During 2016 and early 2017, the Position Holder Trust leased certain buildings that were previously occupied by the Debtors at market rates from unaffiliated parties. The leases expired on May 31, 2017 and were not renewed. The Trust maintains a small leasehold interest in the Subservicer’s office space for $1,000 per month.
uncertainties and estimates related to our ability to make cash distributions in satisfaction of payment obligations as life insurance policies mature;
the reliability of assumptions underlying our actuarial models, including life expectancy estimates;
increasing cost-of-insurance (premiums) on the life insurance contracts in our portfolio;
The change in fair value of the Trust’s Policies is primarily due to realized gains on maturities and changes in valuation assumptions, including mortality and discount rates.
The Policies were valued using a base or foundational discount rate of 15%, with further valuation adjustments based upon the size of the insured pool, life expectancy data, distinctions between life settlement and viatical policies and whether the Policies are whole life, convertible term or non-convertible term policies and with a post-adjustment weighted average discount rate of 24.74% for Life Settlements and 31.74% for Viaticals. See, Note 6, Fair Value Measurements.
Interest expense for the period ending December 31, 2016 consisted of $387 thousand on the Vida loan, $274 thousand for the Maturity Funds Facility, and $81 thousand on the NIRAN note payable.
If the Trust elects to redeem any New IRA Notes, it must notify the New IRA Note trustee of the redemption date and the principal amount to be redeemed at least 60 days before the redemption date (unless a shorter period is satisfactory to the trustee). If fewer than all the New IRA Notes are being redeemed, the notice must also specify a record date not less than 15 days after the date of the notice of redemption is given to the New IRA Note trustee. The New IRA Note trustee will select the notes to be redeemed on a pro rata basis in denominations of $100 principal amount and higher integral multiples of $100.
On March 28, 2017, the Bankruptcy Court allowed $5.5 million to be paid as compensation for the services rendered by H. Thomas Moran as the Chapter 11 Trustee, with fifty percent (50%), or $2.8 million, paid promptly. The remaining amount is to be paid in cash pursuant to the terms of an unsecured promissory note issued by the Trust. The note does not bear interest and the principal amount will be paid in three equal annual installments on January 1 of 2019, 2020 and 2021, with the full principal amount paid no later than December 30, 2021, or in full on or after January 1, 2019.
No provision for state or Federal income taxes has been made as the liability for such taxes is attributable to the Unit holders rather than the Trust. The Trust is a grantor trust with taxable income or loss passing through to the Unit holders. In certain instances, however, the Trust may be required under applicable state laws to remit directly to state tax authorities amounts otherwise due to Unit holders. Such payments on behalf of the Unit holders are deemed distributions to them.
There exists a legal risk that courts would allow insurance carriers to deny paying benefits and retain premiums paid by the Trust in respect of insurance policies that are successfully rescinded or contested. In addition, the Trust's title or right to benefit from an insurance policy may be challenged by the insurer or the insured’s family.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” which converges the FASB and the International Accounting Standards Board (“IASB”) standard on revenue recognition. Areas of revenue recognition that will be affected include, but are not limited to, transfer of control, variable consideration, allocation of transfer pricing, licenses, time value of money, contract costs and disclosures. In April 2015, the FASB voted to defer the effective date of the new revenue recognition standard by one year. As a result, the provisions of this ASU are now effective for interim and annual periods beginning after December 15, 2017. The Trust does not expect that this guidance will have a material impact on its financial position, results of operations or cash flows.
Maturities receivable consist of the Trust’s portion of life insurance policy maturities that occurred but payment was not received as of the end of the reporting period.
Longevity risk refers to the reasonable possibility that actual mortalities of insureds in the Trust’s portfolio extend over longer periods than are anticipated, resulting in the Trust paying more for premiums.
Pursuant to the Plan, in December 2016 the Trust contributed $2 million to the Creditor’s Trust that was also established contemporaneously under the Plan. As of December 31, 2016, the Trust was obligated to fund an additional $10 million. The Trust paid $5 million to the Creditor’s Trust in January and another $5 million in December 2017.
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” which converges the FASB and the International Accounting Standards Board (“IASB”) standard on revenue recognition. Areas of revenue recognition that will be affected include, but are not limited to, transfer of control, variable consideration, allocation of transfer pricing, licenses, time value of money, contract costs and disclosures. The provisions of this ASU are effective for interim and annual periods beginning after December 15, 2017. The Trust does not expect that this guidance will have a material impact on its financial position, results of operations or cash flows.
On March 28, 2017, the Trust, was ordered to pay the Chapter 11 trustee’s fees totaling $5.5 million. The first payment of $2.8 million was due and paid promptly after the Court order on March 28, 2017 and is included in assumed liabilities on the accompanying balance sheet at December 31, 2016. The remaining balance is in the form of a note payable and is due in three equal annual payments on January 1 beginning in 2019. The note does not bear interest as ordered by the Court, thus the note was been discounted by $0.2 million, based on an implied interest rate of 3%.
If a policy did not have a LE, or the LE became aged, a default mortality multiplier, based on the mortality tables developed by the U.S. Society of Actuaries was applied. Currently, the mortality multipliers used are: 100% for the life settlements and 350% for the viaticals, regardless of gender. On a quarterly basis, we will compare actual mortalities to expected mortalities and refine the mortality multipliers as appropriate.
We have audited the accompanying balance sheets of Life Partners IRA Holder Partnership, LLC (the "Partnership") as of December 31, 2017 and 2016, the related statements of operations, changes in net assets, and cash flows for the year ended December 31, 2017 and the period from December 9, 2016 (inception) to December 31, 2016 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Partnership as of December 31, 2017 and 2016, and the results of its operations and its cash flows for the year ended December 31, 2017 and the period from December 9, 2016 to December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.