|
|
(4,531
|
)
|
Total deferred tax assets, net
|
49,114
|
|
|
60,515
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
Basis difference in partnership
|
48,101
|
|
|
72,096
|
|
Lottery winnings
|
—
|
|
|
2,922
|
|
Lottery winnings fair value adjustments
|
2,023
|
|
|
1,868
|
|
Other
|
—
|
|
|
204
|
|
Total deferred tax liabilities
|
50,124
|
|
|
77,090
|
|
Deferred tax liabilities, net
|
$
|
(1,010
|
)
|
|
$
|
(16,575
|
)
|
As of
December 31, 2016
and
2015
, the Company had federal and state income tax net operating loss carry forwards of
$152.3 million
and
$154.1 million
, respectively, which will expire at various dates from 2033 through 2036.
Future realization of tax benefits depends on the expectation of taxable income within a period of time that the tax benefits will reverse. The Company assesses available positive and negative evidence to determine if it is more likely than not that it will be able to realize its deferred tax assets prior to expiration. In accordance with ASC 740-10-30-18, the Company’s assessment involves analyzing the four possible sources of taxable income that may be available under tax law to realize a tax benefit for deductible temporary differences and carryforwards: (i) future taxable income exclusive of reversing temporary differences and carryforwards; (ii) future reversals of existing taxable temporary differences; (iii) taxable income in prior carryback period(s) if carryback is permitted by tax law; and (iv) tax planning strategies that would, if necessary, be implemented.
Since its inception in 2013 and through
December 31, 2016
, the Company has been in a cumulative loss position from both a book and tax perspective. As such, the Company is not relying on future taxable income exclusive of reversing temporary differences or taxable income in carryback periods. Additionally, the Company has not identified any tax planning strategies it could implement to realize the gross deferred tax assets. As a result, the Company is relying exclusively on the future reversal of existing deferred tax liabilities to support the realization of the deferred tax assets. The deferred tax liability primarily relates to the difference in the accretion of the Company's assets for book and tax purposes. The Company scheduled out the reversal of the deferred tax liability and concluded the future taxable income from the existing deferred tax liabilities would be sufficient to realize the deferred tax assets for NOLs. As such, the company has established a valuation allowance for any deferred tax assets in excess
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
of these reversing deferred tax liabilities. Further, as a result of certain restructuring activities, the Company is recording deferred tax liabilities associated with certain state jurisdictions.
The Tax Reform Act of 1986 (the "Act") provides for a limitation on the annual use of net operating loss and tax credit carryforwards following certain ownership changes (as defined by the Act) that could limit the Company's ability to utilize these carryforwards. Generally, under Section 382 of the Internal Revenue Code, a change in ownership of a company of greater than 50% within a three-year period results in an annual limitation on that company’s ability to utilize its carryforwards from the tax periods prior to the ownership change. The Company completed a Section 382 study and determined that no limitation has been applied to its NOLs as of December 31, 2016. The Company will continue to monitor any changes in it's ownership.
As of
December 31, 2016
and
2015
, the Company recorded valuation allowances in the amount of
$14.9 million
and
$4.5 million
, respectively, against the portion of its federal and state deferred tax assets that it has determined are not more likely than not of being realized.
As of
December 31, 2016
and
2015
, the Company had
no
gross unrecognized tax benefits. The Company does not expect any material increase or decrease in its gross unrecognized tax benefits during the next twelve months. If and when the Company does record unrecognized tax benefits in the future, any interest and penalties related to these unrecognized tax benefits will be recorded in the income tax expense line in the applicable statements of operations.
The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company may be subject to examination by federal and certain state and local tax authorities. As of
December 31, 2016
, the Company and its subsidiaries' U.S. federal income tax returns for the years
2013
through
2016
are open under the normal three-year statute of limitations from when the returns were filed and therefore subject to examination. State and local tax returns are generally subject to audit from
2013
through
2016
. Currently, no tax authorities are auditing the Company on any income tax matters.
22. Installment Obligations Payable
The Company's Asset Advantage
®
program generates income and losses from both the related trust accounts and the corresponding installment obligation for each trust account. Income or loss from the trust accounts will be offset in equal amount with income or loss from the installment obligations. Each obligation has an installment payment schedule agreed to by the obligee prior to the time of issuance of the obligation. An obligee may request an unscheduled installment payment, which must be agreed to by the Company, and if so agreed, the Company may generally charge a penalty of up to
20%
of the unscheduled installment amount. Virtually all of the obligations are guaranteed by corporate guarantees issued by third party financial institutions to the extent of assets held in related trust accounts.
The actual maturities of the obligations depend on, among other things, the obligees' designated payment schedules, the performance of the obligees' index choices and the extent to which the obligees have taken any unscheduled installment payments. As of
December 31, 2016
, estimated maturities for the next five years and thereafter are as follows:
|
|
|
|
|
|
Year Ended December 31,
|
|
Estimated Maturities
|
|
|
(In thousands)
|
2017
|
|
$
|
13,727
|
|
2018
|
|
11,858
|
|
2019
|
|
9,368
|
|
2020
|
|
6,341
|
|
2021
|
|
4,883
|
|
Thereafter
|
|
30,510
|
|
Total
|
|
$
|
76,687
|
|
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
23. Stockholders' Equity
On November 14, 2013, the Corporation consummated an initial public offering ("IPO") and amended and restated its certificate of incorporation to provide for, among other things, the authorization of
500,000,000
shares of Class A common stock, par value
$0.00001
per share,
500,000,000
shares of Class B common stock, par value
$0.00001
per share,
500,000,000
shares of Class C "non-voting" common stock, par value
$0.00001
per share (the "Class C common stock"), and
100,000,000
shares of blank check preferred stock. Also, concurrent with the consummation of the Corporation's IPO, JGW LLC merged with and into a newly formed subsidiary of the Corporation.
As of
December 31, 2016
, there were
16,272,545
shares of Class A common stock issued and
15,730,473
shares outstanding. Additionally, there were
8,710,158
shares of Class B common stock issued and outstanding as of
December 31, 2016
. There were
no
shares of Class C common stock issued or outstanding as of
December 31, 2016
.
Repurchases of Class A Common Stock
On May 2, 2014, the Company's Board of Directors approved the repurchase of an aggregate of
$15.0 million
of Class A common stock (the "Stock Repurchase Program") under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. Purchases under the Stock Repurchase Program were to be made from time to time in open market purchases, privately negotiated transactions, accelerated stock repurchase programs, issuer self-tender offers or otherwise in accordance with applicable federal securities laws. The Stock Repurchase Program did not obligate the Company to acquire any particular amount of Class A common stock and the pace of repurchase activity depended on factors such as levels of cash generation from operations, cash requirements for investment in the Company's business, repayment of debt, current stock price, market conditions and other factors. The Stock Repurchase Program could be suspended, modified or discontinued at any time and had no set expiration date.
Since the inception of the Stock Repurchase Program and through December 31, 2015, the Company had repurchased
1,546,017
shares of Class A common stock for an aggregate purchase price of
$15.0 million
. As of December 31, 2015, the Company had repurchased the maximum amount of shares authorized by the Board of Directors.
On May 26, 2015, the Company repurchased in a privately negotiated transaction
426,332
shares of its Class A common stock held by the former President and Chief Operating Officer of the Company for an aggregate purchase price of
$3.9 million
. The purchase price of
$9.24
per share represented a
3.0%
discount from the closing price of the Company's Class A common stock on May 22, 2015, the date the parties executed the associated agreement.
Class A Common Stock
Holders of Class A common stock are entitled to
one
vote for each share held of record on all matters submitted to a vote of stockholders. Holders of Class A common stock are entitled to share ratably (based on the number of shares of Class A common stock held) if and when any dividend is declared by the Company's Board of Directors. Upon dissolution, liquidation or winding up, holders of Class A common stock are entitled to a pro rata distribution of any assets available for distribution to common stockholders, and do not have preemptive, subscription, redemption, or conversion rights.
Class B Common Stock
Shares of Class B common stock will only be issued in the future to the extent that additional Common Interests are issued by JGW LLC, in which case the Company would issue a corresponding number of shares of Class B common stock.
Holders of Class B common stock are entitled to
ten
votes for each share held of record on all matters submitted to a vote of stockholders. Holders of Class B common stock do not have any right to receive dividends and upon liquidation, dissolution or winding up and will only be entitled to receive an amount per share equal to the
$0.00001
par value. Holders of Class B common stock do not have preemptive rights to purchase additional shares of Class B common stock.
Subject to the terms and conditions of the operating agreement of JGW LLC, each Common Interestholder has the right to exchange their Common Interests in JGW LLC, together with the corresponding number of shares of Class B common stock, for shares of Class A common stock or, at the option of JGW LLC, cash equal to the market value of
one
share of Class A common stock.
Class C Common Stock
Holders of Class C common stock are generally not entitled to vote on any matters. Holders of Class C common stock are entitled to share ratably (based on the number of shares of Class C common stock held) if and when any dividend is declared by the Company's Board of Directors. Upon dissolution, liquidation or winding up, holders of Class C common stock will be
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
entitled to a pro rata distribution of any assets available for distribution to common stockholders (except the de minimis par value of the Class B common stock), and do not have preemptive rights to purchase additional shares of Class C common stock.
Subject to the terms and conditions of the operating agreement of JGW LLC, Peach Group Holdings, Inc. ("PGHI Corp.") and its permitted transferees have the right to exchange the non-voting Common Interests in JGW LLC they hold for shares of Class C common stock or, at the option of JGW LLC, cash equal to the market value of Class C common stock.
Each share of Class C common stock may, at the option of the holder, be converted at any time into a share of Class A common stock on a
one
-for-
one
basis.
Preferred Stock
The Company's certificate of incorporation provides that the Company's Board of Directors has the authority, without action by the stockholders, to designate and issue up to
100,000,000
shares of preferred stock in one or more classes or series and to fix the powers, rights, preferences, and privileges of each class or series of preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, and the number of shares constituting any class or series, which may be greater than the rights of the holders of the common stock.
No
preferred stock had been issued or was outstanding as of
December 31, 2016
and
2015
.
Warrants Issued to PGHI Corp.
In connection with the IPO and the related restructuring, the Class C Profits Interests of JGW LLC held by PGHI Corp. were canceled and holders received in exchange warrants to purchase shares of Class A common stock. The warrants issued in respect of the Tranche C-1 profits interests of JGW LLC entitle the holders thereof to purchase up to
483,217
shares of Class A common stock and have an exercise price of
$35.78
per share. The warrants issued in respect of the Tranche C-2 profits interests of JGW LLC also entitle the holders thereof to purchase up to
483,217
shares of Class A common stock and have an exercise price of
$63.01
per share. All of the warrants issued are currently exercisable, terminate on January 8, 2022, and may not be transferred. No warrants were exercised during the years ended
December 31, 2016
or
2015
.
JGW LLC Operating Agreement
Pursuant to the operating agreement of JGW LLC, the holders of JGW LLC Common Interests (other than the Company) have the right, subject to terms of the operating agreement as described therein, to exchange their Common Interests and an equal number of shares of Class B common stock for an equivalent number of shares of Class A common stock, or in the case of PGHI Corp., an equivalent number of shares of Class C common stock. During the years ended
December 31, 2016
and
2015
,
196,101
and
984,949
Common Interests in JGW LLC, in addition to an equal number of shares of Class B common stock, were exchanged for
196,101
and
984,949
shares of the Class A common stock pursuant to the operating agreement, respectively. An additional
715,916
Common Interests in JGW LLC and an equal number of shares of Class B common stock were exchanged for
715,916
shares of Class A common stock during the year ended December 31, 2014 in connection with the Blocker Merger.
Home Lending Acquisition
On July 31, 2015, the Company issued
1,572,327
shares of Class A common stock that was previously treasury stock as partial consideration for the acquisition of Home Lending.
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
Amounts Reclassified Out of Accumulated Other Comprehensive Income
During the years ended
December 31, 2016
and
2015
, there were no amounts reclassified out of accumulated other comprehensive income. During the year ended December 31,
2014
, the Company recorded reclassifications out of accumulated other comprehensive income that are included in the table below:
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
Details about Accumulated Other Comprehensive Income Components
|
|
Amounts Reclassified from Accumulated Other Comprehensive Income
|
|
Affected Line Item in the Consolidated Statements of Operations
|
|
|
|
|
(In thousands)
|
|
|
2014
|
|
Unrealized gains and losses on available-for-sale securities
|
|
$
|
2,098
|
|
|
Realized gain on notes receivable, at fair value
|
In June 2014, a third party repaid its fixed rate note receivable held by the Company. As a result, the Company reclassified
$2.1 million
out of accumulated other comprehensive income during the year ended December 31, 2014. The note receivable had been treated as a debt security, classified as available-for-sale, and carried at fair value in accordance with ASC 320. As a result of this classification, unrealized gains on the note receivable that arose were reflected within accumulated other comprehensive gain in the Company's consolidated statements of comprehensive (loss) income and consolidated statements of changes in stockholders' (deficit) equity.
24. Non-Controlling Interests
The Corporation consolidates the financial results of JGW LLC whereby it records a non-controlling interest for the economic interest in JGW LLC held by the Common Interestholders. Pursuant to an agreement between the Corporation and JGW LLC, any time the Corporation cancels, issues or repurchases shares of Class A common stock, JGW LLC cancels, issues or repurchases, as applicable, an equivalent number of Common Interests. In addition, any time Common Interestholders exchange their Common Interests for shares of Class A common stock, JGW LLC is required to transfer an equal number of Common Interests to the Corporation. Changes in the non-controlling and the Corporation's interest in JGW LLC for the year ending
December 31, 2016
are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
Total Common Interests Held By:
|
|
The J.G. Wentworth Company
|
|
Non-controlling
Interests
|
|
Total
|
Balance as of December 31, 2015
|
15,534,372
|
|
|
13,269,321
|
|
|
28,803,693
|
|
Common Interests acquired by The J.G. Wentworth Company as a result of the exchange of units for shares of Class A common stock
|
196,101
|
|
|
(196,101
|
)
|
|
—
|
|
Common Interests forfeited
|
—
|
|
|
(2,439
|
)
|
|
(2,439
|
)
|
Balance as of December 31, 2016
|
15,730,473
|
|
|
13,070,781
|
|
|
28,801,254
|
|
The non-controlling interests include the Common Interestholders who were issued shares of Class B common stock in connection with the IPO as well as other Common Interestholders who may convert their Common Interests into
4,360,623
shares of Class C common stock.
25. Risks and Uncertainties
The Company's finance receivables are primarily obligations of insurance companies. The exposure to credit risk with respect to these finance receivables is generally limited due to the large number of insurance companies of generally high credit quality comprising the receivable base, their dispersion across geographical areas, and possible availability of state insurance guarantee funds. As of
December 31, 2016
and
2015
,
three
insurance companies and related subsidiaries comprised approximately
33%
and
34%
, respectively, of the Company's gross finance receivables balance. The Company is also subject to numerous risks associated with structured settlements. These risks include, but are not limited to, restrictions on assignability of structured settlements, potential changes in the U.S. tax law related to taxation of structured settlements, diversion by a seller of scheduled payments to the Company, and other potential risks of regulation and/or legislation. A majority of states have regulated the business by passing statutes that govern the sale of structured settlement payments. Generally, the laws require a court approval to consummate a sale. The Company's earnings are dependent upon the fair value of the finance receivables it purchases relative to the value it can obtain by financing these assets in securitization or other transactions. Accordingly, earnings are subject to risks and uncertainties surrounding exposure to changes in the interest rate environment, competitive pressures affecting the ability to maintain sufficient effective purchase yields, and the ability to sell or securitize finance receivables at profitable levels in the future. For the years ended
December 31, 2016
,
2015
and
2014
, the Company's structured settlement business accounted for
66%
,
83%
and
94%
of total revenues, respectively.
In the normal course of business, companies in the mortgage banking industry encounter certain economic and regulatory risks. Economic risks include interest rate and credit risk. The Company is subject to interest rate risk to the extent that in a rising interest rate environment, the Company may experience a decrease in loan production, as well as decreases in the value of mortgage loans held for sale and in commitments to originate loans, which may negatively impact the Company's operations. Credit risk is the risk of default that may result from the borrowers' inability or unwillingness to make contractually required payments during the period in which loans are being held for sale.
The Company sells mortgage loans to investors without recourse. As such, the investors have assumed the risk of loss or default by the borrower. However, the Company is usually required by these investors to make certain standard representations and warranties relating to credit information, loan documentation and collateral. To the extent that the Company does not comply with such representations, or there are early payment defaults, the Company may be required to repurchase the mortgage loans or indemnify these investors for any losses from borrower defaults. In addition, if mortgage loans pay-off within a specified time frame, the Company may be required to refund a portion of the sales proceeds to the investors. As of
December 31, 2016
,
21.1%
and
21.0%
of the mortgage loans the Company serviced as measured by unpaid principal balances were concentrated in Virginia and California, respectively. As of
December 31, 2015
,
25.5%
and
15.9%
of the mortgage loans the Company serviced as measured by unpaid principal balances were concentrated in Virginia and California, respectively.
26. Commitments and Contingencies
Arrangements
The Company had an arrangement (the "Arrangement") with a counterparty for the sale of LCSS assets that met certain eligibility criteria, which expired on June 30, 2012. Pursuant to the Arrangement, the Company also had a borrowing agreement (the "Borrowing Agreement") with the counterparty that gave the counterparty a borrowing base to draw on from the Company for the purchase of LCSS assets. As of
December 31, 2016
and
2015
, the amount owed from the counterparty pursuant to this Borrowing Agreement is
$10.8 million
and
$10.2 million
, respectively, is earning interest at an annual rate of
5.35%
and is included in Other receivables, net of allowance for losses, on the Company's consolidated balance sheets.
The Arrangement also has put options, which expire on December 30, 2019 and 2020, that give the counterparty the option to sell, on those dates, purchased LCSS assets back to the Company if the underlying claimant is still alive on that date. The put options, if exercised by the counterparty, require the Company to purchase LCSS assets at a target internal rate of return ("IRR") of
3.5%
above the original target IRR paid by the counterparty.
Tax Receivable Agreement
Common Interestholders may exchange their Common Interests for shares of Class A common stock, or, in the case of PGHI Corp., shares of Class C common stock, on a
one
-for-
one
basis or, in each case, at the option of JGW LLC, cash. For income tax purposes, such exchanges are treated as sales of Common Interests in JGW LLC to the Corporation. JGW LLC made an election under Section 754 of the Internal Revenue Code of 1986 in connection with the filing of its 2014 federal income tax return which, upon each exchange, effectively treats the Corporation as having purchased an undivided interest in each of the assets owned by JGW LLC. As such, each exchange may result in increases (or decreases) in the Corporation's tax basis in the tangible and intangible assets of JGW LLC that otherwise would not have been available. Any such increases (decreases) in tax basis are, in turn, anticipated
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
to create incremental tax deductions (income) that would reduce (increase) the amount of income tax the Corporation would otherwise be required to pay in the future.
In connection with the IPO, the Corporation entered into a tax receivable agreement ("TRA") with Common Interestholders who held in excess of approximately
1%
of the Common Interests outstanding immediately prior to the IPO. The TRA requires the Company to pay those Common Interestholders
85%
of the amount of cash savings, if any, in U.S. federal, state and local income tax that the Company actually realizes in any tax year from increases in tax basis realized as a result of any future exchanges by Common Interestholders of their Common Interests for shares of Class A or Class C common stock (or cash). The cash savings in income tax paid to any such Common Interestholders will reduce the cash that may otherwise be available to the Corporation for operations and to make future distributions to holders of Class A common stock.
For purposes of the TRA, cash savings in income tax will be computed by comparing the Corporation's actual income tax liability for a covered tax year to the amount of such taxes that the Corporation would have been required to pay for such covered tax year had there been no increase to the Corporation's share of the tax basis of the tangible and intangible assets of JGW LLC as a result of such sale and any such exchanges and had the Corporation not entered into the TRA. The TRA continues until all such tax benefits have been utilized or expired, unless the Corporation exercises its right to terminate the TRA upon a change of control for an amount based on the remaining payments expected to be made under the TRA.
The exchange of Common Interests for shares of Class A common stock in 2015 and 2014 resulted in a
$53.3 million
and
$207.0 million
increase, respectively, in the Corporation's share of the tax basis of JGW LLC's assets, which created current and future income tax deductions for the Corporation. The increase in tax basis, however, did not result in an income tax cash savings for the years ended December 31, 2015 and 2014, because the Corporation would not have been a tax payer in the absence of such tax basis increase. Consequently, there is no liability associated with the 2015 or 2014 exchanges pursuant to the TRA. The Corporation will compute any tax liability for similar exchanges in 2016 in conjunction with the preparation of its 2016 Federal tax returns. The Corporation, however, does not expect to have any tax liability associated with the 2016 tax year and does not expect to benefit from income tax cash savings related to basis adjustments associated with the 2016 exchanges pursuant to the TRA, or have any liability in connection with exchanges pursuant to the TRA made in 2016.
Loss on Contingencies
In the normal course of business, the Company is subject to various legal proceedings and claims. These proceedings and claims have not been finally resolved and the Company cannot make any assurances as to their ultimate disposition. It is management's opinion, based on the information currently available at this time, that the expected outcome of these matters will not have a material adverse effect on the financial position, the results of operations, or cash flows of the Company.
Commitments to Extend Credit
The Company enters into IRLCs with customers who have applied for residential mortgage loans and meet certain credit and underwriting criteria. These commitments expose the Company to market risk if interest rates change and the loan is not economically hedged or committed to an investor. The Company is also exposed to credit loss if the loan is originated and not sold to an investor and the mortgagor does not perform. The collateral upon extension of credit typically consists of a first deed of trust in the mortgagor's residential property. Commitments to originate loans do not necessarily reflect future cash requirements as some commitments are expected to expire without being drawn upon. Total commitments to originate loans as of
December 31, 2016
and
2015
approximated
$355.9 million
and
$222.5 million
, respectively.
27. Share-based Compensation
Under the Company's 2013 Omnibus Incentive Plan (the "Plan"), stock options, restricted stock, restricted stock units and stock appreciation rights units may be granted to officers, employees, non-employee directors and consultants of the Company. As of
December 31, 2016
and
2015
,
1.2 million
shares and
1.3 million
shares of unissued Class A common stock were available for granting under this plan, respectively.
As of
December 31, 2016
, the Company had granted non-qualified stock options and performance-based restricted stock units to its employees and restricted stock shares to independent directors under the Plan. The Company recognizes compensation cost, net of a forfeiture rate, in compensation and benefits expense in the Company's consolidated statements of operations only for those awards that are expected to vest. The forfeiture rate is estimated based on historical experience taking into account its expectations about future forfeitures.
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
Stock Options
The Company has granted options to purchase Class A common stock. These stock options have exercise prices equal to the fair value of the Company's Class A common stock on the date of grant, a contractual term of
ten
years and vest generally in equal annual installments over a
five
-year period following the date of grant, subject to the holder's continued employment with the Company through the applicable vesting date.
The fair value of stock option awards granted during the years ended
December 31, 2016
and
2015
was estimated using the Black-Scholes valuation model and included the following assumptions:
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
Year Ended December 31, 2015
|
Fair value
|
$0.17 - $0.62
|
|
|
$2.74 - $4.80
|
|
Risk-free interest rate
|
1.35% - 1.86%
|
|
|
1.63% - 1.66%
|
|
Expected volatility
|
40.84% - 44.50%
|
|
|
47.09% - 47.10%
|
|
Expected life of options in years
|
6.5
|
|
|
6.5
|
|
Expected dividend yield
|
—
|
|
|
—
|
|
The Company recognizes compensation expense for the fair value of the stock options on a straight-line basis over the requisite service period of the awards. During the years ended
December 31, 2016
,
2015
and
2014
, the Company recognized
$1.1 million
,
$1.2 million
and
$0.8 million
of share-based compensation expense, respectively, in connection with the stock options issued under the Plan.
A summary of stock option activity for the year ended
December 31, 2016
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-
Average
Exercise Price
|
|
Weighted-
Average
Remaining
Contractual
Term (
In Years
)
|
|
Aggregate
Intrinsic
Value
(In
Millions)
|
Outstanding as of December 31, 2015
|
|
1,363,378
|
|
|
$
|
11.00
|
|
|
8.45
|
|
$
|
—
|
|
Granted
|
|
434,500
|
|
|
0.80
|
|
|
|
|
|
|
Exercised
|
|
—
|
|
|
—
|
|
|
|
|
|
|
Cancelled
|
|
(180,000
|
)
|
|
11.06
|
|
|
|
|
|
Forfeited
|
|
(190,384
|
)
|
|
6.41
|
|
|
|
|
|
|
Expired
|
|
(50,945
|
)
|
|
12.40
|
|
|
|
|
|
Outstanding as of December 31, 2016
|
|
1,376,549
|
|
|
$
|
5.77
|
|
|
7.73
|
|
$
|
—
|
|
Expected to vest as of December 31, 2016
|
|
1,326,896
|
|
|
5.87
|
|
|
7.72
|
|
—
|
|
Vested as of December 31, 2016
|
|
263,074
|
|
|
11.17
|
|
|
7.49
|
|
—
|
|
During the years ended
December 31, 2016
,
2015
and
2014
, stock options representing the right to acquire
141,540
,
233,713
and
43,771
shares vested with an aggregate grant date fair value of
$0.7 million
,
$1.2 million
and
$0.3 million
, respectively.
The aggregate intrinsic value represents the total pre-tax value of the difference between the closing price of Class A common stock on the last trading day of the period and the exercise price of the options, multiplied by the number of in-the-money stock options that would have been received by the option holders had all the option holders exercised their options on
December 31, 2016
. The intrinsic value of the Company's stock options changes based on the closing price of the Company's stock. As of
December 31, 2016
,
$3.2 million
of total unrecognized compensation expense related to the outstanding stock options is expected to be recognized over a weighted average period of
2.7
years.
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
In April 2016, the Board authorized a one-time stock modification program for
1,266,125
outstanding options that were issued prior to January 1, 2016 and held by
45
participants. The stock modification program was approved by shareholders at the Annual Meeting of Stockholders on June 2, 2016. On July 29, 2016, the Tender Offer and Consent Solicitation Statement was sent to
33
eligible employees, who were employed as of that date by the Company, who were given
20
business days to consent to the modification. On August 26, 2016, the solicitation period expired with
32
employees electing to participate for an aggregate of
1,195,927
shares to be modified.
Pursuant to the modification approved on June 2, 2016, on August 29, 2016, the exercise price of outstanding options to purchase an aggregate of
147,963
shares of Class A common stock by all persons, other than a key executive officer of the Company as described in detail below, was determined to be
$0.32
per share, which was the closing price per share of the Class A common stock on the OTCQX Market on August 29, 2016. In addition, the vesting date of such modified options was changed to August 29, 2019.
Options to purchase
180,000
shares of Class A common stock held by the key executive officer were canceled and the Company simultaneously granted new stock options to purchase
180,000
shares of Class A common stock to the key executive officer, at an exercise price of
$0.32
per share equal to the fair value at the time of the grant, with an expiration date of August 29, 2029. On the same date, the exercise price of outstanding options held by the key executive to purchase an aggregate of
180,000
shares of Class A common stock was determined to be
$0.32
per share, and the vesting date of such modified options was changed to August 29, 2019.
Except with respect to the modified exercise price and vesting schedule, the modified options remain subject to all terms and conditions of their original grant agreements, including termination provisions. As provided in the Tender Offer and Consent Solicitation Statement, the remainder of the options with respect to which elections were properly tendered and not withdrawn prior to the expiration of the solicitation period will be modified on one or more future modification dates (to the extent not then exercised, expired or terminated), if the closing price of the Company's Class A common stock on each such future modification date is less than the original exercise price of such options. There are options to purchase a maximum of
507,964
shares of Class A common stock potentially subject to modification on August 29, 2017. There are options to purchase a maximum of
180,000
shares of Class A common stock potentially subject to modification on August 29, 2018.
The valuation of the options that were modified on August 29, 2016 is based on the following terms:
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
Fair value
|
|
$0.13 - $0.15
|
|
Risk-free interest rate
|
|
1.19% - 1.37%
|
|
Expected volatility
|
|
43.81% - 44.52%
|
|
Expected life of options in years
|
|
5.1 - 6.5
|
|
Expected dividend yield
|
|
—
|
|
The stock option modification resulted in an incremental compensation cost of
$0.1 million
which will be recognized over the
3
-year vesting period.
Performance-Based Restricted Stock Units
A summary of performance-based restricted stock units for the year ended
December 31, 2016
is as follows:
|
|
|
|
|
|
|
|
|
Performance-Based Restricted Stock Units
|
|
Weighted-Average Grant-Date Fair Value
|
Outstanding as of December 31, 2015
|
191,250
|
|
|
$
|
9.48
|
|
Granted
|
127,250
|
|
|
1.14
|
|
Vested
|
—
|
|
|
—
|
|
Forfeited
|
(111,000
|
)
|
|
3.39
|
|
Outstanding as of December 31, 2016
|
207,500
|
|
|
$
|
1.18
|
|
Expected to vest as of December 31, 2016
|
9,680
|
|
|
1.23
|
|
Each performance-based restricted stock unit will vest into
0
to
1.5
shares of Class A common stock depending on the degree to which the performance goals are met. Compensation expense resulting from these awards is: (i) recognized ratably from
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
the date of the grant until the date the restrictions lapse; (ii) based on the trading price of the Class A common stock on the date of grant; and (iii) based on the probability of achievement of the specific performance-based goals.
In April 2016, the Company modified the performance goals associated with the performance-based restricted stock units granted in 2014 and 2015. As of
December 31, 2016
, management concluded that it was probable that the modified performance goals associated with the performance-based restricted stock units granted in 2014 would be met and the corresponding performance-based restricted stock units would vest. As of
December 31, 2016
, management concluded that (i) it was improbable that the modified performance goals associated with the performance-based restricted stock units granted in 2015 would be met and (ii) it was improbable that the performance goals associated with the performance-based restricted stock units granted in 2016 would be met.
During the years ended
December 31, 2016
,
2015
and
2014
, the Company recognized share-based compensation expense (income) of less than
$0.1 million
,
$(0.3) million
and
$0.3 million
, respectively, in connection with the performance-based restricted stock units. The income recognized during the year ended December 31, 2015 was the result of management concluding in the third and fourth quarters of 2015 that it was no longer probable that the performance goals associated with performance-based restricted stock units granted in 2014 and 2015 would vest. Consequently, the Company reversed the expense previously recognized in connection with the
87,750
units granted in 2014 and outstanding as of September 30, 2015 and the
133,500
units granted in 2015 and outstanding as of December 31, 2015.
The aggregate grant-date fair value of the performance-based restricted stock units granted during the years ended
December 31, 2016
,
2015
and
2014
was
$0.1 million
,
$1.5 million
and
$1.9 million
, respectively.
As of
December 31, 2016
, there was
$0.2 million
of total unrecognized compensation cost relating to outstanding performance-based restricted stock units that is not expected to be recognized.
Restricted Stock
A summary of restricted stock activity for the year ended
December 31, 2016
is as follows:
|
|
|
|
|
|
|
|
|
Restricted
Stock Shares
|
|
Weighted-Average Grant-Date Fair Value
|
Outstanding as of December 31, 2015
|
66,038
|
|
|
$
|
2.12
|
|
Granted
|
—
|
|
|
—
|
|
Vested
|
(66,038
|
)
|
|
2.12
|
|
Outstanding as of December 31, 2016
|
—
|
|
|
$
|
—
|
|
Restricted stock granted to independent directors under the Plan cliff vest on the first anniversary after the grant date. The fair value of restricted stock is determined based on the trading price of the Class A common stock on the date of grant. There was
no
restricted stock granted during the year ended
December 31, 2016
. The aggregate grant date fair value of the restricted stock granted was
$0.1 million
for each of the years ended
December 31, 2015
and
2014
. As of
December 31, 2016
, there was
no
unrecognized compensation cost relating to restricted stock.
The Company recognizes compensation expense for the fair value of restricted stock on a straight-line basis over the
one
-year cliff vesting period. During each of the years ended
December 31, 2016
,
2015
and
2014
, the Company recognized
$0.1 million
of share-based compensation expense in connection with the restricted stock.
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
Unvested Restricted Common Interests in JGW LLC
The following table summarizes the activities of unvested Restricted Common Interests in JGW LLC for the year ended
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
Unvested Restricted Common
Interests
|
|
Weighted - Average
Grant - Date
Fair Value
|
Outstanding as of December 31, 2015
|
|
27,777
|
|
|
$
|
6.30
|
|
Vested in period
|
|
(15,467
|
)
|
|
5.25
|
|
Forfeited
|
|
(2,439
|
)
|
|
1.71
|
|
Outstanding as of December 31, 2016
|
|
9,871
|
|
|
$
|
9.06
|
|
Expected to vest as of December 31, 2016
|
|
9,858
|
|
|
9.06
|
|
There were no Restricted Common Interests in JGW LLC granted during the years ended
December 31, 2016
,
2015
or
2014
. The aggregate grant-date fair value of the Restricted Common Interests in JGW LLC that vested during the years ended
December 31, 2016
,
2015
and
2014
was
$0.1 million
,
$0.5 million
and
$1.5 million
, respectively.
As of
December 31, 2016
, there was
$0.1 million
of unrecognized compensation cost related to outstanding unvested Restricted Common Interests in JGW LLC that is expected to be recognized over a weighted average period of
one
year. Total share-based compensation expense recognized for the years ended
December 31, 2016
,
2015
and
2014
related to the Restricted Common Interests JGW LLC was less than
$0.1 million
,
$0.3 million
and
$1.2 million
, respectively.
28. Employee Benefit Plan
The Company maintains a saving plan under Section 401(k) of the Internal Revenue Code that covers all employees who have attained
21
years of age and achieved the applicable and requisite service period. Matching contributions are at the discretion of the Company's Board of Directors. For certain employees, matching contributions by the Company were
50%
on the first
8%
of compensation contributed each pay period. For other employees, matching contributions by the Company were
15%
of the employee's contributed amount on a per pay basis.
Employee benefit plan expense was included in compensation and benefits expense in the Company's consolidated statements of operations and was as follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
(In thousands)
|
|
|
|
Employee benefit plan expense
|
$
|
862
|
|
|
$
|
668
|
|
|
$
|
520
|
|
29. Cost Savings Activities
In late 2015, the Company initiated a cost reduction plan to reduce excess capacity and improve efficiency within the business units. In connection with this plan, the Company recorded severance charges of
$2.9 million
for the year ended
December 31, 2016
, which were included within compensation and benefits in the Company's consolidated statements of operations. The associated workforce reductions were substantially complete as of June 30, 2016. In addition, the Company recorded lease termination charges of
$0.8 million
for the year ended
December 31, 2016
, which were included within general and administrative in the Company's consolidated statements of operations. The lease termination charges related principally to leased offices that the Company ceased using as of September 30, 2016, represented the fair value of the liability at the date use of the leased offices ceased and were determined based on the remaining lease rental payments obligation reduced by estimated sublease income that could be reasonably obtained for the property. The Company did not record severance or lease termination charges for the years ended
December 31, 2015
or
2014
. The Company may incur additional severance, lease termination and other restructuring costs in future periods as the Company continues to undertake additional efforts to improve efficiency in its business.
Both the severance liability and the lease termination costs are included in accrued expenses and accounts payable on the Company's consolidated balance sheets. A reconciliation of the liabilities associated with the cost reduction plan by reportable segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Structured Settlements
|
|
Home Lending
|
|
Consolidated
|
|
|
(In thousands)
|
Balance at December 31, 2015
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Severance expense
|
|
2,359
|
|
|
495
|
|
|
2,854
|
|
Lease terminations
|
|
827
|
|
|
—
|
|
|
827
|
|
Payments
|
|
(1,791
|
)
|
|
(405
|
)
|
|
(2,196
|
)
|
Adjustments
|
|
(194
|
)
|
|
—
|
|
|
(194
|
)
|
Balance at December 31, 2016
|
|
$
|
1,201
|
|
|
$
|
90
|
|
|
$
|
1,291
|
|
30. Earnings per share
Basic earnings per share ("EPS") measures the performance of an entity over the reporting period. Diluted EPS measures the performance of an entity over the reporting period while giving effect to all potentially dilutive common shares that were outstanding during the period.
In accordance with ASC 260,
Earnings Per Share
, all outstanding unvested share-based payments that contain rights to non-forfeitable dividends and participate in the undistributed earnings with the common stockholders are considered participating securities. The shares of Class B common stock do not share in the earnings of the Company and are therefore not considered participating securities. Accordingly, basic and diluted net earnings per share of Class B common stock have not been presented.
In connection with the IPO, Class C Profits Interests of JGW LLC held by PGHI Corp. were exchanged for a total of
966,434
warrants to purchase shares of Class A common stock. For the years ended
December 31, 2016
,
2015
and
2014
, these warrants were not included in the computation of diluted earnings (loss) per common share because they were antidilutive under the treasury stock method.
During the years ended
December 31, 2016
,
2015
and
2014
,
1,399,304
,
1,455,645
and
796,413
of weighted average stock options outstanding, respectively, were not included in the computation of diluted earnings (loss) per common share because they were antidilutive under the treasury stock method. During the years ended
December 31, 2016
,
2015
and
2014
,
225,822
,
188,218
and
86,904
of weighted-average performance-based restricted stock units, respectively, were antidilutive and, therefore, excluded, from the computation of diluted earnings (loss) per common share.
The operating agreement of JGW LLC gives Common Interestholders the right (subject to the terms of the operating agreement as described therein) to exchange their Common Interests for shares of Class A common stock on a
one
-for-
one
basis at fair value, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications. The Company applies the "if-converted" method to the Common Interests and vested Restricted Common Interests in JGW LLC to determine the dilutive weighted average shares of Class A common stock outstanding. The Company applies the treasury stock method to the unvested Restricted Common Interests and the "if-converted" method on the resulting number of additional Common Interests to determine the dilutive weighted average shares of Class A common stock outstanding represented by these interests.
In computing the dilutive effect that the exchange of Common Interests and Restricted Common Interests would have on EPS, the Company considered that net (loss) income attributable to holders of Class A common stock would decrease due to the elimination of non-controlling interests (including any tax impact). Based on these calculations, the
13,075,774
,
13,623,240
and
15,790,111
weighted average Common Interests and vested Restricted Common Interests outstanding, respectively, and the
19,306
,
102,562
and
568,606
weighted average unvested Restricted Common Interests outstanding, respectively, for the years ended
December 31, 2016
,
2015
and
2014
, respectively, were antidilutive and excluded from the computation of diluted earnings (loss) per common share.
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
The following table is a reconciliation of the numerator and denominator used in the basic and diluted EPS calculations for the years ended
December 31, 2016
,
2015
and
2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(Dollars in thousands, except per share data)
|
Numerator:
|
|
|
|
|
|
|
|
Numerator for basic EPS - Net (loss) income attributable to holders of The J.G. Wentworth Company Class A common stock
|
|
$
|
(46,857
|
)
|
|
$
|
(95,312
|
)
|
|
$
|
31,211
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
JGW LLC Common Interests and vested Restricted Common Interests
|
|
—
|
|
|
—
|
|
|
—
|
|
JGW LLC unvested Restricted Common Interests
|
|
—
|
|
|
—
|
|
|
—
|
|
Numerator for diluted EPS - Net (loss) income attributable to holders of The J.G. Wentworth Company Class A common stock
|
|
$
|
(46,857
|
)
|
|
$
|
(95,312
|
)
|
|
$
|
31,211
|
|
Denominator:
|
|
|
|
|
|
|
|
Denominator for basic EPS -Weighted average shares of Class A common stock
|
|
15,649,474
|
|
|
14,690,746
|
|
|
12,986,058
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
Stock options
|
|
—
|
|
|
—
|
|
|
—
|
|
Warrants
|
|
—
|
|
|
—
|
|
|
—
|
|
Restricted common stock and performance-based restricted stock units
|
|
—
|
|
|
—
|
|
|
2,723
|
|
JGW LLC Common Interests and vested Restricted Common Interests
|
|
—
|
|
|
—
|
|
|
—
|
|
JGW LLC unvested Restricted Common Interests
|
|
—
|
|
|
—
|
|
|
—
|
|
Dilutive potential common shares
|
|
—
|
|
|
—
|
|
|
2,723
|
|
Denominator for diluted EPS - Adjusted weighted average shares of Class A common stock
|
|
15,649,474
|
|
|
14,690,746
|
|
|
12,988,781
|
|
|
|
|
|
|
|
|
Basic (loss) income per share of Class A common stock
|
|
$
|
(2.99
|
)
|
|
$
|
(6.49
|
)
|
|
$
|
2.40
|
|
Diluted (loss) income per share of Class A common stock
|
|
$
|
(2.99
|
)
|
|
$
|
(6.49
|
)
|
|
$
|
2.40
|
|
31. Business Segments
The Company's business segments are determined based on products and services offered, as well as the nature of the related business activities, and reflect the manner in which financial information is currently evaluated by management. The Company has identified the following
two
reportable segments: (i) Structured Settlements and (ii) Home Lending.
The Company's Chief Operating Decision Maker ("CODM") evaluates reportable segments using Segment Adjusted Earnings Before Interest Expense, Income Taxes, Depreciation and Amortization ("Segment Adjusted EBITDA") for purposes of making decisions about allocating resources and evaluating their performance. The Company defines Segment Adjusted EBITDA as net income (loss) under U.S. GAAP before non-cash compensation expenses, certain other expenses, provision for or benefit from income taxes, depreciation and amortization and, for the Company's Structured Settlements segment, amounts related to the consolidation of the securitization and permanent financing trusts the Company uses to finance its business, interest expense associated with its senior secured credit facility, debt issuance costs and broker and legal fees incurred in connection with sales of finance receivables.
During 2016, the CODM began using Segment Adjusted EBITDA as the primary means by which he evaluates segment performance since (i) Segment Adjusted EBITDA represents a better measure of the Company's operating performance, especially for the Structured Settlements segment because the operations of the VIEs do not impact the business segments' performance and (ii) Segment Adjusted EBITDA is the metric used in determining whether performance-based restricted stock units issued to management will vest. Prior periods have been adjusted to reflect the current measurement method.
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
The application and development of management reporting methodologies is a dynamic process and is subject to periodic enhancements. The implementation of these enhancements to the internal management reporting methodology may materially affect the results disclosed for each segment with no impact on consolidated results. Whenever significant changes to management reporting methodologies take place, prior period information is reclassified whenever practicable.
Below is a summary of Segment Adjusted EBITDA, a measure of the Company's segments' profitability.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Structured Settlements
|
|
Home Lending
|
|
Other Adjustments/Eliminations
|
|
Subtotal Reportable Segments
|
|
|
(In thousands)
|
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
Segment Adjusted EBITDA
|
|
$
|
16,165
|
|
|
$
|
31,189
|
|
|
$
|
—
|
|
|
$
|
47,354
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
(1)
|
|
|
|
|
|
|
|
|
Segment Adjusted EBITDA
|
|
$
|
49,619
|
|
|
$
|
2,727
|
|
|
$
|
—
|
|
|
$
|
52,346
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2014
|
|
|
|
|
|
|
|
|
Segment Adjusted EBITDA
|
|
$
|
96,725
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
96,725
|
|
(1) Home Lending was acquired on July 31, 2015, and, therefore, the results include only five months of Home Lending's operations.
The following table presents certain information regarding the Company's business segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Structured Settlements
|
|
Home Lending
|
|
Other Adjustments/Eliminations
|
|
Consolidated
|
|
|
(In thousands)
|
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
215,399
|
|
|
$
|
109,273
|
|
|
$
|
—
|
|
|
$
|
324,672
|
|
Total assets
|
|
4,611,705
|
|
|
381,202
|
|
|
—
|
|
|
4,992,907
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
(1)
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
269,635
|
|
|
$
|
26,732
|
|
|
$
|
—
|
|
|
$
|
296,367
|
|
Total assets
|
|
4,801,965
|
|
|
249,133
|
|
|
—
|
|
|
5,051,098
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2014
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
494,376
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
494,376
|
|
Total assets
|
|
5,182,709
|
|
|
—
|
|
|
—
|
|
|
5,182,709
|
|
(1) Home Lending was acquired on July 31, 2015, and, therefore, the results include only five months of Home Lending's operations.
The J.G. Wentworth Company
Notes to Consolidated Financial Statements
Below is a reconciliation of Segment Adjusted EBITDA, a measure of the Company's segments' profitability, for the Company's
two
reportable segments to (loss) income before income taxes for the years ended
December 31, 2016
,
2015
and
2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
Year Ended December 31, 2015
(1)
|
|
Year Ended December 31, 2014
|
|
|
(In thousands)
|
Structured Settlements Segment Adjusted EBITDA
|
|
$
|
16,165
|
|
|
$
|
49,619
|
|
|
$
|
96,725
|
|
Home Lending Segment Adjusted EBITDA
|
|
31,189
|
|
|
2,727
|
|
|
—
|
|
Subtotal Segment Adjusted EBITDA for Reportable Segments
|
|
$
|
47,354
|
|
|
$
|
52,346
|
|
|
$
|
96,725
|
|
|
|
|
|
|
|
|
Securitization-related adjustments:
|
|
|
|
|
|
|
Unrealized loss on finance receivables, long-term debt and derivatives post securitization due to changes in interest rates
|
|
(77,652
|
)
|
|
(75,802
|
)
|
|
84,955
|
|
Interest income from securitized finance receivables
|
|
177,781
|
|
|
171,773
|
|
|
166,888
|
|
Interest income on retained interests in finance receivables
|
|
(16,149
|
)
|
|
(21,652
|
)
|
|
(20,315
|
)
|
Servicing income on securitized finance receivables
|
|
(5,181
|
)
|
|
(5,284
|
)
|
|
(5,129
|
)
|
Interest expense on long-term debt related to securitization and permanent financing trusts
|
|
(162,442
|
)
|
|
(147,723
|
)
|
|
(142,907
|
)
|
Swap termination expense related to securitization entities
|
|
(3,053
|
)
|
|
—
|
|
|
—
|
|
Professional fees relating to securitizations
|
|
(5,605
|
)
|
|
(5,913
|
)
|
|
(6,161
|
)
|
Provision for losses associated with permanently financed VIEs
|
|
60
|
|
|
(25
|
)
|
|
—
|
|
Subtotal of securitization-related adjustments
|
|
$
|
(92,241
|
)
|
|
$
|
(84,626
|
)
|
|
$
|
77,331
|
|
Other adjustments:
|
|
|
|
|
|
|
Share-based compensation
|
|
(1,448
|
)
|
|
(1,291
|
)
|
|
(2,384
|
)
|
Impact of prefunding on unsecuritized finance receivables
|
|
(3,199
|
)
|
|
(1,618
|
)
|
|
1,566
|
|
Lease termination, severance and other restructuring related expenses
|
|
(3,602
|
)
|
|
(3,095
|
)
|
|
1,383
|
|
Merger and acquisition related expense
|
|
(550
|
)
|
|
(2,946
|
)
|
|
(3,736
|
)
|
Debt modification expense
|
|
(2,399
|
)
|
|
(792
|
)
|
|
—
|
|
Impairment charges and loss on disposal of assets
|
|
(5,483
|
)
|
|
(121,594
|
)
|
|
—
|
|
Term loan interest expense
|
|
(40,559
|
)
|
|
(40,386
|
)
|
|
(40,281
|
)
|
Debt issuance
|
|
(4,455
|
)
|
|
(6,741
|
)
|
|
(8,683
|
)
|
Broker and legal fees incurred in connection with sale of finance receivables
|
|
(1,959
|
)
|
|
—
|
|
|
—
|
|
Depreciation and amortization
|
|
(4,814
|
)
|
|
(4,613
|
)
|
|
(4,168
|
)
|
Loss before income taxes
|
|
$
|
(113,355
|
)
|
|
$
|
(215,356
|
)
|
|
$
|
117,753
|
|
(1) Home Lending was acquired on July 31, 2015, and, therefore, the results include only five months of Home Lending's operations.