21 Sep LPHI Website FAQ v. 7
LPI Financing Motion FAQ
September 21, 2015
- What is the purpose of this motion?
The purpose of the Financing Motion is to allow Life Partners to continue to operate in order to obtain Court approval for the consensual plan that is being negotiated.
- The motion mentions a negotiated plan for coming out of Chapter 11. Who negotiated the terms of the plan? What are the key terms of this plan? When will it be submitted to the court?
The agreement in principle on the Plan terms was negotiated by the Trustee, the Official Committee of Unsecured Creditors and the following investor groups: Small Individual Investors Group (counsel Susan B. Hersh, P.C.); Certain IRA Investors (counsel Gruber Hurst Elrod Johansen Hail Shank LLP); Ad Hoc Committee of Direct Fractional Interest Owners of Life Settlement Policies (counsel Kennedy Law, P.C.); Amicus Curiae Fractional Investors (counsel The Wiley Law Group, PLLC); Willingham MDL Investors (counsel James Craig Orr, Jr., Heygood, Orr & Pearson); and Arnold Class and Garner Class Action Litigants (counsel Bryan Cave, LLP and Langston Law Firm).
The key terms of the plan, subject to Court approval and confirmation, are:
- Upon confirmation, the life settlement policies will be (a) “owned” by the investors who purchased fractional interests in a life insurance policy (“Fractional Interest Holders”), or (b) pledged as security for promissory notes purchased by investors through retirement accounts (“IRA Holders” and together with the Fractional Interest Holders, the “Current Holders”).
- In exchange for certainty on ownership and other issues, and a confirmed plan of reorganization favorable to Current Holders, Current Holders will be making an across-the-board contribution (not to exceed 10%) from all assets in dispute to fund the Debtors’ ability to exit bankruptcy and create a mechanism to provide for other creditors.
- Current Holders will be allowed to choose, for themselves, to (a) continue as holders and pay all related costs, (b) rescind their purchases or (c) assign their interests to a fund (the Policy Trust) and be relieved of having to pay premiums and other related costs.
- A Policy Trust will be created to hold, and pay its share of carrying costs for, all abandoned, assigned and compromised portions of fractional interests in life settlement policies. The beneficiaries of the Policy Trust will be investors who assign their fractional positions to the Policy Trust, including as to the across-the-board contribution described above.
- A Creditors’ Trust will be created to pursue litigation. The beneficiaries of the Creditors’ Trust will be creditors of the Debtors, investors who choose to rescind, and the Policy Trust.
- A new company will be created to service the life insurance portfolio that will be owned by the Policy Trust.
The goal of the parties who negotiated the Plan is to have the Plan on file and approved as soon as possible, but this can only be accomplished if the Financing Motion is approved so that LPI can continue to operate.
- Where is the financing coming from? What are the financing terms? Is there collateral? Will interest be paid?
The financing is coming from the proceeds of policies that have matured. While the ownership issue is proposed to be resolved under the negotiated Plan as set forth above, the ownership issue is unresolved as of this time. As a result, in order to protect the interests of Investors who believe they own an interest in the maturity proceeds, the Trustee is asking the Court to treat the use of the proceeds as a loan.
The terms of the proposed financing are that the proceeds used will be paid back on or near the effective date of the plan or as otherwise provided in the Plan. As collateral, repayment of the proceeds used will be secured by a lien on LPI’s position in policies, money owed LPI for paying premiums on behalf of other policy holders and litigation claims. The Trustee is also asking that the repayment be granted, what under the Bankruptcy Code is called, super priority status.
The proceeds used will bear interest at the rate of 10% per annum until repaid.
- What are the consequences to the investors if this motion doesn’t pass?
The consequences will be that Life Partners will almost certainly run out of cash and be forced to convert this Chapter 11 case into a Chapter 7 liquidation case. Paraphrasing Judge Nelms, this would be a disaster for everyone concerned. The Trustee is diligently working to avoid a Chapter 7 case conversion.
- In light of this motion being made to the court, do I still need to pay my premiums and servicing fees?
Yes, as always, it is critically important that investors continue paying their premiums and all platform servicing fees.
Pursuant to the agreement in principle reached on a consensual plan, Investors who want to be treated as continuing owners will be able to do so, provided they are current on all premium payments and servicing fees, so investors who want to own fractional interests or notes secured by fractional interests after confirmation of the Plan must continue to make all payments invoiced by Life Partners.
Even if you plan to assign your interests to the Trust, it is very important than you continue to pay all premiums and fees until the plan is confirmed. If you do not, it will be necessary to borrow more funds than anticipated to keep the policies in force.
- In light of this motion, why should I continue to pay premiums?
The motion is intended as a means to pay operating costs and obtain confirmation of the consensual plan outlined above. As stated in FAQ #5, if you want to be treated as a continuing owner, you must pay the premiums and servicing fees billed. If you do not, then you will not have that choice under the Plan, and the Trustee will have to borrow more money to keep the policies from lapsing.
- In light of this motion, will the premiums I recently paid be refunded to me?
No, if you have paid premiums, it is assumed you want to be treated as an owner (which you will be able to do under the terms of the consensual plan). Under the terms negotiated and outlined above, in order to be a continuing owner, you will have to be current on premiums and servicing fees billed; and you will have to continue to pay future premiums and servicing fees. However, if the financing is approved but the plan is not confirmed, for whatever reason, and the ownership issue is not resolved in favor of allowing continuing ownership by the compromise reached, the Trustee is requesting that to the extent you have now or in the future pay premiums that you will have an administrative claim to recover those premiums.
- If these maturity funds are loaned to the estate for operating expenses, etc., then how will this work with the voluntary instruction motion?
The voluntary instruction motion allows investors to direct the Trustee to use monies on hand to pay premiums and service fees if money is available. The amount of the maturities proceeds that will be used will be calculated across the available funds so that all positions bear their respective pro rata portion. This should prevent accounts from being exhausted as the Trustee draws funds to pay expenses.
Please click here to view a PDF version of this FAQ: Financing Motion FAQ 9-21-15