GWG Holdings Inc. (Nasdaq: GWGH), a financial services firm and sponsor of non-traded direct investment offerings, has filed voluntary Chapter 11 petitions in the U.S. Bankruptcy Court for the Southern District of Texas.
The firm indicated in its bankruptcy filings that an ongoing SEC investigation, particularly its focus on how bonds were sold by brokers, impacted its ability to raise capital.
The company reported roughly $2.1 billion in total liabilities and more than $3.4 billion in assets.
“GWG believes that it has valuable, although presently illiquid, assets that, given time, should yield substantial recoveries for the debtors and their stakeholders,” the company stated. “However, due to a liquidity crisis precipitated by external factors outside of the debtors’ control—principally a temporary and presently ongoing inability to access liquidity from the capital markets beginning in April 2021 and related regulatory issues related to GWGH’s securities filings—the debtors have been forced to seek the protections of Chapter 11 of the Bankruptcy Code, in an effort to preserve and maximize the value of their business and assets for the benefit of all of their stakeholders.”
News of GWG’s bankruptcy plans began circulating earlier this month after the firm notified the Securities and Exchange Commission that it was again unable to file its 2021 annual report within the prescribed time period due to its former independent registered public accounting firm, Grant Thornton LLP, resigning at the end of last year.
GWG created financial products called L bonds, which were sold through the independent broker-dealer and RIA channels to purchase life-insurance policies on the secondary market. The company reportedly sold $1.6 billion in life insurance bonds.
In October 2020, the SEC’s Enforcement Division subpoenaed GWG in connection with an ongoing investigation of certain accounting matters and its issuance of bonds.
In its bankruptcy filing, GWG noted that the SEC’s investigation, particularly its focus on how the bonds were sold by selling group firms, “significantly” impacted its ability to access the capital markets.
“In connection with the SEC’s investigation, the SEC has issued subpoenas and document requests to many of GWGH’s  broker firms, in some instances issuing information requests on an ongoing, or even daily, individual transaction-level basis,” stated GWG in the filing. “As a result, a number of broker firms indicated that they would not resume sale of the bonds until further notice due to concerns of getting involved further in the SEC’s investigation.”
Last year, GWG suspended the L bond offering for eight months after missing the SEC filing deadline for its 2020 annual report. The company reopened the offering in December 2021 and then “paused” sales in January 2022 while it “[worked] with its advisors to identify and evaluate options available to the company.” In addition, GWG failed to make its $14 million interest and principal payment to L bondholders for January.
During the eight months it was not selling L bonds, GWG said that it “used liquidity reserves and financings of its assets to fund operations and service debt obligations.”
As part of the bankruptcy, GWG has secured debtor-in-possession (DIP) financing to facilitate the restructuring and has filed a motion with the court for approval of this financing. A DIP loan typically provides cash and working capital for a debtor company during a reorganization process when cash is in short supply.
The DIP credit agreement totals approximately $65 million and will be provided by National Founders LP.
GWG intends to continue its day-to-day operations as debtor-in-possession. Subsidiaries GWG Life LLC and GWG Life USA LLC are also debtors in the Chapter 11 cases.
“At the end of this process, we expect to be on stronger financial footing for the future, further enhancing our ability to provide financial solutions to our customers, preserving and enhancing the value of our assets for our investors, and positioning us to pursue additional business opportunities in the insurance space utilizing our extensive experience in the life insurance industry,” said Murray Holland, GWG’s chairman, president and chief executive officer.
Mayer Brown LLP serves as restructuring counsel, PJT Partners LP as financial advisor, and FTI Consulting Inc. as restructuring advisor.
GWG Holdings is a financial services firm based in Dallas, Texas. Through its subsidiary, GWG Life, LLC, GWGH owns and manages a portfolio of life insurance policies that, as of September 30, 2021, included $1.8 billion in face value of life insurance policy benefits.