LPI Position Holder Trust Newsletter November 2017...
1 1 LPI Position Holder Trust Newsletter Inside this issue The Trustee’s Corner .... 1 Upcoming Events .......... 1 Acon Items ................. 2 Trust Update ............... 3-4 Podcast Available for Download ....................... 3 10-Q Filed....................... 3 Escrow Accounts ............ 3 2017 Distribuon ........... 4 Porolio at Glance ....... 4-5 FAQ……………………………..6 How to Contact Us ....... 7 Upcoming Events • NOVEMBER 13th: Launch of new website at www.LPI-PHT.com • DECEMBER 11th: December 2017 LPI PHT Newsleer to be pub- lished JANUARY 15th: January 2018 LPI PHT Newsleer to be pub- lished JANUARY 17th: 1st Quarter LPI PHT Inves- tor Podcast available for download The Trustee’s Corner Welcome to the November 2017 issue of the Life Partners Posion Holder Trust (PHT) investor newsleer. We have some excing developments to tell you about this month. I’m pleased to announce that we have launched a new website created exclusively for you: www.LPI-PHT.com. The website address is the same, but everything else has changed. I hope you will ﬁnd that this new site is more engaging than the previous one and that it gives you easier access to key informaon and mely updates regarding your investments. My plan is that this website will now become the principal desnaon for you to obtain frequent updates related to the Trust as we will be able to com- municate with you faster on the site than we can in a monthly newsleer. To that end, we are working on a process to automate the distribuon of news up- dates so they are pushed directly to your email inbox, rather than you having to check the site yourself throughout the month. We’re currently tesng that process and I’ll keep you posted on when it’s up and running. Looking to the future, we plan to use this monthly newsleer as essenally a news digest that recaps highlights from the previous month and shares my thoughts with you about important developments. The vision here is for the website to serve as your daily newspaper and the newsleer to serve as your monthly news magazine. I believe this slight change to the way we communicate with you will be a marked improvement for all of us. Please do check out the new website and then reach out to us with any feedback you have for how to make it beer and more useful to you. You can send your com- ments to our communicaons consultant, Daryn Teague, at [email protected]. One last thing: Please make sure that Magna has your current e-mail and physical address. You can change your contact informaon at www.magnaservicing.com. I hope that you will ﬁnd the arcles in this newsleer to be informave. Thank you for your interest. Sincerely, LPI Position Holder Trust Eduardo S. Espinosa Trustee November 2017 Issue
LPI Position Holder Trust Newsletter November 2017 …lpi-pht.com/wp-content/uploads/2017/11/LPI-November-v4.pdf · LPI Position Holder Trust Newsletter Inside this issue The Trustee’s
Podcast Available for Download ....................... 3
10-Q Filed ....................... 3
Escrow Accounts ............ 3
2017 Distribution ........... 4
Portfolio at Glance ....... 4-5
How to Contact Us ....... 7
• NOVEMBER 13th: Launch of new website at www.LPI-PHT.com
• DECEMBER 11th: December 2017 LPI PHT Newsletter to be pub-lished
January 2018 LPI PHT Newsletter to be pub-lished
1st Quarter LPI PHT Inves-tor Podcast available for download
The Trustee’s Corner
Welcome to the November 2017 issue of the Life Partners Position Holder Trust (PHT) investor newsletter. We have some exciting developments to tell you about this month. I’m pleased to announce that we have launched a new website created exclusively for you: www.LPI-PHT.com. The website address is the same, but everything else has changed. I hope you will find that this new site is more engaging than the previous one and that it gives you easier access to key information and timely updates regarding your investments. My plan is that this website will now become the principal destination for you to obtain frequent updates related to the Trust as we will be able to com-municate with you faster on the site than we can in a monthly newsletter. To that end, we are working on a process to automate the distribution of news up-dates so they are pushed directly to your email inbox, rather than you having to check the site yourself throughout the month. We’re currently testing that process and I’ll keep you posted on when it’s up and running. Looking to the future, we plan to use this monthly newsletter as essentially a news digest that recaps highlights from the previous month and shares my thoughts with you about important developments. The vision here is for the website to serve as your daily newspaper and the newsletter to serve as your monthly news magazine. I believe this slight change to the way we communicate with you will be a marked improvement for all of us. Please do check out the new website and then reach out to us with any feedback you have for how to make it better and more useful to you. You can send your com-ments to our communications consultant, Daryn Teague, at [email protected]. One last thing: Please make sure that Magna has your current e-mail and physical address. You can change your contact information at www.magnaservicing.com. 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
• Please update your contact information. We are still having a num-ber of mails and e-mails returned as undeliverable. You can change your contact information through the investor portal (www.magnaservicing.com) or by contacting Customer Service ([email protected]).
• Please access the PHT investor portal, review your account state-ments and check the PHT website from time to time. The PHT Trus-tee uses these tools to provide important information about your investment to you. We know that you were inundated with mail during the bankruptcy proceedings and we value your time, so we’ve made a real effort to provide the important information to you in a concise, clear and timely manner.
• Pay the premiums on the policies you own as reflected in any in-voices 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 are having trouble accessing the PHT investor portal (www.magnaservicing.com), please send a message to [email protected] and they will re-send your login cre-dentials.
• 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.
Podcast Available for Download The Trustee recorded the latest quarterly podcast, in which he provides you and your advisors with a deep-er dive into the status of the portfolio, the timing of distributions and other issues of interest to investors. You can play the recording at your convenience di-rectly from our new website (www.LPI-PHT.com).
10-Q Filed The Trustee expects to file a new quarterly financial statement (10-Q) with the U.S. Securities and Ex-change Commission on November 15, 2017. As you may recall, the PHT was required to register with the SEC as a public company because its assets exceed $10 million and there are more than 2,000 investors. The 10-Q and other SEC filings -- particularly the annu-al reports -- contain information about the net worth of the PHT and IRA Partnership that should prove to be very useful to you for calculating the value of your investments. You can find these documents on the SEC’s website (www.SEC.gov) and we will also be posting them to the new website for the Trust (www.LPI-PHT.com).
Escrow Accounts We’d like to try to clear up some confusion about how the escrow accounts work. As you may recall, the Plan of Reorganization requires the PHT to handle escrow balances differently than LPI had in the past. Previous-ly, when a payment needed to be made, LPI deter-mined whether a position holder had sufficient money in escrow to pay its share of the payment. If so, LPI would use the escrowed money to pay the position holder's share of the premium and reduce the escrow balance. If there were insufficient funds in escrow, LPI would bill the holder for its share of the premiums. The PHT, on the other hand, can only bill holders for policy premiums once a year. At that time, the PHT collects money from the holders to pay premiums for the following year. However, for most policies, the PHT pays premiums to the insurance company every three months; this is standard practice in the life settlement industry, allowing more control over the
payment of premiums and limiting the loss of val-ue that occurs when an insured dies. Since the PHT is required to hold and use money paid by investors over the course of several months, not all of the money that is shown in a position holder's escrow account can be used to pay future premiums. For example, in December 2017, the PHT will bill annual premiums for policies with a May payment anniversary. This bill is for premiums to be paid in May 2018, August 2018, November 2018 and January 2019. So the escrow balance an investor sees at any given time repre-sents two things: (1) The funds needed to pay pre-miums but not yet sent to the insurance company; and (2) Unencumbered funds that can be applied to the bill. That is how the escrow accounts work for PHT investors. Please note that the premiums listed on your pre-mium invoices are merely estimates of the premi-ums required to keep the policies in force for the following year. The actual amount required may be higher or lower. If higher premiums are required, the PHT will advance the premiums and the addi-tional amount owed will be added to next year’s invoice. If lower premiums are required, that mon-ey will be kept in escrow and used to offset next year’s invoice.
2017 Distributions The PHT Trustee and the Governing Trust Board have determined that the PHT will not make an annual distribution in 2017. The PHT can make distributions to the PHT unit holders and to the IRA Partnership (for distribution to its members) only if two condi-tions are met: (1) The PHT has paid off the $55 million Exit Facility; and (2) There is excess cash available after the PHT Trustee has paid the trust’s expenses and reserved sufficient funds to pay the premiums owed by the PHT on its interests in policies, to pay the premiums owed by defaulting Continuing Frac-tional Holders, to fund its ongoing operations and to pay for any unanticipated contingencies. The PHT will not be able to repay the Exit Facility this year. To date, we have paid $20 million on the loan reducing the principal balance from $55 million to $35 million. We expect to make an additional pay-ment on the Exit Facility before the end of the year.
While the PHT could obtain a waiver from Vida that would allow it to make a distribution this year, the Trustee and the Board decided that it would not be in the best interest of the PHT nor its beneficiaries to do so. The Exit Facility bears interest at 11%. On the re-maining balance of $35 million, interest for a year would be more than $3.8 million. The Trustee and the Board believe that it would be better to pay down the loan and avoid this expense, than to make a distribu-tion in 2017.
Portfolio at Glance
In September and October, the portfolio continued to experience strong mortality performance. To date, we have discovered $34.4 million in maturities occur-ring in September and $16.1 million occurring in ma-turities in October – both of which significantly ex-ceeded our projections for the month. Given the inev-itable delays between the date of death and discov-ery of the death, we anticipate that we will discover additional maturities for September and October in the coming weeks. You can see that the red “actual”
line has moved significantly toward the black “median” line, signifying that actual performance is moving more closely in line with the projections. In addition to the $50.5 million in maturities that oc-curred in September and October, we recently discov-ered about $880,000 in maturities that occurred prior to the bankruptcy. These maturities were discovered as the result of an extensive effort by Magna to speak with each and every insured following the Plan’s
effective date. So far, Magna has contacted all active life settlement insureds and most of the viatical insureds. Measured by dollars, Magna has had direct contact with insureds representing $2 billion of the $2.1 billion of the remaining face value in the portfolio. On average, we are collecting on claims within 58 days of learning of the maturity and 33 days of obtain-ing a death certificate. The PHT collected $8.1 million in October, which is in the process of being distrib-uted to the CFHs and to the PHT. The chart below shows the total maturities from the beginning of the bankruptcy through the end of last week.
The difference between the total face amount of maturities and “Total Maturities Paid” (about $62 mil-lion) is the amount that the PHT is in the process of collecting and distributing.
Q: Can you explain what the “Schedule K-1” form is and what I’m supposed to do with this document? A: A Schedule K-1 is an annual tax document issued by partnerships to their partners. It shows the partner’s share of a partnership’s income and deductible ex-penses. The Schedule K-1 is typically attached to the partner’s individual tax return. If the partner is an IRA, however, no return is typically filed and the Schedule K-1 is simply informative. In September, the IRA Partnership issued its Schedule K-1s for 2016. Due to the short time that the IRA Part-nership was in existence in 2016, the K-1s showed no taxable income or deductible expenses. There are two areas of the K-1 that require some ex-planation:
• The percentage interest in the IRA Partnership shown in Section J is calculated by dividing the total number of units that the investor (or its IRA) owns in the Partnership by the total number of outstanding Partnership Units.
• The amount of capital shown in Section L is the value of the investor’s share (based on the per-centage interest shown in Section J) of the assets that the Partnership contributed to the Position Holder Trust. The change reflects the gain or loss in value from December 9, 2016 to December 31, 2016. Section L does NOT reflect the investor’s tax basis or the amount that the investor invested in LPI. Nor does it show any taxable gain.
Investors whose IRA Partnership units are held in their IRAs should send a copy of the K-1 to their IRA Custodi-ans. If you have further questions about the Schedule K-1, please contact the Trustee at [email protected] Q: My account statement for my IRA positions is wrong, why are my policies not showing?
A: You no longer hold an interest in a policy. The na-ture of your investment has changed due to the confir-mation of the plan and the fact that, under the IRS tax regulations, it is not permissible for an IRA to hold in-surance policies as an investment. To fix this problem for the IRA investors, the plan es-tablished, as election 1, a New IRA Note for your IRA to hold as its investment. Unlike your old notes, the new note is not tied to your position in the policies in which you originally invested. The principal of the note is, however, equal to 32% of the expected death benefit (the amount stated on your LPI contract) of each posi-tion you owned. The note has a term of 15 years and bears interest at 3% annually (3% of the principal amount of the note -- your principal amount is indicat-ed on your account statement). So, for the next 15 years, you will receive an annual payment of interest, with a balloon payment at the end of the term of the note. You also received IRA Partnership (pool) units equal to 5% of your original positions in the policies. Units in the IRA Partnership are allocated at 1 unit per $1 of expected death benefit. For example, if you held a position with an expected death benefit (contract amount) of $10,000, you would receive: (1) A note with a principal balance of $3,200; and (2) 500 IRA Partnership units (10,000 x 0.05). The note would pay interest of $96 per year ($3,200 x 0.03). Q: I’m an IRA holder, why does Magna need a W-9 from me? A: Magna does not need W-9s from IRA holders. As a cost reduction measure, the PHT requested W-9s at the same time that we informed all of the investors of the Court’s ruling on the motion to modify the Plan. The letter we sent to all investors noted that IRA hold-ers did not need to provide W-9s.
Frequently Asked Questions
Here are brief answers to some of the frequently asked questions (FAQs) we’ve received in the past month: