•risks relating to the validity and enforceability of the life insurance policies in our portfolio.
The Position Holder Trust and the IRA Partnership came into existence on December 9, 2016, as a result of the Plan of Reorganization confirmed pursuant to the Chapter 11 bankruptcy proceeding initiated in 2015 by Life Partners Holdings, Inc. The Trust’s primary asset is its interest in a life insurance portfolio of 2,896 Policies, with an aggregate fair value of $274.7 million and an aggregate face value of approximately $1.7 billion at December 31, 2019. The Trust’s portion of the Portfolio has a fair value of $172.2 million and a face value of $1.1 billion at December 31, 2019. Adjustments in the calculation of aggregate fair value of the Portfolio may occur over time as maturities ensue in the Portfolio and life expectancies change.
The net increase in net assets for the year ended December 31, 2019 was $38.2 million as compared to a net decrease in net assets of $48.7 million for the same period in the last year.
The Partnership recognizes income on its respective portion of the Trust which is controlled by its investment in the Trust’s life insurance Policies and the changes in their aggregate fair value. The primary increase in income and net assets is due to the change in valuation of the investment portfolio as describe above in the section related to the Trust.
The Trust recognizes income on its respective portion of the Policies primarily from changes in their aggregate fair value. The primary increase in income is due to the change in valuation of the investment portfolio as described in Item 8. Financial Statements, Note 6 “Fair Value Measurements” in the accompanying financial statements.
During the year ended December 31, 2019, the Position Holder Trust paid premiums on Policies totaling $44.7 million on the PHT Portfolio. In addition, the Trust received $130.0 million from the maturity of life settlements during the year ended December 31, 2019. During the year ended December 31, 2018, the Position Holder Trust paid premiums on Policies totaling $56.7 million on the PHT Portfolio and received maturities of life settlements of $80.3 million.
The Position Holder Trust paid $16.5 and $31.0 million of its outstanding notes payable during the years ended December 31, 2019 and 2018, respectively.
The Partnership accounts for its investment in the PHT using the equity method of accounting for its share of earnings or loss less distributions received. The Partnership and the Trust are closely connected, with a common trustee and common management. As a result of this common oversight and control, as well as the Partnership’s position as the majority holder of the Trust’s beneficial interest units, the Partnership is considered to have significant influence under the provisions of ASC 323, resulting in the application by the Partnership of the equity method of accounting.
In connection with its formation and the inception of its activities on December 9, 2016, the Trust issued a total of 1,012,355,948 units of beneficial interest (the “Units”) to the fractional interest holders having claims in the Debtors bankruptcy, pursuant to the Plan. Each fractional interest holder received a Unit for each dollar of expected death benefit such holder contributed to the Trust. As of December 31, 2019, there were 9,678 holders of the 1,235,715,080 Units outstanding. As of December 31, 2018, there were 10,442 holders of the 1,237,019,204 Units outstanding. The Trust owns a portfolio of life insurance policies. A portion of the policies is encumbered by the economic interest of continuing fractional interest holders. As of December 31, 2019, the Trust’s portion of the portfolio consists of 2,896 life insurance policies, with a fair value of $172.2 million and an aggregate face value of approximately $1.1 billion. As of December 31, 2018, the Trust’s portion of the portfolio consisted of 3,037 life insurance policies, with a fair value of $186.3 million and an aggregate face value of approximately $1.3 billion. The fair value of the interests in the life insurance policies owned by continuing fractional interest holders are not reflected in the financial statements of the Trust.
The Trust’s primary purpose is the liquidation of the Trust’s assets and the distribution of proceeds to its beneficial interest holders. The Trust expects that fulfilling its purpose will require a significant amount of time, and that the Trust will have significant ongoing operations during that period due to the nature of its assets and its plan to maximize the proceeds to its beneficiaries by maintaining the majority of its life insurance policies until maturity. As a result, the Trust has concluded that its liquidation is not imminent, in accordance with the definitions under accounting principles generally accepted in the United States of America and has not applied the liquidation basis of accounting in presenting its financial statements. The Trust will continue to evaluate its operations to determine when its liquidation becomes imminent and the liquidation basis of accounting is required.
The Trust maintains an allowance for doubtful accounts for estimated losses resulting from the inability to collect premiums and service fees receivable. Such estimates are based on the position holder’s payment history and other indications of potential uncollectability. After all attempts to collect a receivable have failed, receivables are written off against the allowance. At December 31, 2019 and December 31, 2018, the allowance for doubtful accounts was $3.2 million and $10.0 million, respectively, and fully offset for receivables assumed from the Debtors on the effective date. Outstanding receivable balances may be recoverable pursuant to the Trustee’s set-off rights under the Plan.
The Trust assumed income tax liabilities of the Debtors at its inception which totaled approximately $2.0 million as of December 31, 2018. In December 2019, the Trust made the final payment for the assumed income tax liability and the tax liability has now been completely satisfied.
Estimated premiums to be paid by the Trust for its portfolio during each of the five succeeding fiscal years and thereafter as of December 31, 2019, are as follows:
On December 9, 2016, the Trust obtained a term loan (or the "Exit Loan Facility") from Vida Opportunity Fund, LP, an affiliate of Vida Capital, Inc., for $55.0 million. Interest accrued at 11% of outstanding balance per annum and was paid quarterly. Substantially all of the Trust’s assets collateralized the term loan. The Trust made principal payments of $31.0 million in 2018 leaving a balance outstanding on the term loan of $4.0 million at December 31, 2018. The maturity date of the term loan was December 9, 2018; however, an extension was agreed to until June 7, 2019. Effective as of January 17, 2019, the Position Holders Trust paid the remaining balance in full related to the Exit Loan Facility and terminated the $55.0 million Exit Loan Facility with Vida Opportunity Fund, LP. All liens and security interests of the lenders under the Exit Loan Facility have been terminated and released.
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 paid in 2018. The remaining balance is in the form of a note payable in the amount of $2.8 million 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 has been discounted by $0.2 million, based on an implied interest rate of 3%. On January 11, 2019 the Trust paid the first installment and on December 27, 2019 the Trust paid the second installment. Subsequent to the end of the reporting period, on January 27, 2020 the Trust paid the final installment and the note has now been completely satisfied.
Level 1 - Valuation is based on unadjusted quoted prices in active markets for identical assets and liabilities that are accessible at the reporting date. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
The balances of the Trust's assets measured at fair value on a recurring basis as of December 31, 2019 and 2018, are as follows:
Because it had a number of LEs that were becoming aged and, thus, less reliable, the Trust began to incrementally phase out the LEs in favor of a mortality multiplier based on the 2015 Valuation Basic Table produced by the U.S. Society of Actuaries (“2015 VBT”) beginning in December 31, 2017. Accordingly, as the LEs aged, less weight would be applied to them and more weight would be placed with the default mortality multiplier. A 25% discount would be applied quarterly starting 21 months past the underwriting date until the aged LE date was fully discounted and replaced by the default mortality multiplier. A LE that is 24 to 26 months old would have a 50% discount, an LE that is 27 to 29 months old will have a 75% discount, and an LE greater than or equal to 30 months would only use the default mortality multiplier, as described below. If a policy did not have a LE, or the LE became aged, a default mortality multiplier was used, based on the 2015 VBT. The Trust eliminated reliance on its LEs in favor of the mortality multiplier by the second quarter of 2018.
The following table provides a roll-forward of the fair value of life insurance policies for the twelve months ended December 31, 2019 and 2018:
Earnings (losses) attributable to the Partnership’s interests in the Trust and recognized under the equity method represented approximately $38.4 million at December 31, 2019 and $(48.6) million at December 31, 2018.
Distributions payable are distributions declared by the IRA Partnership pending payment.