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June 19, 2019 – The Court hearing the White Eagle Asset Portfolio cases approved the Debtors' Second Amended Joint Chapter 11 Plan [Docket No. 349] and the Debtors subsequently notified the Court that the Plan had become effective (also as of June 19, 2019). As agreed with their lenders, the Debtors will now embark on expedited efforts to sell their portfolio of life insurance contracts.
On December 13, 2018, White Eagle Asset Portfolio and two affiliated Debtors filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 18-12808. In their Petition, the Debtors, a wholly owned subsidiary of Emergent Capital Inc. ("Emergent"), a publicly traded company operating in the life settlements industry, noted estimated assets between $500 million and $1 billion; and estimated liabilities between $100 million and $500 million.
On June 5, 2019, the Court hearing the White Eagle Asset Portfolio cases approved the settlement of a particularly acrimonious adversary proceeding amongst the Debtors, certain non-Debtor affiliates, the Debtors ultimate parent, Emergent, and lender LNV Corporation (the "Lender," to whom the Debtors owed $367.9mn as at the Petition date) [Docket No. 316]. It is this settlement that ultimately paved the way for Plan confirmation.
The settlement with the Lender, which has also agreed to provide $15.0mn in debtor-in-possession ("DIP") financing, will allow the Debtors to resume more or less normal business operations as a life settlement company (albeit one going into liquidation), with the caveat that the Debtors will embark on a sales effort further to which it will sell its assets (ie its portfolio of life insurance contracts). The proceeds of those sales are to be used to pay agreed amounts based on outstanding principal and interest owed to the Lender: (i) $375,344,223 (or 102% of principal and interest) if paid by September 17, 2019 or (ii) $382,703,913 (or 104% of principal and interest) if paid by December 30, 2019. Failure to make the payments by December 30, 2019, will obligate the Debtors to surrender all of its unsold assets (ie the life insurance contracts) to the Lender in full satisfaction of the Lender's claim. If payment in full is received by the Lender in advance of December 30th, any remaining assets are left to the Debtors.
The often nasty dispute amongst the Debtors and the Lender has ultimately stemmed from a disagreement on the value of the Debtors' life insurance contract portfolio; which the Debtors' have argued is worth in excess of $500.0mn, while the Lender has argued that revised life expectancy data reflecting longer lifespans means that the portfolio value (ie collateral) was less than amounts borrowed.
From the outset, the Debtors blamed the Lender for its need to file Chapter 11 claiming that: “LNV has abused the discretion that it was granted under the terms of the Prepetition Loan Agreement to starve WEAP and its parent of the cash flows to which they are rightfully entitled and which are necessary to administer WEAP’s insurance portfolio. LNV has improperly exercised its discretion by undervaluing the insurance portfolio and LNV has charged excessive fees in order to disallow any distributions to WEAP.”
Firing back, on April 9, 2019, CLMG Corp. (“CLMG”) and the Lender objected to the Debtors’ motion to extend their exclusive Plan filing and solicitation periods [Docket No. 186] arguing that (i) with only one non-suppporting creditor (ie LNV), the Debtors should make way for a Plan from the Lender Parties and (ii) that the Debtors’ indirect parent (Emergent Capital, Inc.) is “controlling the Debtors and abusing the chapter 11 process to foist its own obligations on the Debtors….In short, these chapter 11 cases are backwards and improper and the Debtors’ plan does nothing to solve the illogical course they have taken so far. Given that the Debtors have only one creditor who plainly opposes the Debtors’ plan, there is no sense in maintaining exclusivity here. Instead, the Lender Parties should be permitted to file their own plan—one that actually solves the problems plaguing the Debtors and their relationship with the Lender Parties—before these cases continue past the point at which the Debtors’ liquidity issues (which have been compounded by the Debtors’ pursuit of additional expenses throughout these cases) start to impair creditor recoveries.
The Disclosure Statement provided the following Plan overview:
“The Debtors believe that the Plan provides the best restructuring alternative available to these estates. Notably, the Plan is comprised of the following key elements:
- providing a 100% recovery to Allowed General Unsecured Claims, and all other Holders of Allowed Claims and Interests;
- incorporating the terms of the Prepetition Lender Settlement Documents, including the refinancing or sale of the Debtors' life settlements portfolio and the repayment of the Allowed Prepetition Lender Secured Claim;
- ensuring that the Debtors either (i) obtain adequate liquidity, either through new senior secured financing or other available means, in order to pay in cash in full the Allowed Prepetition Lender Secured Claim and the DIP Financing Claims by September 17, 2019, or (ii) consummate one or more sales of the Debtors' assets by December 30, 2019 and, if such sales do not result in payment in full of the Allowed Prepetition Lender Secured Claim and the DIP Financing Claims by December 30, 2019, the transfer of the Debtors' unsold assets to the Prepetition Agent in full satisfaction of the Allowed Prepetition Lender Claim and the DIP Financing Claims; and
- preserving all of the existing equity interests in the Debtors if the Allowed Prepetition Lender Secured Claim is paid in full, subject to and consistent with the terms of the Prepetition Lender Settlement Documents.
Through the Plan, the Debtors will be in the best possible position under the circumstances to maximize the value of their life settlements portfolio for the benefit of all constituents.”
Following is a summary of classes, claims, voting rights and expected recoveries:
- Class 1 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated aggregate amount of claims is $0 and estimated recovery is 100%.
- Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated aggregate amount of claims is $0 and estimated recovery is 100%.
- Class 3 (“Prepetition Lender Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated aggregate amount of claims is $382.7mn and estimated recovery is 100%.
- Class 4 (“General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated aggregate amount of claims is $0-$50,000 and estimated recovery is 100%.
- Class 5 (“Intercompany Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated aggregate amount of claims is $146.0mn and estimated recovery is 100%.
- Class 6 (“Equity Interests in Debtors”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated claim amount is N/A and estimated recovery is retain equity interests.
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