The following table sets forth our selected historical consolidated financial and operating data as of such dates and for such periods indicated below. These selected historical consolidated results are not necessarily indicative of results to be expected in any future period. You should read the following financial information together with the other information contained in this Annual Report on Form 10-K, including Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and related notes.
As of December 31, 2016, there were 29,021,844 and 28,413,844 shares of common stock issued and outstanding, respectively, and 608,000 shares of treasury stock.
On August 1, 2016, the Company initiated a formal process to explore strategic alternatives in response to receiving a number of unsolicited inquiries from several interested parties. The Company’s Board of Directors formed a special
committee whose mandate is to review and consider strategic alternatives and to make recommendations to the full Board of Directors. Some of the possible strategic alternatives the special committee may consider are a sale of the Company, a merger or other business combination, a sale of all or substantially all of the Company’s assets, a joint venture, or equity and debt refinancing. At December 31, 2016, the special committee was continuing its efforts to explore these initiatives.
While we expect to meet our liquidity needs for the foreseeable future primarily through a combination of the receipt of death benefits from life insurance policy maturities, delaying interest and other payments, borrowings under the White Eagle Revolving Credit Facility, strategic capital market raises, policy sales (subject to the asset sale restrictions in our debt arrangements) and cash on hand, the Company has incurred substantial losses and negative cash flows from operating activities. The Company's current operating plan indicates that we will continue to incur losses from operations. These projections and other liquidity risks raise substantial doubt about whether we will meet our obligations as they become due within three months after the date of this report. The Company believes, as a result of these factors, as well as the continued uncertainty surrounding the timing of death benefits and our ability to raise capital, there exists substantial doubt whether we will be able to continue as a going concern.
Interest on the Convertible Notes and on the 15% Senior Secured Notes is due semi-annually and quarterly, respectively. On February 14, 2017, the Company entered into a solicitation to consent (the "Consent Solicitation") to issue additional Convertible Notes (the "Additional Convertible Notes") in lieu of a cash payment of interest due on February 15, 2017 (the "2017 Interest Payment Date") to holders of 8.5% Senior Unsecured Convertible Notes (the "Convertible Notes"). The Company's obligation to issue the Additional Convertible Notes was subject to the satisfaction of (1) not less than 95% of the aggregate principal amount of Convertible Notes agreeing to accept Additional Convertible Notes in lieu of a cash payment of interest on the 2017 Interest Payment Date and (2) the amendment of the Indenture dated as of March 11, 2016 with Wilmington Trust, National Association, as indenture trustee for the 15% Senior Secured Notes due 2018 (the "Senior Secured Indenture") to permit the issuance of the Additional Convertible Notes. This consent is only effective for the cash payment of interest due on the 2017 Interest Payment Date and not for subsequent interest payments.
On March 14, 2017, the Company issued an additional $3.5 million in Additional Convertible Notes following the Company’s receipt of requisite consents of the holders of the Convertible Notes of approximately 98% of the aggregate principal amount of Convertible Notes (the "Consenting Holders"), pursuant to the Consent Solicitation, whereby each Consenting Holder agreed to accept Additional Convertible Notes in lieu of a cash payment of interest on the Convertible Notes due on the 2017 Interest Payment Date. All Additional Convertible Notes issued by the Company to Consenting Holders were issued under the indenture dated February 21, 2014, between the Company and U.S. Bank National Association, as trustee (the "Convertible Note Indenture") and such Additional Convertible Notes have identical terms to existing Convertible Notes. Interest on the Additional Convertible Notes will accrue from February 15, 2017.
On March 15, 2017, the Company entered into a series of separate Master Transaction Agreements (together, the "Agreements") by and between the Company, PJC Investments, LLC, a Texas limited liability company ("PJC"), and each such Consenting Convertible Note Holder that is a party to such Agreement ("Consenting Holders") regarding a series of integrated transactions with the intent to effect a recapitalization of the Company (the "Transaction"), which includes an Amendment to the Company’s Articles of Incorporation to increase the number of authorized shares of the Company's common stock, $0.01 par value (the "Common Stock"), a Common Stock Purchase Agreement, a Convertible Note Exchange Offer, a New Convertible Note Indenture providing for the issuance of New Convertible Notes, a Senior Note Exchange Offer, a New Senior Note Indenture providing for the issuance of New Senior Notes, a Senior Note Purchase Agreement, a Warrant and certain other agreements and documents to be delivered in connection with the Transaction (each as defined in the Agreements, and together with the Agreements, the "Transaction Documents"). The Agreements and the transactions contemplated under the Agreements were unanimously approved by the Board of Directors of the Company on March 13, 2017.
Under the Agreements, PJC and other parties agreed to certain undertakings, including: (i) PJC or its designee (the "Investor") purchasing up to 100% of the Company’s New Senior Notes from the Holders (as defined herein) pursuant to the Senior Note Purchase Agreement, (ii) PJC or the Investor purchasing $15.0 million in shares of Common Stock, pursuant to the Common Stock Purchase Agreement, and (iii) issuance to PJC or the Investor of a warrant to purchase up to 34,000,000 shares of Common Stock at an exercise price of $0.25 per share for an aggregate purchase price of up to $8.5 million. Upon the closing of the proposed transactions, the Company’s Board of Directors will include four members representing PJC and one member representing the convertible note holders. The Transaction is subject to certain conditions described in this Annual Report on Form 10-K, including that the Company shall have obtained the requisite approval by the Company's shareholders to the Articles Amendment and that the requisite number of holders of the Company's senior secured notes and unsecured convertible notes shall have tendered their notes in connection with the applicable exchange offer as described herein, and certain customary closing conditions, including that each of the Transaction Documents shall have been executed and delivered to the other parties thereto. The Transaction is expected to close in the second quarter of 2017, although the consummation of the Transaction is subject to multiple conditions and there can be no assurance that the Transaction will close on a timely basis or at all.
At or contemporaneously with the closing of the Transaction, the Company will cause to be issued a warrant (the "Warrant") to the Investor to purchase up to an aggregate of 34,000,000 shares of the Common Stock at an exercise price of $0.25 per share (the "Warrant Shares") for an aggregate price of up to $8.5 million.
At or contemporaneously with the closing of the Transaction, the Company will cause to be issued the New Senior Notes in an aggregate amount not to exceed approximately $40.0 million pursuant to a Senior Note Indenture (the "New Senior Note Indenture") between the Company as issuer, and the trustee to be later identified. Up to approximately $30.0 million aggregate principal amount of New Senior Notes may be issued to holders of the Existing Senior Notes in the relevant exchange offer, and PJC or the Investor may acquire up to an additional $10.0 million principal amount of New Senior Notes.
On December 29, 2016, our indirect subsidiary, Red Falcon Trust, entered into a Master Termination Agreement with its lender. The policies which served as collateral under the Red Falcon Revolving Credit Facility were sold to White Eagle. Proceeds totaling $65.1 million from this sale were utilized to repay the lender. See Note 9, "Red Falcon Revolving Credit Facility" to the accompanying consolidated financial statements.
On December 29, 2016, our indirect subsidiary, White Eagle, entered into the Second Amendment (the "White Eagle Amendment") to its Amended and Restated Loan And Security Agreement dated May 16, 2014. In connection with the White Eagle Amendment, the White Eagle Revolving Credit Facility maximum facility limit was increased from $250.0 million to $370.0 million and the additional proceeds under the White Eagle Revolving Credit Facility were used to purchase the policies in the Red Falcon Trust, which paid off and terminated the Red Falcon Revolving Credit Facility. Pursuant to the White Eagle Amendment, certain non-financed life insurance policies previously held by the Company and its subsidiaries were contributed to White Eagle as collateral.
Provided that (i) if (a) the Company failed to maintain a cash interest coverage ratio of at least 2.0:1 at any time during the immediately preceding calendar quarter or (b) the Company fails to take steps to improve its solvency in a manner acceptable to the required lenders (as determined in their sole and absolute discretion), then the cash flow sweep percentage to the lenders shall equal one-hundred percent (100%) and (ii) if the date of distribution occurs on or after December 29, 2025, the cash flow sweep percentage shall equal one-hundred percent (100%) of the principal balance. At December 31, 2016, the cash interest coverage was 1.65:1 and the loan to value ratio was 55%, which was calculated using the lenders' valuation. See Note 8, "White Eagle Revolving Credit Facility" to our accompanying consolidated financial statements.
White Eagle is the owner of 619 life insurance policies with an aggregate death benefit of approximately $2.9 billion and an estimated fair value of approximately $497.7 million at December 31, 2016. White Eagle pledged its policies as collateral to secure borrowings made under the White Eagle Revolving Credit Facility, which is used, among other things, to pay premiums on the life insurance policies owned by White Eagle. Borrowings under the White Eagle Revolving Credit Facility fund the payment of premiums on the life insurance policies that have been pledged as collateral for the respective facilities. See "Liquidity and Capital Resources" under Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations."
During the year ended December 31, 2016, 12 life insurance policies with face amounts totaling $37.5 million matured. The net gain on these maturities was $17.9 million. The gains related to maturities are included in income from changes in fair value of life settlement in the consolidated statement of operations for the year ended December 31, 2016. Of these maturities, four served as collateral under the previous Red Falcon Revolving Credit Facility and eight served as collateral under the White Eagle Revolving Credit Facility. Proceeds from maturities totaling $50.5 million were received during the year ended December 31, 2016. Of this amount, approximately $40.5 million and $7.6 million, were utilized to repay borrowings, interest and expenses under the White Eagle Revolving Credit Facility and the Red Falcon Revolving Credit Facility, respectively, during the year ended December 31, 2016. We continue to believe that there are accretive opportunities to grow our existing portfolio of life settlements and intend, subject to our liquidity needs and available cash, to selectively deploy capital in both the secondary and tertiary life settlement markets. As we acquire more policies, our premium payments will increase. Assuming we recognize no policy maturities, our estimated premiums for 2017 would be $86.2 million. White Eagle would be eligible to borrow approximately $86.1 million of this amount under the White Eagle Revolving Credit Facility to pay premiums on policies secured by the White Eagle Revolving Credit Facility with approximately $118,000 in estimated premiums required to maintain the policies not pledged as collateral under the White Eagle Revolving Credit Facility as of December 31, 2016.
During 2015, the U.S. Society of Actuaries released new versions of the Valuation Basic Tables, the ("2015 VBT"). The 2015 VBT has a significant increase in exposure and number of claims over the 2008 VBT and is believed to be a better fit for the life settlement industry and is becoming more widely accepted. During the year ended December 31, 2016, the Company changed its valuation technique and decided to adopt the 2015 VBT smoker and gender distinct tables, to determine the value of the policies. The tables show lower mortality rates in the earlier select periods at most ages. Therefore, while the Company continues to fit the life expectancies from the LE providers to the 2015 VBT, the change in the mortality curve changes the timing of the Company’s expected cash flow streams for both the life settlement assets and the revolving credit facility. The resulting impact is a reduction of approximately $17.6 million in the fair value of the life settlements, and a gain of approximately $15.7 million for the change in fair value of the White Eagle and Red Falcon Revolving Credit Facilities (together, the "Revolving Credit Facilities") with a net negative impact on the consolidated statement of operations of approximately $1.9 million for the year ended December 31, 2016.
The Internal Revenue Service Criminal Investigation Division notified the Company in February 2014 that it was conducting an investigation (the "IRS Investigation") related to the Company and its legacy structured settlements business. On May 3, 2016, the Company was notified that the IRS Investigation had been closed.
On February 17, 2012, the Company received an initial subpoena issued by the staff of the Securities and Exchange Commission (the "SEC") seeking documents from 2007 through the date of the subpoena, generally related to the Company’s premium finance business and corresponding financial reporting. The SEC was investigating whether any violations of federal securities laws had occurred. On December 27, 2016, the Company received notification from the SEC that it has concluded its investigation as to the Company and does not intend to recommend an enforcement action against the Company. The notice was provided under the guidelines set out in the final paragraph of Securities Act Release No. 5310.
The preparation of the financial statements requires us to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. We base our judgments, estimates and assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions and conditions. We evaluate our judgments, estimates and assumptions on a regular basis and make changes accordingly. We believe that the judgments, estimates and assumptions involved in the accounting for income taxes, the valuation of life settlements, the valuation of the debt owing under the Revolving Credit Facilities and the valuation of our conversion derivative liability formerly embedded within the Convertible Notes have the greatest potential impact on our financial statements and accordingly believe these to be our critical accounting estimates.
We follow ASC 820, Fair Value Measurements and Disclosures, which defines fair value as an exit price representing the amount that would be received if an asset were sold or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair
In February 2014, the Company issued and sold $70.7 million in aggregate principal amount of 8.50% senior unsecured convertible notes due 2019 (the "Convertible Notes"). The Company determined that an embedded conversion option existed in the Convertible Notes, prior to June 5, 2014, that was required to be separately accounted for as a derivative under Accounting Standards Codification ("ASC") 815, Derivatives and Hedging. On June 5, 2014, the Company obtained shareholder approval to issue shares of common stock upon conversion of the Convertible Notes in an amount that exceeded the New York Stock Exchange limits for issuances without shareholder approval. In accordance with ASC 815, the Company reclassified the conversion derivative liability to stockholders’ equity along with unamortized transaction costs proportionate to the allocation of the initial debt discount and the principal amount of the Convertible Notes. In subsequent reporting periods, the Convertible Notes will continue to be recorded at accreted value up to the par value of the Convertible Notes at maturity. The debt discount will be amortized into interest expense using the interest method, in an aggregate amount equal to the amount of the conversion derivative liability reclassified into equity along with any unamortized transaction costs. See Note 10, "8.50% Senior Unsecured Convertible Notes" to the accompanying consolidated financial statements.
Income from continuing operations for the year ended December 31, 2015 was significantly higher due to the maturity of 17 policies with a net gain of approximately $47.9 million compared to 12 policies with a net gain of approximately $17.9 million for the year ended December 31, 2016. Our income for the year ended December 31, 2016 was also significantly impacted by the adoption of the 2015 VBT, which resulted in a reduction in fair value of life settlements of $17.6 million.
The change in fair value was further impacted by a reduction in estimated risk premium which drives our discount rate. The Company re-evaluates its discount rates at the end of each reporting period in order to reflect the estimated discount rates that could reasonably be used in a market transaction involving the Company's portfolio of life settlements. In doing so, consideration is given to the various factors influencing the rates, including credit exposure of the insurance company that issued the life insurance policy, and the estimated risk premium an investor in the policy would require, among other factors. In considering these factors, at December 31, 2016, the Company determined that the weighted average discount rate calculated based on death benefit was 16.37% compared to 17.02% at December 31, 2015. This resulted in a positive impact for the change in fair value of our life settlement for the year ended December 31, 2016.
Outstanding debt for the year ended December 31, 2016 included $261.4 million of outstanding principal on the White Eagle Revolving Credit Facility, $70.7 million of Convertible Notes and $30.0 million of 15% Senior Secured Notes.
The Company's outstanding debt increased by $64.0 million from $298.2 million at December 31, 2015 to $362.1 million at December 31, 2016. The increase is mainly attributable to a net increase in principal of $89.3 million on the White Eagle Revolving Credit Facility and a $30.0 million increase in the 15% Senior Secured Notes, offset by a $55.4 million decrease in the principal balance of the Red Falcon Revolving Credit Facility debt which was terminated on December 29, 2016. During the year ended December 31, 2015, the Company redeemed the outstanding 12.875% Senior Secured Notes.
The Company recorded $4.0 million of interest expense on the 12.875% Senior Secured Notes, including $3.2 million, $265,000, $264,000, and $277,000 from interest, unused fees, amortizing debt discounts and issuance costs, respectively, during the year ended December 31, 2015.
See Notes 8, "White Eagle Revolving Credit Facility," 9,"Red Falcon Revolving Credit Facility," 10,"8.5% Senior Unsecured Convertible Notes," 11,"15% Senior Secured Notes,'' and 12, "12.875% Senior Secured Notes," to the accompanying consolidated financial statements.
Change in fair value of the Revolving Credit Facilities (in thousands)
Change in fair value of Revolving Credit Facilities also includes a gain of $509,000 attributable to the Red Falcon Revolving Credit Facility for the year ended December 31, 2016. This facility was terminated on December 29, 2016.
The decrease in SG&A expense was primarily the result of a decrease in legal expense of $14.3 million, a decrease in insurance costs of $440,000 and a decrease in personnel costs of $314,000.
Legal expenses for the year ended December 31, 2016 were $6.4 million compared to $20.7 million for the year ended December 31, 2015. Of the legal expense, approximately $1.7 million was associated with the USAO Investigation, SEC Investigation, IRS Investigation and related matters for the year ended December 31, 2016, compared to $17.0 million for the year ended December 31, 2015. Amounts for 2015 mainly relate to the USAO Investigation, which was concluded at December 31, 2015.
See Note 15, "Commitments and Contingencies," to the accompanying consolidated financial statements.
Net loss from continuing operations for the year ended December 31, 2015 was $30.4 million as compared to $5.2 million for the year ended December 31, 2014. Our net loss for the year ended December 31, 2015 included approximately $8.7 million in income tax benefit compared to $125,000 in income tax expense for the same period in 2014. The following is our analysis of net loss for the period (in thousands).
The gain for the years ended December 31, 2015 and 2014 was primarily a result of maturities and increased life settlement values.
During the year ended December 31, 2015, 17 life insurance policies with face amounts totaling $67.4 million matured compared to seven policies with face amounts of $25.5 million for the same period in 2014. The net gain on these maturities was $47.9 million and $16.4 million for 2015 and 2014, respectively, and is recorded as a change in fair value of life settlements in the consolidated statements of operations for the years ended December 31, 2015 and 2014. Of these maturities, three served as collateral under the Red Falcon Revolving Credit Facility and 13 served as collateral under the White Eagle Revolving Credit Facility.
Proceeds from maturities totaling $53.5 million were received during the year ended December 31, 2015. Of this amount, approximately $43.2 million and $4.6 million were utilized to repay borrowings, interest and credit facility expenses under the White Eagle Revolving Credit Facility and the Red Falcon Revolving Credit Facility, respectively, during the year ended December 31, 2015. The Company also recorded an $18.2 million receivable for maturity of life settlements at December 31, 2015 relating to the White Eagle Revolving Credit Facility.
As of December 31, 2015, the Company owned 632 policies with an estimated fair value of $461.9 million compared to 607 policies with a fair value of $388.9 million at December 31, 2014, an increase of $73.0 million or 19%. Of the 632 policies, 437 policies were pledged to the White Eagle Revolving Credit Facility and 156 policies were pledged to the Red Falcon Revolving Credit Facility. During the year ended December 31, 2015, the Company acquired 43 life insurance policies that resulted in a gain of approximately $6.0 million compared to 16 policies during the same period in 2014 which resulted in a gain of $6.1 million. The gain related to acquisitions is included in income from changes in the fair value of life settlements in the consolidated statements of operations for the years ended December 31, 2015 and 2014. As of December 31, 2015, the aggregate death benefit of the Company’s investment in life settlements was $3.0 billion.
Of these 632 policies owned as of December 31, 2015, 544 were premium financed and are valued using discount rates that range from 16.00% - 24.50%. The remaining policies are valued using discount rates that range from 15.00% - 21.00%. See Note 13, "Fair Value Measurements," to the accompanying consolidated financial statements.
During the year ended December 31, 2015, one policy was sold resulting in a loss of approximately $41,000 on net proceeds received of $2.2 million compared to 14 policies sold and a loss of $426,000 on net proceeds of $4.0 million for the same period in 2014.
Outstanding debt for the year ended December 31, 2015 includes $172.0 million of outstanding principal on the White Eagle Revolving Credit Facility, $55.4 million on the Red Falcon Revolving Credit Facility and $70.7 million of Convertible Notes. During the year ended December 31, 2015, the Company redeemed all outstanding 12.875% Senior Secured Notes.
Of the interest expense of $27.3 million for the year ended December 31, 2015, approximately $9.2 million represents interest paid on the White Eagle Revolving Credit Facility, which included $6.7 million withheld from borrowings by the lender and $2.5 million paid by White Eagle. Approximately $4.9 million represents interest expense attributable to the Red Falcon Revolving Credit Facility, which includes approximately $3.3 million attributable to debt issuance costs not capitalized as a result of electing the fair value option for valuating this debt and an additional $1.6 million related to interest payments paid during the year ended December 31, 2015.
Interest expense on the Convertible Notes totaled $9.1 million including $6.0 million, $2.7 million and $404,000 representing interest, amortization of debt discount and issuance costs, respectively. The Company recorded $4.0 million of interest expense on the 12.875% Senior Secured Notes, including $3.2 million, $265,000, $264,000, and $277,000 from interest, unused fees, amortizing debt discounts and issuance costs, respectively, during the year ended December 31, 2015.
Change in fair value of the debt under the Revolving Credit Facilities was a loss of approximately $12.2 million for the year ended December 31, 2015 compared to a gain of approximately $5.5 million for the year ended December 31, 2014.
Change in fair value of Revolving Credit Facilities also includes a loss of $270,405 attributable to the Red Falcon Revolving Credit Facility for the year ended December 31, 2015. This change is associated with the election of the fair value option in accounting for the facility and a reduction in the discount rate since inception. These were offset by increased borrowings and projected cost of insurance increases. The Red Falcon Revolving Credit Facility was valued at December 31, 2015 using a discount rate of 11.65%.
ASC 815, Derivatives and Hedging, required the Company to bifurcate the embedded conversion option that was valued on February 21, 2014 and June 5, 2014, which resulted in a fair value loss of approximately $6.8 million for the year ended December 31, 2014. During that year, the conversion derivative liability was reclassified to additional-paid-in-capital. Accordingly, there will be no further adjustment to the fair value of this derivative liability reflected in the Company's financial statements. See Note 10, "8.50% Senior Unsecured Convertible Notes," to the accompanying consolidated financial statements.
The increase in SG&A expenses for the year ended December 31, 2015 was primarily a result of an increase of $7.1 million in legal fees, an increase of $1.9 million in professional fees, and a $188,000 increase in other SG&A expenses. These increases were offset by a reduction in personnel costs of $2.4 million and a $392,000 reduction in insurance costs.
Of the legal expense for the year ended December 31, 2015, approximately $17.0 million is mainly associated with the USAO Investigation, IRS Investigation and related matters compared to $5.0 million for the year ended December 31, 2014. These expenses were significantly impacted by a $6.5 million payment relating to the Company's indemnification obligations for the conclusion of the USAO Investigation at December 31, 2015.
During the year ended December 31, 2015, our discontinued structured settlement operations sold 43 structured settlements for a loss of approximately $32,000 and received proceeds of approximately $920,000, compared to 8 structured settlements for a gain of $18,000 during the year ended December 31, 2014.
Our consolidated financial statements have been prepared assuming the realization of assets and the satisfaction of
Convertible Notes and 15% Senior Secured Notes, which accrued interest at 8.50% and 15.0%, respectively. Interest on the Convertible Notes is due semi-annually and interest on the 15% Senior Secured Notes is due quarterly.
On February 14, 2017, the Company entered into a solicitation to consent (the "Consent Solicitation") to issue additional Convertible Notes (the "Additional Convertible Notes") in lieu of a cash payment of interest due on February 15, 2017 (the "2017 Interest Payment Date") to holders of the Convertible Notes. The Company's obligation to issue the Additional Convertible Notes was subject to the satisfaction of (1) not less than 95% of the aggregate principal amount of Convertible Notes agreeing to accept Additional Convertible Notes in lieu of a cash payment of interest on the 2017 Interest Payment Date and (2) the amendment of the Senior Secured Indenture to permit the issuance of the Additional Convertible Notes. This consent is only effective for the cash payment of interest due on the 2017 Interest Payment Date and not for subsequent interest payments.
The Company did not make an interest payment of $1.1 million, due March 15, 2017, on the 15.0% Senior Secured Notes, of which $30.0 million principal amount was outstanding on that date. If the interest payment is not made within five business days of its due date, such failure would result in an event of default under the Senior Secured Indenture governing the 15.0% Senior Secured Notes, and the trustee or holders of at least 25% in principal amount of the outstanding 15.0% Senior Secured Notes may declare the principal, premium, if any, and accrued but unpaid interest immediately due and payable. The Company released the cash interest payment of $1.1 million to the holders of the 15% Senior Secured Notes on March 20, 2017.
On March 15, 2017, the Company entered into a series of separate Master Transaction Agreements (together, the “Agreements”) by and between the Company, PJC Investments, LLC, a Texas limited liability company ("PJC"), and each such Consenting Convertible Note Holder that is a party to such Agreement ("Consenting Holders") regarding a series of integrated transactions with the intent to effect a recapitalization of the Company (the "Transaction"), which includes an Amendment to the Company’s Articles of Incorporation to increase the number of authorized shares of the Common Stock, a Common Stock Purchase Agreement, a Convertible Note Exchange Offer, a New Convertible Note Indenture providing for the issuance of New Convertible Notes, a Senior Note Exchange Offer, a New Senior Note Indenture providing for the issuance of New Senior Notes, a Senior Note Purchase Agreement, a Warrant and certain other agreements and documents to be delivered in connection with the Transaction (each as defined in the Agreements, and together with the Agreements, the "Transaction Documents"). The Agreements and the transactions contemplated under the Agreements were unanimously approved by the Board of Directors of the Company on March 13, 2017.
The New Senior Notes will be secured senior obligations of the Company and will mature four years from the date of Closing. The New Senior Notes will bear interest at a rate of 8.5% per annum, payable quarterly.
The Transaction is expected to close in the second quarter of 2017, although the consummation of the Transaction is subject to multiple conditions and there can be no assurance that the Transaction will close on a timely basis or at all.
On March 14, 2017, the Company issued an additional $3.5 million in Additional Convertible Notes following the Company’s receipt of requisite consents of the holders of the Convertible Notes of approximately 98% of the aggregate principal amount of Convertible Notes (the "Consenting Holders"), pursuant to the Consent Solicitation, whereby each Consenting Holder agreed to accept Additional Convertible Notes in lieu of a cash payment of interest on the Convertible Notes due on the 2017 Interest Payment Date. All Additional Convertible Notes issued by the Company to Consenting Holders were issued under the Convertible Note Indenture and such Additional Convertible Notes have identical terms to existing Convertible Notes. Interest on the Additional Convertible Notes will accrue from February 15, 2017.
deemed to be "at the market" offerings as defined in Rule 415 under the Securities Act of 1933. We have agreed to pay the distribution agents a commission rate of up to 3% of the gross proceeds from the sale of any shares of common stock sold through the equity distribution agreement.
During the quarter and year ended December 31, 2016, the Company sold 185,271 and 628,309 shares of common stock, respectively, under this prospectus supplement, receiving net proceeds totaling approximately $323,000 and $1.8 million, respectively.
The following table summarizes our cash flows, which includes both continuing and discontinued operations, from operating, investing and financing activities for the years ended December 31, 2016, 2015 and 2014 (in thousands):
During the year ended December 31, 2016, operating activities used cash of $45.6 million. Our net loss of $49.7 million
During the year ended December 31, 2015, operating activities used cash of $54.3 million. Our net loss of $31.0 million was adjusted for the following: Revolving Credit Facilities financing costs and fees of $7.5 million, which represent interest expense and other fees associated with the White Eagle Revolving Credit Facility withheld by the lender and added to the outstanding loan balance; change in fair value of life settlement gains of $46.7 million that is mainly attributable to the maturities of 17 policies and change in fair value of Revolving Credit Facilities loss of $12.2 million mainly attributable to a reduction in the discount rate along with projected earlier repayments due to maturities. These were offset by increased borrowings and the lengthening of life expectancies of certain insureds underlying policies pledged as collateral in the facility and cost of insurance increase. Red Falcon Revolving Credit Facility origination cost was $3.3 million relating to the debt issuance cost which was not capitalized as a result of electing the fair value option for valuing this debt. Extinguishment of Secured Notes was $8.8 million, which represents redemption at 106% of their principal amount plus interest; deferred income tax benefit of $8.7 million and a net negative change in the components of operating assets and liabilities of $3.9 million. This $3.9 million change in operating assets and liabilities is partially attributable to a $3.1 million decrease in accounts payable and accrued expenses, a $860,000 decrease in other liabilities, and a $654,000 increase in deposits. These were offset by a $1.1 million decrease in structured settlement receivables associated with the sale during the year.
Net cash used in investing activities for the year ended December 31, 2016 was $26.1 million and included proceeds of $50.5 million from maturity of 12 life settlements. This was offset by $71.7 million for premiums paid on life settlements; $3.5 million for certificates of deposit and $1.4 million for purchase of life settlements.
The following table summarizes our contractual obligations as of December 31, 2016 (in thousands):
Our assets and liabilities are, and will be in the future, interest-rate sensitive in nature. As a result, interest rates may influence our performance far more than inflation. Changes in interest rates do not necessarily correlate with inflation or changes in inflation rates. We do not believe that inflation had any material impact on our results of operations in the periods presented in our financial statements presented in this report.