Quarterly Report (10-q)

Date : 11/14/2017 @ 5:05PM
Source : Edgar (US Regulatory)
Stock : The J.g. Wentworth Company (QX) (JGWE)
Quote : 0.0129  -0.0018 (-12.24%) @ 2:39PM

Quarterly Report (10-q)

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
  (Mark One)
  ý       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017
Or
o          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                        to                       
Commission File Number: 001-36170
THE J.G. WENTWORTH COMPANY
(Exact name of registrant as specified in its charter)
Delaware
 
46-3037859
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
1200 Morris Drive
Suite 300
Chesterbrook, Pennsylvania
 
19087
(Address of principal executive offices)
 
(Zip Code)
(484) 434-2300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ý   Yes  o   No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  ý   Yes  o   No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer    o
Accelerated filer     o
Non-accelerated filer   o  (Do not check if smaller reporting company)
Smaller reporting company    x
Emerging growth company    x
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). o   Yes  ý   No 
The number of shares of the registrant's Class A common stock, par value $0.00001 per share, outstanding was 15,810,703 as of October 31, 2017 . The number of shares of the registrant's Class B common stock, par value $0.00001 per share, outstanding was 8,629,738 as of October 31, 2017 .
 



TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 




CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements which reflect management's expectations regarding our future growth, results of operations, operational and financial performance and business prospects and opportunities. These forward-looking statements are within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, are forward-looking statements. You can identify such statements because they contain words such as "plans," "expects" or "does not expect," "budget," "forecasts," "anticipates" or "does not anticipate," "believes," "intends," and similar expressions or statements that certain actions, events or results "may," "could," "would," "might," or "will" be taken, occur or be achieved. Although the forward-looking statements contained in this Quarterly Report on Form 10-Q reflect management's current beliefs based upon information currently available to management and upon assumptions which management believes to be reasonable, actual results may differ materially from those stated in or implied by these forward-looking statements.
Forward-looking statements necessarily involve significant known and unknown risks, assumptions and uncertainties that may cause our actual results, performance and achievements in future periods to differ materially from those expressed or implied by such forward-looking statements. Although we have attempted to identify important risk factors that could cause actual actions, events or results to differ materially from those described in or implied by our forward-looking statements, several factors could cause actual results, performance or achievements to differ materially from the results expressed or implied in the forward-looking statements and impact us as a going concern. We cannot assure you that forward-looking statements will prove to be accurate, as actual actions, results and future events could differ materially from those anticipated or implied by such statements.
These forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q, and, except for our ongoing obligations to disclose material information under the federal securities laws, we undertake no obligation to publicly revise any forward-looking statements to reflect circumstances or events after the date of this Quarterly Report on Form 10-Q, or to reflect the occurrence of unanticipated events. These factors should be considered carefully and readers should not place undue reliance on forward-looking statements. You should, however, review the factors and risks we describe in the reports we file from time to time with the Securities and Exchange Commission after the date of this Quarterly Report on Form 10-Q. In addition to those set forth under "Part II, Item 1A. 'Risk Factors'" in this Quarterly Report on Form 10-Q, these risks and uncertainties include, among other things:
our entry into a restructuring support agreement (the “Restructuring Support Agreement”) to restructure our long-term debt and equity under chapter 11 of the United States Bankruptcy Code;
the risks and uncertainties associated with the bankruptcy process;
the plan of reorganization contemplated by the Restructuring Support Agreement (the “Plan”) provides for all existing equity interests of our common stockholders to be canceled and for our common stockholders to lose the full amount of their investment;
our ability to satisfy the conditions and milestones contained in the Restructuring Support Agreement;
our ability to obtain confirmation of the Plan;
the ability of our management to focus on the operation of our business during the pendency of the bankruptcy;
our ability to execute on our business strategy;
our ability to successfully compete in the industries in which we operate;
our dependence on the effectiveness of direct response marketing;
our ability to retain and attract qualified senior management;
any improper use of or failure to protect the personally identifiable information of past, current and prospective customers to which we have access;
our ability to upgrade and integrate our operational and financial information systems, maintain uninterrupted access to such systems and adapt to technological changes in the industries in which we operate;
our dependence on third parties, including our ability to maintain relationships with such third parties and our potential exposure to liability for the actions of such third parties;
damage to our reputation and increased regulation of our industries which could result from unfavorable press reports about our business model;
infringement of our trademarks or service marks;
changes in, and our ability to comply with, any applicable federal, state and local laws and regulations governing us, including any applicable federal consumer financial laws enforced by the Consumer Financial Protection Bureau;
our ability to maintain our state licenses or obtain new licenses in new markets;
our ability to continue to purchase structured settlement payments and other financial assets;
our business model being susceptible to litigation;



our ability to remain in compliance with the terms of our substantial indebtedness and to refinance our term debt;
our ability to obtain sufficient working capital at attractive rates or obtain sufficient capital to meet the financing requirements of our business;
our ability to renew or modify our warehouse lines of credit;
the accuracy of the estimates and assumptions of our financial models;
changes in prevailing interest rates and our ability to mitigate interest rate risk through hedging strategies;
the public disclosure of the identities and information of structured settlement holders maintained in our proprietary database;
our dependence on the opinions of certain credit rating agencies of the credit quality of our securitizations;
our ability to complete future securitizations, other financings or sales on favorable terms;
the insolvency of a material number of structured settlement issuers;
adverse changes in the residential mortgage lending and real estate markets, including any increases in defaults or delinquencies, especially in geographic areas where our loans are concentrated;
our ability to grow our loan origination volume, retain mortgage servicing rights ("MSRs") and recapture loans that are refinanced;
changes in the guidelines of government sponsored enterprises ("GSEs"), or any discontinuation of, or significant reduction in, the operation of GSEs;
potential misrepresentations by borrowers, counterparties and other third parties;
our ability to raise additional capital as a result of our Class A common stock now being traded on the OTCQX® Market; and
our ability to meet the ongoing eligibility standards of the OTCQX® Market.


The J.G. Wentworth Company
Condensed Consolidated Balance Sheets

PART I. FINANCIAL INFORMATION  
Item 1. Financial Statements
 
September 30, 2017
 
December 31, 2016
 
(Unaudited)
 
 
 
(Dollars in thousands, except share and per share data)
ASSETS
 

 
 

Cash and cash equivalents
$
54,892

 
$
80,166

Restricted cash and investments
139,979

 
195,588

VIE finance receivables, at fair value (1)
4,330,264

 
4,143,903

Other finance receivables, at fair value
20,879

 
13,134

VIE finance receivables, net of allowances for losses of $8,611 and $9,023, respectively (1)
77,640

 
85,325

Other finance receivables, net of allowances for losses of $2,010 and $2,061, respectively
7,966

 
8,619

Other receivables, net of allowances for losses of $268 and $280, respectively
19,687

 
17,771

Mortgage loans held for sale, at fair value (2)
239,477

 
232,770

Mortgage servicing rights, at fair value (2)
50,018

 
41,697

Premises and equipment, net of accumulated depreciation of $12,597 and $10,697, respectively
3,504

 
4,005

Intangible assets, net of accumulated amortization of $24,082 and $22,778, respectively
21,564

 
22,868

Goodwill

 
8,369

Marketable securities, at fair value
82,119

 
76,687

Deferred tax assets, net

 
405

Other assets
61,613

 
61,600

Total Assets
$
5,109,602

 
$
4,992,907

 
 
 
 
LIABILITIES AND STOCKHOLDERS' DEFICIT
 

 
 

Accrued expenses and accounts payable
$
33,697

 
$
28,929

Accrued interest
32,714

 
28,123

Term loan payable
438,148

 
431,872

VIE derivative liabilities, at fair value
43,494

 
50,432

VIE borrowings under revolving credit facilities and other similar borrowings
1,735

 
56,432

Other borrowings under revolving credit facilities and other similar borrowings
231,002

 
229,588

VIE long-term debt
59,586

 
62,939

VIE long-term debt issued by securitization and permanent financing trusts, at fair value
4,200,824

 
4,014,450

Other liabilities
51,434

 
52,448

Deferred tax liabilities, net
2,963

 
1,415

Installment obligations payable
82,119

 
76,687

Total Liabilities
$
5,177,716

 
$
5,033,315

 
 
 
 
Commitments and contingencies (Note 18)


 


 
 
 
 
Class A common stock, par value $0.00001 per share; 500,000,000 shares authorized, 16,352,775 issued and 15,810,703 outstanding as of September 30, 2017, 16,272,545 issued and 15,730,473 outstanding as of December 31, 2016
$

 
$

Class B common stock, par value $0.00001 per share; 500,000,000 shares authorized, 8,629,738 issued and outstanding as of September 30, 2017, 8,710,158 issued and outstanding as of December 31, 2016

 

Class C common stock, par value $0.00001 per share; 500,000,000 shares authorized, 0 issued and outstanding as of September 30, 2017 and December 31, 2016, respectively

 

Additional paid-in-capital
106,060

 
105,823

Accumulated deficit
(134,148
)
 
(117,622
)
 
(28,088
)
 
(11,799
)
Less: treasury stock at cost, 542,072 shares as of September 30, 2017 and December 31, 2016, respectively
(2,138
)
 
(2,138
)
Total stockholders' deficit, The J.G. Wentworth Company
(30,226
)
 
(13,937
)
Non-controlling interests
(37,888
)
 
(26,471
)
Total Stockholders' Deficit
(68,114
)
 
(40,408
)
Total Liabilities and Stockholders' Deficit
$
5,109,602

 
$
4,992,907

(1) Refer to Note 5 "VIE and Other Finance Receivables, at Fair Value" and Note 6 "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 7 "Mortgage Loans Held for Sale, at Fair Value" and Note 8 "Mortgage Servicing Rights, at Fair Value."
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

1

The J.G. Wentworth Company
Condensed Consolidated Statements of Operations (Unaudited)


 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(Dollars in thousands, except share and per share data)
REVENUES
 
 
 
 
 

 
 

Interest income
$
47,380

 
$
43,991

 
$
144,737

 
$
145,211

Realized and unrealized gains (losses) on VIE and other finance receivables, long-term debt and derivatives
36,472

 
(9,104
)
 
89,303

 
(12,339
)
Realized and unrealized gains on sale of mortgage loans held for sale, net of direct costs
22,024

 
24,495

 
54,060

 
61,781

Changes in mortgage servicing rights, net
3,240

 
1,480

 
8,321

 
3,320

Servicing, broker, and other fees
4,489

 
3,023

 
14,429

 
9,758

Loan origination fees
2,867

 
2,536

 
7,329

 
6,445

Realized and unrealized gains on marketable securities, net
2,228

 
2,376

 
6,629

 
3,921

Total revenues
$
118,700

 
$
68,797

 
$
324,808

 
$
218,097

 
 
 
 
 
 
 
 
EXPENSES
 

 
 

 
 

 
 

Advertising
$
17,582

 
$
13,894

 
$
49,205

 
$
42,191

Interest expense
57,969

 
54,561

 
174,241

 
167,861

Compensation and benefits
22,131

 
20,792

 
57,664

 
59,835

General and administrative
6,840

 
7,732

 
20,432

 
21,822

Professional and consulting
5,691

 
3,977

 
15,525

 
12,386

Debt issuance
2,252

 
2,584

 
4,672

 
3,132

Securitization debt maintenance
1,326

 
1,380

 
4,004

 
4,226

Provision for losses
1,267

 
2,075

 
2,919

 
4,647

Direct subservicing costs
957

 
493

 
2,766

 
1,742

Depreciation and amortization
937

 
1,182

 
3,204

 
3,646

Installment obligations expense, net
2,598

 
2,817

 
7,942

 
5,279

Impairment charges
8,369

 

 
8,369

 
5,483

Total expenses
$
127,919

 
$
111,487

 
$
350,943

 
$
332,250

Loss before income taxes
(9,219
)
 
(42,690
)
 
(26,135
)
 
(114,153
)
(Benefit) provision for income taxes
(2,705
)
 
(3,883
)
 
2,148

 
(16,787
)
Net loss
$
(6,514
)
 
$
(38,807
)
 
$
(28,283
)
 
$
(97,366
)
Less: net loss attributable to non-controlling interests
(4,200
)
 
(20,094
)
 
(11,757
)
 
(51,773
)
Net loss attributable to The J.G. Wentworth Company
$
(2,314
)
 
$
(18,713
)
 
$
(16,526
)
 
$
(45,593
)
 
 
 
 
 
 
 
 
Weighted average shares of Class A common stock outstanding:
 

 
 

 
 

 
 

Basic
15,810,703

 
15,663,475

 
15,772,732

 
15,633,696

Diluted
15,810,703

 
15,663,475

 
15,772,732

 
15,633,696

Net loss per share attributable to stockholders of Class A common stock of The J.G. Wentworth Company
 

 
 

 
 

 
 

Basic
$
(0.15
)
 
$
(1.19
)
 
$
(1.05
)
 
$
(2.92
)
Diluted
$
(0.15
)
 
$
(1.19
)
 
$
(1.05
)
 
$
(2.92
)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2


The J.G. Wentworth Company
Condensed Consolidated Statements of Comprehensive Loss (Unaudited)


 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands)
Net loss
$
(6,514
)
 
$
(38,807
)
 
$
(28,283
)
 
$
(97,366
)
Total comprehensive loss
(6,514
)
 
(38,807
)
 
(28,283
)
 
(97,366
)
Less: comprehensive loss allocated to non-controlling interests
(4,200
)
 
(20,094
)
 
(11,757
)
 
(51,773
)
Comprehensive loss attributable to The J.G. Wentworth Company
$
(2,314
)
 
$
(18,713
)
 
$
(16,526
)
 
$
(45,593
)
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


3

The J.G. Wentworth Company
Condensed Consolidated Statement of Changes in Stockholders’ Deficit (Unaudited)


(Dollars in thousands, except share data)
 
 
 
Accumulated
Other
Comprehensive Income 
 
Non- controlling Interest
 
Accumulated Deficit
 
Additional Paid-In-
Capital
 
Treasury Stock
 
Common Stock - Class A
 
Common Stock - Class B
 
Total Stockholders' Deficit
 
 
 
 
 
 
Shares
 
Dollars
 
Shares
 
Dollars
 
Shares
 
Dollars
 
Balance as of December 31, 2016
 
$

 
$
(26,471
)
 
$
(117,622
)
 
$
105,823

 
542,072

 
$
(2,138
)
 
15,730,473

 
$

 
8,710,158

 
$

 
$
(40,408
)
Net loss
 

 
(11,757
)
 
(16,526
)
 

 

 

 

 

 

 

 
(28,283
)
Share-based compensation
 

 
342

 

 
413

 

 

 

 

 
(9,871
)
 

 
755

Capital distributions
 

 
(178
)
 

 

 

 

 

 

 

 

 
(178
)
Issuance of Class A common stock for vested equity awards
 

 

 

 

 

 

 
9,681

 

 

 

 

Exchange of JGW LLC common interests into Class A common stock
 

 
176

 

 
(176
)
 

 

 
70,549

 

 
(70,549
)
 

 

Balance as of September 30, 2017
 
$

 
$
(37,888
)
 
$
(134,148
)
 
$
106,060

 
542,072

 
$
(2,138
)
 
15,810,703

 
$

 
8,629,738

 
$

 
$
(68,114
)
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


4

The J.G. Wentworth Company
Condensed Consolidated Statements of Cash Flows (Unaudited)


 
 
Nine Months Ended September 30,
 
2017
 
2016
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net loss
$
(28,283
)
 
$
(97,366
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Provision for losses
2,919

 
4,647

Depreciation
1,900

 
2,052

Impairment charges
8,369

 
5,483

Changes in mortgage servicing rights, net
(8,321
)
 
(3,320
)
Amortization of finance receivables acquisition costs
12

 
51

Amortization of intangibles
1,304

 
1,594

Amortization of debt issuance costs
5,774

 
11,063

Proceeds from sale of and principal payments on mortgage loans held for sale
2,619,812

 
2,343,415

Originations and purchases of mortgage loans held for sale
(2,591,803
)
 
(2,462,754
)
Change in unrealized gains/losses on finance receivables
(241,310
)
 
(92,880
)
Change in unrealized gains/losses on long-term debt
161,447

 
167,243

Change in unrealized gains/losses on derivatives
(7,078
)
 
3,034

Net proceeds from sale of finance receivables
15,053

 
271,331

Realized and unrealized gains on sale of mortgage loans held for sale, net of direct costs
(54,060
)
 
(61,781
)
Purchases of finance receivables
(215,504
)
 
(204,775
)
Collections on finance receivables
395,362

 
404,520

Gain on sale of finance receivables
(2,180
)
 
(69,597
)
Recoveries of finance receivables
13

 
137

Accretion of interest income
(140,388
)
 
(141,885
)
Accretion of interest expense
(3,375
)
 
(23,611
)
Share-based compensation expense
755

 
997

Change in marketable securities
(6,629
)
 
(3,921
)
Installment obligations expense, net
7,942

 
5,279

Deferred income taxes, net
1,952

 
(16,787
)
Decrease (increase) in operating assets:
 
 
 
Restricted cash and investments
55,609

 
(7,809
)
Other assets
15,539

 
8,236

Other receivables
(1,907
)
 
(1,547
)
Increase in operating liabilities:
 
 
 
Accrued expenses and accounts payable
4,768

 
8,464

Accrued interest
4,591

 
3,934

Other liabilities
1,499

 
7

Net cash provided by operating activities
$
3,782

 
$
53,454

 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 



5

The J.G. Wentworth Company
Condensed Consolidated Statements of Cash Flows (Unaudited) (Continued)


 
Nine Months Ended September 30,
 
2017
 
2016
 
(In thousands)
Cash flows from investing activities:
 
 
 
Final payment on purchase of Home Lending
$

 
$
(7,630
)
Purchases of premises and equipment, net of sales proceeds
(1,399
)
 
(754
)
Net cash used in investing activities
$
(1,399
)
 
$
(8,384
)
Cash flows from financing activities:
 
 
 
Capital distributions
$
(178
)
 
$

Issuance of VIE long-term debt
279,835

 
216,806

Payments for debt issuance costs
(1,351
)
 
(1,133
)
Payments on capital lease obligations
(40
)
 
(37
)
Repayments of long-term debt and derivatives
(251,281
)
 
(390,980
)
Gross proceeds from revolving credit facilities
2,756,910

 
2,583,134

Repayments of revolving credit facilities
(2,811,552
)
 
(2,423,504
)
Issuance of installment obligations payable
9,994

 
3,472

Purchase of marketable securities
(9,994
)
 
(3,472
)
Repayments of installment obligations payable
(12,504
)
 
(13,966
)
Proceeds from sale of marketable securities
12,504

 
13,966

Net cash used in financing activities
$
(27,657
)
 
$
(15,714
)
Net (decrease) increase in cash and cash equivalents
(25,274
)
 
29,356

Cash and cash equivalents at beginning of year
80,166

 
57,322

Cash and cash equivalents at end of period
$
54,892

 
$
86,678

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Cash paid for interest
$
166,960

 
$
176,633

Cash paid for income taxes
$
208

 
$
101

Supplemental disclosure of noncash items:
 
 
 
Retained mortgage servicing rights in connection with sale of mortgage loans
$
14,732

 
$
11,404

Mortgage loans subject to repurchase rights from Ginnie Mae
$
(1,691
)
 
$
(5,798
)
Exchange of LLC Common Interests for shares of Class A common stock
$
(176
)
 
$
321

 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


6

The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)



1. Background, Basis of Presentation and Significant Accounting Policies
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 Chesterbrook, 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. The Company's 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 it purchases in transactions that are structured to ultimately generate cash proceeds to the Company that exceed the purchase price paid for those assets.
The Company identified the following two reportable segments in accordance with Accounting Standards Codification ("ASC") 280, Segment Reporting :
(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 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 unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") for interim financial information and Article 10 of Regulation S-X and do not include all of the information required by U.S. GAAP for complete financial statements. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments which are necessary for a fair presentation of financial position, results of operations, and cash flows for the interim periods presented. All such adjustments are of a normal and recurring nature. The results of operations for interim periods are not necessarily indicative of the results for the entire year.
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 condensed 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. These condensed consolidated financial statements should be read in conjunction with the Company's 2016 audited consolidated financial statements that are included in its Annual Report on Form 10-K.
The accompanying condensed 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 Accounting Standards Codification 810, Consolidation ("ASC 810").

7

The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


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 54.9% and 45.1% , respectively, as of September 30, 2017 . 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 .
Net loss attributable to the non-controlling interests in the Company's condensed consolidated statements of operations represents the portion of loss attributable to the economic interest in JGW LLC held by entities and individuals other than the Corporation. The allocation of net loss 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 three months ended September 30, 2017 and 2016 were 45.1% and 45.4% , respectively. The non-controlling interests' weighted average economic interests in JGW LLC for the nine months ended September 30, 2017 and 2016 were 45.2% and 45.5% , respectively.
The net loss attributable to The J.G. Wentworth Company in the condensed consolidated statements of operations for the three and nine months ended September 30, 2017 and 2016 does not necessarily reflect the Corporation's weighted average economic interests in JGW LLC for the respective periods because the majority of the benefit 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 three months ended September 30, 2017 , $2.8 million of the $2.7 million total tax benefit was specifically attributable to The J.G. Wentworth Company. The remaining $0.1 million tax provision relates to the Company’s subsidiaries. For the three months ended September 30, 2016 , $5.5 million of the $3.9 million total tax benefit was specifically attributable to The J.G. Wentworth Company. The remaining $1.6 million tax provision relates to the Company’s subsidiaries. For the nine months ended September 30, 2017 , $2.1 million of the $2.1 million total tax provision was specifically attributable to The J.G. Wentworth Company. The remaining tax provision of less than $0.1 million relates to the Company’s subsidiaries. For the nine months ended September 30, 2016 , $16.5 million of the $16.8 million total tax benefit was specifically attributable to The J.G. Wentworth Company. The remaining $0.3 million tax benefit relates to the Company’s subsidiaries. Refer to Note 15 for a description of the Company's income taxes.
Non-controlling interests on the Company's condensed 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 weighted average percentage owned by the non-controlling interests in the entity.
All material inter-company balances and transactions are eliminated in consolidation. Certain prior-period amounts have been reclassified to conform to current-period presentation.
Going Concern
In accordance with the Financial Accounting Standards Board, (“FASB”) Accounting Standards Codification ("ASC") Subtopic 205-40 Going Concern ("ASC 205-40"), management must evaluate whether there are conditions or events, considered in the aggregate, that could raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. In making its evaluation, management is not able to take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. However, when the relevant conditions or events, considered in the aggregate, initially indicate that substantial doubt may exist, management may consider in its evaluation whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.
As we disclosed in the Current Report on Form 8-K which we filed with the U.S. Securities and Exchange Commission ("SEC") on November 9, 2017 (the “Form 8-K”) the Corporation along with four of its direct and indirect subsidiaries, JGW LLC, J.G. Wentworth, LLC, JGW Holdings, Inc., and Orchard Acquisition Company, LLC (collectively, the “Company Parties”) entered into a restructuring support agreement (“Restructuring Support Agreement “) with certain lenders and certain members of JGW LLC to support a comprehensive restructuring of the Company’s long-term debt and existing equity (the “Restructuring”). The Restructuring is expected to be implemented through a pre-packaged Chapter 11 plan of reorganization (the “Plan”) pursuant to cases (the “Chapter 11 Cases”) commenced under Chapter 11 of the United States Bankruptcy Code (“Chapter 11”) in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The Company expects ordinary-course operations to continue substantially uninterrupted during and after the Chapter 11 Cases. The Restructuring Support Agreement may be terminated upon the occurrence of certain events, including, amongst others, the failure to meet specified milestones relating to

8

The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


filing of the Chapter 11 Cases and confirmation and consummation of the Plan, as well as in the event of certain breaches by the parties under the Restructuring Support Agreement. The Restructuring Support Agreement is subject to termination if the effective date of the Plan has not occurred within 21 days after entry by the Bankruptcy Court of an order confirming the Plan. The Plan is expected to be subject to certain conditions, including the obtaining of certain regulatory and third party approvals.
In evaluating the Company's ability to continue as a going concern, management considered the conditions and events, including the above factors, that could raise substantial doubt about our ability to continue as a going concern within one year after the date that our condensed consolidated financial statements are issued, November 14, 2017. There are certain material conditions we must satisfy under the Restructuring Support Agreement, including timely meeting specified milestones related to the solicitation of votes to approve the Plan, commencement of the Chapter 11 Cases, confirmation of the Plan, and consummation of the Plan. The Company's ability to timely complete such milestones is subject to risks and uncertainties, many of which are beyond the Company's control. Based on this assessment, management has concluded that the Company’s entry into the Restructuring Support Agreement, which is expected to be effectuated through a pre-packaged Chapter 11 plan of reorganization, raises substantial doubt about the Company’s ability to continue as a going concern, which will not be alleviated before the Company emerges from the Chapter 11 Cases.
Notwithstanding the substantial doubt regarding the Company’s ability to continue as a going concern, the accompanying condensed consolidated financial statements included in this Form 10-Q have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The accompanying condensed consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.
Significant Accounting Policies
There have been no significant changes to the Company's accounting policies as previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2016 .

9

The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


2. Recently Adopted Accounting Pronouncements
The Company qualifies as an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012 ("JOBS Act"). As a result, the Company is permitted to, and has opted to, rely on exemptions from certain disclosure requirements that are applicable to other companies that are not emerging growth companies. In particular, the Company can take advantage of an extended transition period for complying with new or revised accounting standards which allows the Company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company took advantage of the extended transition period as permitted under the JOBS Act.
We will remain an emerging growth company until the earliest to occur of the following:
our reporting of $1.07 billion or more in annual gross revenues;
our issuance, in a three-year period, of more than $1 billion in non-convertible debt;
the end of the fiscal year in which the market value of our common stock held by non-affiliates exceeds $700 million on the last business day of our second fiscal quarter; or
the end of fiscal 2018.
In January 2017, the FASB issued ASU No. 2017-04,  Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"), which is effective for public business entities for interim and annual periods beginning after December 15, 2020 and for all other entities for periods beginning after December 15, 2021. Under ASU 2017-04, Step 2 of the goodwill impairment test has been eliminated. Step 2 of the goodwill impairment test required companies to determine the implied fair value of the reporting unit’s goodwill. Under the new guidance, companies will perform their annual, or interim, goodwill impairment test by comparing the reporting unit’s carrying value, including goodwill, to the fair value. ASU 2017-04 also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Early adoption of ASU 2017-04 is permitted for all entities for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company early adopted ASU 2017-04 for its interim goodwill impairment test performed as of September 30, 2017 (see Note 3) as the interim evaluation during the three months ended September 30, 2017 identified events and circumstances that indicated it was more likely than not that the fair value of the reporting unit was less than its carrying value. The adoption of ASU 2017-04 does not impact the Company’s eligibility to continue to take advantage of the extended transition periods afforded to emerging growth companies under the JOBS Act.
There were no other accounting pronouncements adopted during the three months ended September 30, 2017.

10

The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


3. Goodwill and Intangible Assets
The goodwill of the Company consists of $0.0 million and $8.4 million related to the Home Lending segment as of September 30, 2017 and December 31, 2016 , respectively. There is no goodwill related to the Structured Settlements segment as of September 30, 2017 and December 31, 2016 .
Intangible assets subject to amortization include the following as of:
 
 
Structured Settlements
 
Home Lending
 
 
Cost
 
Accumulated Amortization
 
Cost
 
Accumulated Amortization
 
 
(In thousands)
September 30, 2017
 
 
 
 
 
 
 
 
Database
 
$
4,609

 
$
(4,443
)
 
$

 
$

Customer relationships
 
16,096

 
(15,869
)
 

 

Domain names
 
486

 
(470
)
 

 

Trade name
 
613

 
(315
)
 
1,095

 
(917
)
Affinity relationships
 

 

 
9,547

 
(2,068
)
Intangible assets subject to amortization
 
$
21,804

 
$
(21,097
)
 
$
10,642

 
$
(2,985
)
 
 
 
 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
 
 
 
Database
 
$
4,609

 
$
(4,356
)
 
$

 
$

Customer relationships
 
16,096

 
(15,750
)
 

 

Domain names
 
486

 
(461
)
 

 

Trade name
 
613

 
(157
)
 
1,095

 
(700
)
Affinity relationships
 

 

 
9,547

 
(1,354
)
Intangible assets subject to amortization
 
$
21,804

 
$
(20,724
)
 
$
10,642

 
$
(2,054
)
As of September 30, 2017 and December 31, 2016 , 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 condensed consolidated statements of operations. Amortization expense for the three months ended September 30, 2017 and 2016 was $0.4 million and $0.5 million , respectively. Amortization expense for the nine months ended September 30, 2017 and 2016 was $1.3 million and $1.6 million , respectively.
Estimated future amortization expense for amortizable intangible assets for the three months ending December 31, 2017 and for each of the succeeding five calendar years and thereafter is as follows:
 
 
Estimated Future Amortization Expense
 
 
(In thousands)
Remainder of 2017
 
$
439

2018
 
1,560

2019
 
1,035

2020
 
957

2021
 
954

2022
 
954

Thereafter
 
2,465

Total future amortization expense
 
$
8,364

As discussed in Note 2, the Company early adopted ASU 2017-04 for its interim goodwill impairment test performed as

11

The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


of September 30, 2017 . During the three months ended September 30, 2017 , the Company re-evaluated its internal projections for its Home Lending reporting unit based on continued lower than anticipated profitability results, a reduction of its warehouse facilities and contemplation by the Company Parties of entering into the Restructuring Support Agreement and the related Restructuring which is expected to be effectuated through a pre-packaged Chapter 11 plan of reorganization. Accordingly, the Company determined these events constituted a triggering event requiring the Company to: (i) test the related indefinite-lived licenses and approvals intangible asset for impairment under ASC 350-30, (ii) test the related asset groups including the finite-lived intangible assets, which include the trade name and the affinity relationships, for impairment under ASC 360-10 and (iii) perform a goodwill impairment analysis.
The fair value of the indefinite-lived licenses and approvals intangible asset was determined by utilizing the with and without valuation methodology, and is considered a Level 3 (unobservable) fair value determination in the fair value hierarchy. Specifically, the with and without valuation methodology incorporated multi-year revenue projections, out of pocket costs and lag time to obtain licenses and approvals to originate loans. Key assumptions utilized in the fair value analysis included the following: (i) projected long-term growth rates in revenues, (ii) a discount rate, developed using a cost of equity analysis and (iii) an adjustment to reflect the tax amortization benefits under Section 197 of the Internal Revenue Code. As a result of this analysis, the fair value of the indefinite-lived licenses and approvals intangible asset exceeded their carrying value.
To test the related asset groups, which include the trade name and affinity relationships finite-lived intangible assets, the Company compared the undiscounted cash flows associated with the Home Lending reporting unit to the its carrying value as permitted under ASC 360-10. Key assumptions utilized in the recoverability test included the following: (i) projected long-term growth rates in revenue and (ii) terminal year cash flows capitalized using the cost of equity analysis less terminal growth rate. The results of the recoverability test indicated the estimated undiscounted cash flows of the Home Lending reporting unit exceeded its carrying value and, therefore, an impairment of the asset groups was not recorded as of September 30, 2017 .
To estimate the fair value of Home Lending reporting unit, we used a combination of the income (i.e. discounted cash flow) and market approaches. The income approach utilized multi-year cash flow projections, which required considerable management judgment and estimates, that incorporated (i) projected long-term growth rates and (ii) a discount rate based on a cost of equity analysis which reflected a reconciliation of the fair value of the individual reporting units to the Company's total market capitalization and the estimated fair value of the Company's term loan. 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 Home Lending reporting unit was less than its carrying value and, as a result, we recorded a goodwill impairment charge of  $8.4 million  in the condensed consolidated statements of operations, representing all of the goodwill associated with the Home Lending reporting unit for the three and nine months ended September 30, 2017.
The fair value of the Structured Settlement finite-lived trade name intangible asset 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 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 cost of equity analysis and (iii) a royalty rate based on an analysis of royalty licensing data. As a result of this analysis, the fair value of the Structured Settlement finite-lived trade name exceeded its fair value.
During the nine months ended September 30, 2016 , the Company determined the indefinite-lived trade name and the finite-lived customer relationships intangible assets within the Structured Settlements reporting unit were impaired and recorded an intangible assets impairment charge of  $5.5 million comprised of  $2.8 million  for the indefinite-lived trade name and  $2.7 million  for the finite-lived customer relationships in its condensed consolidated statements of operations. The Company also determined that its trade name asset was a finite-lived intangible asset, and, consequently, a useful life of three years was assigned to the asset, which is the period the Company expects the asset to contribute directly or indirectly to future cash flows of the Company. Further, 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.
While management believes the assumptions used in its 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 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.


12

The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


4. Fair Value Measurements
Under ASC 820, Fair Value Measurements and Disclosures ("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:
For assets and liabilities measured at fair value in the Company's condensed consolidated financial statements :
Marketable securities, at fair value — The fair value of investments in marketable securities, which primarily consist of equity and fixed income securities, is based on quoted market prices.
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 13 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

13

The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


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 ( 9.27% and 9.75% as of September 30, 2017 and December 31, 2016 , 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 condensed consolidated balance sheets. In connection with the refinancing of the Company's residual term facility (the "Residual Term Facility"), which was completed in September of 2016, 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 12 and 13 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 Life Contingent Structured Settlements ("LCSS") receivables, the Company uses the calculated spreads based on the principal market for the assets, reflecting the assumptions the Company believes market participants would use in pricing the asset, which is also used to determine the fair value of the debt cash flows.
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.
Interest rate lock commitments, at fair value — The Company estimates the fair value of interest rate lock commitments ("IRLCs") based on the value of the underlying mortgage loan, quoted mortgage backed securities ("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 the Company's condensed 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

14

The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


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 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 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 following table sets forth the Company's assets and liabilities that are carried at fair value on the Company's condensed 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)
September 30, 2017:
 

 
 

 
 

 
 

Assets
 

 
 

 
 

 
 

Marketable securities, at fair value
$
79,832

 
$
2,287

 
$

 
$
82,119

VIE and other finance receivables, at fair value

 

 
4,351,143

 
4,351,143

Mortgage loans held for sale, at fair value

 
239,477

 

 
239,477

Mortgage servicing rights, at fair value

 

 
50,018

 
50,018

Interest rate lock commitments, at fair value (1)

 

 
16,268

 
16,268

Forward sale commitments, at fair value (1)

 
1,848

 

 
1,848

Total Assets
$
79,832

 
$
243,612

 
$
4,417,429

 
$
4,740,873

 
 
 
 
 
 
 
 
Liabilities
 

 
 

 
 

 
 

VIE derivative liabilities, at fair value
$

 
$
43,494

 
$

 
$
43,494

VIE long-term debt issued by securitization and permanent financing trusts, at fair value

 

 
4,200,824

 
4,200,824

Total Liabilities
$

 
$
43,494

 
$
4,200,824

 
$
4,244,318

(1) Included in other assets on the Company's condensed consolidated balance sheets.


15

The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


 
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 condensed consolidated balance sheets.

16

The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


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)
 
 
 
 
 
 
September 30, 2017
 
 

 
 
 
 
 
 
Assets
 
 

 
 
 
 
 
 
VIE and other finance receivables, at fair value
 
$
4,351,143

 
Discounted cash flow
 
Discount rate
 
2.99% - 10.23% (3.81%)
Mortgage servicing rights, at fair value
 
50,018

 
Discounted cash flow
 
Discount rate
 
9.50% - 14.65% (10.07%)
 
Prepayment speed
 
6.05% - 23.30% (8.81%)
 
Cost of servicing
 
$65 - $90 ($73)
Interest rate lock commitments, at fair value
 
16,268

 
Internal model
 
Pull-through rate
 
5.91% - 99.63% (63.06%)
Total Assets
 
$
4,417,429

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 

 
 
 
 
 
 
VIE long-term debt issued by securitization and permanent financing trusts, at fair value
 
$
4,200,824

 
Discounted cash flow
 
Discount rate
 
1.71% - 10.23% (3.75%)
Total Liabilities
 
$
4,200,824

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

 
 
 
 
 
 
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 decreases (increases) in the discount rate used to estimate fair value in isolation would result in a significantly higher (lower) fair value measurement of the corresponding asset or liability. Additional significant unobservable inputs used in the fair value measurement of mortgage servicing rights, at fair value, are prepayment speed, cost of servicing and pull-through rate. Significant decreases (increases) in the prepayment speed used to estimate the fair value of MSRs in isolation would result in a significantly higher (lower) fair value measurement. Significant decreases (increases) in the cost of servicing used to estimate the fair value of MSRs in isolation would result in a significantly higher (lower) 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.

17

The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


The changes in assets measured at fair value using significant unobservable inputs (Level 3) during the nine months ended September 30, 2017 and 2016 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
 
(In thousands)
Balance as of December 31, 2016
$
4,157,037

 
$
41,697

 
$
6,072

 
$
4,204,806

Total included in earnings (losses):
 

 
 
 
0

 
 
Unrealized gains
241,310

 
8,321

 
16,268

 
265,899

Realized gain on sale of finance receivable
2,180

 

 

 
2,180

Included in other comprehensive gain

 

 

 

Purchases of finance receivables
215,504

 

 

 
215,504

Interest accreted
131,837

 

 

 
131,837

Payments received
(381,672
)
 

 

 
(381,672
)
Sale of finance receivables
(15,053
)
 

 

 
(15,053
)
Transfers to other balance sheet line items

 

 
(6,072
)
 
(6,072
)
Transfers in (out) of Level 3

 

 

 

Balance as of September 30, 2017
$
4,351,143

 
$
50,018

 
$
16,268

 
$
4,417,429

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:
 
 
 
 
 
 
 
September 30, 2017
$
241,310

 
$
8,321

 
$
16,268

 
$
265,899

 
 
 
 
 
 
 
 
Balance as of December 31, 2015
$
4,386,147

 
$
29,287

 
$
4,934

 
$
4,420,368

Total included in earnings:
 

 
 
 
0

 
 
Unrealized gains
92,880

 
3,320

 
13,346

 
109,546

Realized gain on sale of finance receivable
69,597

 

 

 
69,597

Included in other comprehensive gain

 

 

 

Purchases of finance receivables
204,775

 

 

 
204,775

Interest accreted
131,392

 

 

 
131,392

Payments received
(384,478
)
 

 

 
(384,478
)
Sale of finance receivables
(271,331
)
 

 

 
(271,331
)
Transfers to other balance sheet line items

 

 
(4,934
)
 
(4,934
)
Transfers in (out) of Level 3

 

 

 

Balance as of September 30, 2016
$
4,228,982

 
$
32,607

 
$
13,346

 
$
4,274,935

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:
 
 
 
 
 
 
 
September 30, 2016
$
92,880

 
$
3,320

 
$
13,346

 
$
109,546

    

18

The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


The changes in liabilities measured at fair value using significant unobservable inputs (Level 3) during the nine months ended September 30, 2017 and 2016 were as follows:
 
 
VIE long-term debt issued 
by securitizations and 
permanent financing 
trusts, at fair value
 
 
(In thousands)
Balance as of December 31, 2016
 
$
4,014,450

Total included in (earnings) losses:
 
 

Unrealized losses
 
161,447

Issuances
 
279,835

Interest accreted
 
(6,505
)
Repayments
 
(248,403
)
Transfers in (out) of Level 3
 

Balance as of September 30, 2017
 
$
4,200,824

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:
 
 

September 30, 2017
 
$
161,447

 
 
 

Balance as of December 31, 2015
 
$
3,928,818

Total included in (earnings) losses:
 
 

Unrealized losses
 
167,243

Issuances
 
216,806

Interest accreted
 
(26,864
)
Repayments
 
(240,340
)
Transfers in (out) of Level 3
 

Balance as of September 30, 2016
 
$
4,045,663

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:
 
 

September 30, 2016
 
$
167,243


19

The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


Realized and unrealized gains and losses included in revenues in the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2017 and 2016 are reported in the following asset line items:
 
 
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)
Three Months Ended September 30, 2017
 
 
 
 
 
 
Net gains included in revenues
 
$
34,004

 
$
3,240

 
$
16,268

Unrealized gains relating to assets and long-term debt still held as of end of period
 
$
32,346

 
$
3,240

 
$
16,268

 
 
 
 
 
 
 
Nine Months Ended September 30, 2017
 
 
 
 
 
 
Net gains included in revenues
 
$
82,043

 
$
8,321

 
$
16,268

Unrealized gains relating to assets and long-term debt still held as of end of period
 
$
79,863

 
$
8,321

 
$
16,268

 
 
 
 
 
 
 
Three Months Ended September 30, 2016
 
 
 
 
 
 
Net (losses) gains included in revenues
 
$
(14,238
)
 
$
1,480

 
$
13,346

Unrealized (losses) gains relating to assets and long-term debt still held as of end of period
 
$
(29,616
)
 
$
1,480

 
$
13,346

 
 
 
 
 
 
 
Nine Months Ended September 30, 2016
 
 
 
 
 
 
Net (losses) gains included in revenues
 
$
(4,766
)
 
$
3,320

 
$
13,346

Unrealized (losses) gains relating to assets and long-term debt still held as of end of period
 
$
(74,363
)
 
$
3,320

 
$
13,346


20

The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


The Company discloses fair value information about financial instruments, whether or not recorded at fair value on the Company's condensed consolidated balance sheets, for which it is practicable to estimate that value. As such, the estimated fair values of the Company's financial instruments were as follows:
 
 
September 30, 2017
 
December 31, 2016
 
 
Estimated
Fair
Value
 
Carrying
Amount
 
Estimated
Fair
Value
 
Carrying
Amount
 
 
(In thousands)
Financial assets:
 
 

 
 

 
 

 
 

VIE and other finance receivables, at fair value
 
$
4,351,143

 
$
4,351,143

 
$
4,157,037

 
$
4,157,037

VIE and other finance receivables, net of allowance for losses (1)
 
84,086

 
85,606

 
88,300

 
93,944

Other receivables, net of allowance for losses (1)
 
19,687

 
19,687

 
17,771

 
17,771

Mortgage loans held for sale, at fair value
 
239,477

 
239,477

 
232,770

 
232,770

Mortgage servicing rights, at fair value
 
50,018

 
50,018

 
41,697

 
41,697

Marketable securities, at fair value
 
82,119

 
82,119

 
76,687

 
76,687

Interest rate lock commitments, at fair value (2)
 
16,268

 
16,268

 
6,072

 
6,072

Forward sale commitments, at fair value (2)
 
1,848

 
1,848

 
659

 
659

Financial liabilities:
 
 
 
 

 
 

 
 

Term loan payable (1)
 
214,636

 
438,148

 
242,730

 
431,872

VIE derivative liabilities, at fair value
 
43,494

 
43,494

 
50,432

 
50,432

VIE borrowings under revolving credit facilities and other similar borrowings (1) (3)
 
2,258

 
1,735

 
58,798

 
56,432

Other borrowings under revolving credit facilities and other similar borrowings (1)
 
230,597

 
231,002

 
229,221

 
229,588

VIE long-term debt (1)
 
57,118

 
59,586

 
57,268

 
62,939

VIE long-term debt issued by securitization and permanent financing trusts, at fair value
 
4,200,824

 
4,200,824

 
4,014,450

 
4,014,450

Installment obligations payable (1)
 
82,119

 
82,119

 
76,687

 
76,687

(1) These represent financial instruments not recorded on the condensed 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 condensed consolidated balance sheets.
(3) The carrying amount includes the unamortized portion of the debt issuance costs in connection with the JGW V borrowing facility.

21

The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


5. 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:
 
 
September 30, 2017
 
December 31, 2016
 
 
(In thousands)
Maturity value
 
$
6,691,841

 
$
6,584,344

Unearned income
 
(2,340,698
)
 
(2,427,307
)
Net carrying amount
 
$
4,351,143

 
$
4,157,037

Encumbrances on VIE and other finance receivables, at fair value were as follows:
Encumbrance
 
September 30, 2017
 
December 31, 2016
 
 
(In thousands)
VIE long-term debt issued by securitization and permanent financing trusts (2)
 
$
4,325,032

 
$
4,060,069

$100.0 million credit facility (JGW-S III) (1)
 

 
27,966

$200.0 million credit facility (JGW V) (1)
 
5,232

 
55,868

Encumbered VIE finance receivables
 
4,330,264

 
4,143,903

Unencumbered
 
20,879

 
13,134

Total VIE and other finance receivables, at fair value
 
$
4,351,143

 
$
4,157,037

(1) Refer to Note 10.
(2) Refer to Note 13.
As of September 30, 2017 and December 31, 2016 , the unsecuritized finance receivables, at fair value, were $26.1 million and $97.0 million , respectively, and were included within VIE finance receivables, at fair value and other finance receivables, at fair value on the Company's condensed consolidated balance sheets.
In March 2017, the Company entered into an Asset Sale Facility agreement (the "Asset Sale Facility") to sell up to $50.0 million of discounted total receivable balances ("TRB") purchases, which can be increased to $75.0 million by mutual agreement of the parties, and has a duration of one year . During the three months ended September 30, 2017 , the Company sold $11.1 million of TRB purchases pursuant to the Asset Sale Facility, which was accounted for as a direct asset sale, for $6.2 million , and the Company recognized a $0.5 million gain. During the nine months ended September 30, 2017 , the Company sold $19.8 million of TRB purchases pursuant to the Asset Sale Facility, which was accounted for as a direct asset sale, for $11.9 million , and the Company recognized a $1.0 million gain. The gains were included in realized and unrealized gains (losses) on VIE and other finance receivables, long-term debt and derivatives in the Company's condensed consolidated statements of operations. No servicing asset or liability was recognized in connection with the Company's direct asset sale.
On June 30, 2017, the Company executed a second Asset Sale Facility agreement (the "Second Asset Sale Facility") to sell up to $5.0 million of discounted TRB purchases, which can be increased to $25.0 million by mutual agreement of the parties, and has a duration of one year. On September 28, 2017, the Company increased the capacity of its Second Asset Sale Facility to