GWG Holdings Inc. (Nasdaq: GWGH), a financial services firm and sponsor of non-traded direct investment offerings, has received a letter from the Nasdaq’s listing qualifications department notifying the company that it was not in compliance with a listing rule that requires the timely filing of annual financial reports.
GWG notified the SEC on April 1st of its inability to file its 2021 annual report within the prescribed time period after its former independent registered public accounting firm, Grant Thornton LLP, resigned at the end of last year. The company said that it was in the process of reviewing potential candidates.
GWG, which has missed multiple filing deadlines in recent years, received a similar letter from Nasdaq’s listing qualifications department last year.
The Nasdaq letter, which has no immediate effect on the listing or trading of GWGH’s common stock, requires the company to submit a plan to regain compliance with the rule within 60 days. If the plan is accepted, then Nasdaq can grant GWG up to 180 calendar days from the due date of the annual report to regain compliance.
Earlier this week, The Wall Street Journal and other publications reported that GWG was preparing to file for Chapter 11 bankruptcy protection.
The company, which reportedly sold $1.6 billion in life insurance bonds through the independent broker-dealer channel, suspended sales of its L bonds for eight months in 2021 and again in January 2022. In addition, GWG failed to make a recent $14 million interest and principal payment with respect to the L bonds. The firm recently hired restructuring financial advisor, FTI Consulting Inc., and restructuring legal advisor, Mayer Brown LLP.
Further signaling the company is close to filing for Chapter 11, a GWG subsidiary entered into an agreement with one of its principal lenders that waives an event of default, provides an additional advance and includes certain terms that would be effective, if or when the lender provides debtor-in-possession (DIP) financing. A DIP loan typically provides cash and working capital for a debtor company during a reorganization process when cash is in short supply. If used and approved by a bankruptcy court, it would be preferential to all pre-bankruptcy lending.
According to a public SEC filing from Thursday, GWG DLP Funding VI LLC amended its credit agreement with National Founders LP to waive an event of default that resulted from insufficient funds in a reserve account – the account had $500,300 in cash instead of the required $2.5 million. The amendment also provided for an additional advance of $4 million, of which $1 million was used to pay an amendment fee to National Founders.
In its most recent quarterly filing from the third quarter of 2021, GWG stated that substantially all of its life insurance policies are pledged as collateral under two credit facilities: the LNV credit facility and the National Founders credit facility.
As of September 30, 2021, 77 percent of the total face value of the life insurance policies portfolio is pledged to LNV Corporation, and 23 percent is pledged to National Founders LP.
Further, the filing states that the “life insurance policies owned by [GWG DLP Funding IV and GWG DLP Funding VI] do not serve as direct collateral for the obligations of GWG Holdings under the L bonds.”
At August 11, 2021, the total face value of life insurance policies owned by GWG DLP Funding VI was approximately $433.1 million, and the face value of those owned by GWG DLP Funding IV was $1.42 billion.
GWG noted in the third quarter filing that it may need additional debt and/or equity financing, which, if not available, “raise[s] substantial doubt about the company’s ability to continue as a going concern within one year after these financial statements are issued.”
GWG shares declined 25.5 percent on Thursday before closing at $1.95.