lpi position holder trust newsletter august/september 2017 ... · october 2017 lpi pht newsletter...
TRANSCRIPT
LPI Position Holder Trust Newsletter
Inside this issue
The Trustee’s Corner .... 1
Upcoming Events .......... 1
Action Items ................. 2
Trust Update ............... 3
CFH Distributions ........... 3
Premium Invoices ......... 3
Portfolio at Glance ....... 4
Revised PHT Financial Model……………………..4,5,6
FAQ…………………………..7,8
How to Contact Us ....... 9
Upcoming Events
• October 9th October 2017 LPI PHT Newsletter to be published
• October 16th 4th Quarter LPI PHT In-vestor Podcast available for download
• November 13th
November 2017 LPI PHT Newsletter to be published
The Trustee’s Corner
Welcome to the August/September 2017 issue of the Life Partners Position Holder Trust (PHT) investor newsletter. We decided to combine two months into one issue as we wanted to talk about the performance of the LPI portfolio, a subject of great concern to all of you. As a result, we needed to wait until we had a few important updates we could share in this issue. The PHT investor portal is now live at www.magnaservicing.com. You should have received an email from Magna with the log-in credentials and password needed to access the portal. If you did not receive this email or have misplaced it, please send a message to [email protected] and they will send it to you again. Initially, the portal will provide access to your account statements, invoices and a few other reports. Magna will continue to refine the website over time with additional content and links to other investor resources. Meanwhile, the PHT began distributing account statements to all investors this month. These statements show your various holdings by category and include a statement of the escrow amounts on account for your specific continuing frac-tional positions. Please review your account statement very carefully and con-firm that all of the information on there is correct. If you have any questions about your account statement, please send an email to Magna’s customer service team at [email protected]. However, if you do not believe the account statement is accurate, please contact my office as soon as possible ([email protected]) so we can review it with you. On August 31st, we filed our amended Form 10 to the U.S. Securities and Ex-change Commission (SEC), which you can view now at www.sec.gov. This is one of the final steps in our transition to becoming a public company and I will go into a deeper explanation of what this means for you in next month’s news-letter. Finally, I recorded a podcast this summer with a “deeper dive” into the status of the portfolio, the timing of distributions and other issues of interest to investors. We decided to shift from live webinars to recorded podcasts because the sheer size of the audience made it too costly and too difficult to enable real-time inter-action anyway. By changing to the podcast format, you can play the recording from the website at your convenience. Just click here. I hope that you will find the articles in this newsletter to be informative. Thank you for your interest.
Sincerely, LPI Position Holder Trust Eduardo S. Espinosa Trustee
August/September 2017 Issue
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Action Items
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What we need from you?
• Log onto the new PHT investor portal (www.magnaservicing.com) with the log-in credentials and password emailed to you last month and make sure to change your password from the one you were pro-vided to one that you will be able to remember more easily.
• If you did not receive the email from Magna to access the investor portal (or have misplaced it), please send a message to [email protected] and they will send it to you again.
• Review the account statement you were sent last month and review all of the details regarding your ownership interests. Please contact us right away ([email protected]) if you identify anything in your statement that you feel is inaccurate.
• Pay the premiums on the policies you own as reflected in any invoic-es you received. Please do not send a partial payment and please do not delay beyond the 60-day payment window you will be provided. We must receive your payment in full no later than the specified due date or your ownership rights will automatically be transferred to the Pool option.
• If you have received a check from us for a matured investment, please cash it as soon as possible. These checks may become “stale” after 60 days.
• If you did not receive this newsletter directly – or prefer that we use an alternative email address – please contact the servicer ([email protected]) to let us know.
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As we discussed in the last newsletter, we are caught up with the backlog of post-effective matur-ities. Going forward, maturities will be distributed to Continuing Fractional Holders (CFH) beginning on the second Monday of the month following the date that the PHT receives payment from the insur-ance company. Accordingly, the PHT began distrib-uting insurance proceeds received in August during the week of September 11, 2017. We will continue to post maturities on the Trustee website, noting whether the proceeds have been received and distributed. In addition, Magna’s new investor portal provides information as to maturi-ties that are due to individual CFH investors.
As a reminder, the PHT cannot pay investors who have not sent in a Form W-9, so please make sure that you sent your form to:
Magna Servicing, LLC P.O. Box 23226
Waco, TX 76702 [email protected]
If you sent a W-9 to the PHT after November 1, 2016, you do not need to send another form.
We sent out invoices in August for the next group of investors whose premiums are due on life insur-ance policies owned by investors in the Cash 1 and IRA 4 options. While the billing cycle is now stag-gered on a revolving monthly basis to better facilitate workflow and cash flow for the PHT, you will only receive one bill for each policy per year. If you received a bill this month, be sure to pay it promptly; an investor who fails to pay a premium bill within the 60 days allotted will be deemed to have contributed their ownership interest to the PHT pool.
Trust Update
CFH Distributions
Premium Invoices
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During the LPI bankruptcy proceedings, the actuaries hired by the Bankruptcy Trustee evaluated the LPI portfolio and created projec-tions of the portfolio’s cash flow (i.e., total death benefits minus premiums to be paid), based on the portfolio’s historical perfor-mance. As more data became available – such as updated life expectancy projections -- the actuaries revised those projections. The Bank-ruptcy Trustee’s financial consultants then took the projections and created a detailed financial model based on the median (or mid-dle) projected cash flow. These cash flow pro-jections and financial model were reviewed and debated by the parties as part of the con-firmation process. When thinking about these sorts of actuarial models, it is important to understand that the models do not generate a single projection. Instead, they generate a range of projections; some more likely than others. For planning purposes, most analysts use the median, which is the 50/50 point where half of the re-sults are higher and half of them are lower. The actual results are just as likely to be higher than the median as they are to be lower. So far this year, the projected maturities have been lower than the median projection at this point. As we explained last month, we do not know yet whether the current performance reflects the normal expected annual variation (i.e., in some years the portfolio will perform better than projected and in some years it will perform worse), performance within the sta-tistical range of likely probabilities (i.e., it is in line with the 50% of projections that are lower than the median), a problem with the model itself, or a problem with tracking and identify-ing maturities.
To ensure that we do not have a problem iden-tifying maturities, the PHT retained a second servicing company to track maturities in paral-lel with Magna Servicing. So far, that company has not identified any maturities that Magna had not already identified. Thus, we are fairly comfortable that we do not have an issue with maturity tracking. Nevertheless, the PHT will continue to employ the second servicing com-pany for an additional time as a backup for Magna’s efforts. In addition, and as part of his ongoing manage-ment of the Trust, the PHT Trustee hired an independent actuary to value the portfolio and to project its likely cash flow. His work is en-tirely separate from that performed for the bankruptcy trustee. The actuary ran 50,000 different simulations that randomly generated a date of death for each insured, based on each individual’s mortality curve developed from the insured’s life expectancy. For each scenario, the simulation calculated: (1) How much cash was needed to pay the
premiums through to maturity; and (2) How much net cash the Portfolio yielded
through maturity. We understand that the bankruptcy trustee’s actuaries performed a similar analysis.
Portfolio at a Glance
Revised PHT Financial Model
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We have graphed the results of the actuary’s analysis below:
Portfolio at a Glance
Revised PHT Financial Model
The size of the bars reflects the number of times that a given result occurred. The taller the bar, the more often the result occurred. We have shown the median and various confidence levels. Here is what this means: according to the new model, there is a 50% probability that the portfolio will yield be-tween $1,160,420,000 and $1,229,597,000 in net cash and a 90% probability that the portfolio will yield be-tween $1,109,005,000 and $1,275,970,000 in net cash. The median is $1,195,564,000. In comparison, the medi-an of the projections included in the Disclosure Statement was $1,107,538,000. The following chart illustrates the range of projected maturities over the next ten years (showing the mean and
two standard deviations). As you can see the potential maturities range from $1.4 billion to $1.6 billion over ten years.
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So that you can track our progress, we have also created a chart that tracks the actual maturities against the projected maturities. We have focused on the first three years and looked back to 2016 to get enough information to start to evaluate our progress. Because the portfolio has a 55 year maturity horizon (i.e., it will take 55 years for all of the policies to mature) and we have only the first 1.5 years of experience, this chart is inconclusive. We expect that the red line will move around the mean and generally stay within the outer bounds.
Portfolio at a Glance
Revised PHT Financial Model
In reviewing this chart, please keep in mind that there is a delay between when a death occurs and when we discover it. Accordingly, the maturities shown for the most recent months may be less than actual. There are several things to keep in mind about this new analysis:
• It is for the portfolio as a whole, including both the pooled positions and the continuing fractional interests;
• It takes into account premiums and Magna’s 2.65% fee – but not the other costs of operating the PHT (e.g., interest on the exit facility and professional fees), as those costs are borne by the Trust but not by the CFHs;
• It assumes that insurers will pay each policy upon maturity and that insurers will not increase the cost of insurance (COI) tables in each policy. Please understand that these assumptions are not trivial. We have already had insurers deny claims on a few of the viatical policies. In addition, several insurance companies have announced COI increases on some of their policies. While we have accounted for all known cost in-creases, we do not know whether insurers will announce further increases; and
• It is based on the current calculated life expectancies for each insured, which may change as the statistical information underlying the life expectancies continues to improve.
The PHT and its actuaries will continue to evaluate and refine the model as we gain additional information as to the life expectancies of the insureds and the COI in the policies owned by the Trust.
Q: I appreciate the communication from you in the investor newsletter, but why does it come out at the end of the month rather than the beginning? A: Our intention with the investor newsletter is to pro-vide you with a recap of the month that just ended. So the July issue provided a rundown of events that de-veloped in July, this issue is a summary of develop-ments in August, etc. We’ve recognized that the tim-ing of these newsletters is less than optimal. Accord-ingly, we are switching to a new schedule. You should expect the October newsletter to be issued mid-month. Q: Can you please explain the $55 million exit facility that must be repaid? Was it made known to us before we made our elections that the Trust would pay out the $55 million exit loan before paying holder of PHT interests? A: As required by the Plan, the PHT borrowed $55 mil-lion from the Vida Opportunity Fund, LP. The loan was used to pay the maturity funds facility, an earlier loan from Vida, the administrative expenses of the bank-ruptcy and premiums. The loan bears interest at a rate of 11% per year and is due in December 2018. The loan documents require that the PHT repay the loan before making distributions to holders of PHT interests. The loan and its terms were discussed in the disclosure statement and a copy of the loan docu-ments were provided to the investors as part of the solicitation materials. Although the $55 million loan is not due until the end of next year, the Trustee plans to pay it off sooner to avoid incurring ongoing interest charges that would reduce the cash available to inves-tors. Q: I don’t understand the details on the pay stub that came attached to my distribution check for maturity proceeds. Can you explain the various fees and de-ductions?
A: The stub that is located below the check contains a series of items whose total is the amount of the check. The items are:
Face – this refers to the holder’s share of the face amount of the policy as stated by the insurer, less the 5% contribution to the PHT. Add’l Face – the death benefit of some poli-cies is made up of the face amount plus a supplemental amount (usually a policy rider). This supplemental amount is shown as “Add’l Face” on the checks, so “Face” plus “Add’l Face” equals the holder’s share of the death benefit paid by the insurer, less the 5% contri-bution to the PHT. Interest – the holder’s share of any interest paid by the insurance company on the death benefit. PremRfnd – the holder’s share of premiums paid to the insurer that the insurer refunded, usually because the premiums were received after the date the insured died. Escrow – this is the amount of the holder’s escrow remaining on deposit with the PHT for the policy. A negative amount indicates the money that the continuing holder owes to the PHT. Service Fee – this is the 2.65% fee paid to Magna Servicing. The payment to the continu-ing holder is reduced by the Service Fee. Please note that an item will appear on the check stub only if there is an entry for that item. For example, if the insurer did not re-fund premiums, then the “PremRfnd” line will not appear on the check stub.
Frequently Asked Questions
Here are brief answers to some of the frequently asked questions (FAQs) we’ve received in the past month:
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Q: I don’t understand the details on the statement that I received from Magna. Can you explain the various items on the statements? A: In general, the statements divide each investor’s holdings into two sections: IRA Holdings and Individual Holdings.
IRA Holdings – this section includes holdings of IRA Partnership units and New IRA Notes. It identifies the IRA custodian and the IRA ac-count number for each IRA held by the inves-tor. If the investor holds an IRA Partnership Unit or a New IRA Note outside of his or her IRA, those investments will be listed as IRA Holdings but the IRA custodian will be identi-fied as “distributed from IRA.” New IRA Notes – these notes were issued in exchange for the old IRA notes to investors who elected IRA Option 1. The principal amount of the note equals 32% of the face value (or expected death benefit) of the old IRA note. The note bears interest at an annual rate of 3%. The interest shown on the state-ment is the interest that accrued from De-cember 9, 2016 through August 15, 2017. The PHT will pay interest annually in December. IRA Partnership units – these units issued to investors who contributed their old IRA notes to the IRA Partnership. Investors who elected IRA Option 2 received 1 unit for every $1 of the face value (or expected death benefit) of their old IRA note. In addition, investors who elected IRA Option 1 also received IRA Part-nership units as the Plan required that 5% of their positions be contributed to the IRA Part-nership at a rate of 1 unit for $1 in face value.
Individual Holdings – this section includes holdings of Position Holder Trust units and Continuing Fractional Holders interests.
Continuing Fractional Holder interests – these interests were issued to cash investors who
elected Cash Option 1 and to IRA holders who elected IRA Option 4. The face amount of the interests represents 95% of the face amount of the investor’s original interests as the Plan requires that CFH holders contribute 5% to the PHT.
The escrow balance shown in the amount that is held in escrow for each position. Please note that the entirety of the escrow balance may not be available to apply to future premium calls as a portion of the balance is needed to pay current premiums.
PHT units – these units issued to investors who contributed their positions to the PHT. Inves-tors who elected Cash Option 2 received 1 unit for every $1 of the face value (or expected death benefit) of their original position. In ad-dition, investors who elected Cash Option 1 or IRA Option 4 also received PHT units as the Plan required that 5% of their positions be con-tributed to PHT at a rate of 1 unit for $1 in face value.
In addition to showing the investor’s holdings, the statement also shows the amount of Catch-Up payments that are owed on each position. Note that certain Continuing Fractional Holder positions owe Catch-Up because the PHT ap-plied a “de minimus” standard when deeming positions to have been contributed to the PHT for the failure to pay Catch-Up. In other words, the PHT did not contribute positions in which only a small amount (e.g., $1) was owed a Catch-Up
Q: How can I get in contact with the Creditors’ Trust? I’d like to communicate with someone on that team as well. A: You can reach the Creditors’ Trust at [email protected] or through its website, www.lifepartnerscreditorstrust.com.
Frequently Asked Questions Continued
Here are additional brief answers to some of the frequently asked questions (FAQs) we’ve received in the past month:
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Questions and Updates
We routinely post updates
and new information on
www.LPI-PHT.com. Moreo-
ver, prior communications
including copies of this
newsletter and the Trus-
tee’s prior webinars are
available for download on
the investor communication
tab. We encourage you to
access the website as a pri-
mary reference source.
We’re happy to answer any
additional questions you
may have. Please note that
it’s likely you will receive a
faster response if you con-
tact us by email.
For questions regarding your individual account, please contact:
Magna Servicing
P.O. Box 23226
Waco, TX 76702
Phone: 800-368-5569
Email: [email protected]
For questions regarding the administration of the Plan of Reorganization, please contact:
Eduardo Espinosa, LPI PHT Trustee
1717 Main Street, Suite 4200
Dallas, Texas 75201
Phone: 214-698-7893
Email: [email protected]
How to Contact Us
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