November was an "interesting" month for JGWPT Holdings Inc. (JGWPT), the leading purchaser of structured settlement payment rights, which markets under the names of J.G. Wentworth (JGW) and Peachtree Settlement Funding (Peachtree).
Significant developments included: 1) falsified transfer orders in New York; 2) an initial public offering (IPO); and 3) a refusal by the Illinois Supreme Court to review the 4th District Illinois Court of Appeals' decision in the Settlement Funding v. Brenston case.
Also during November, at the most recent National Association of Settlement Purchasers (NASP) Annual Conference:
- Former NASP President Robin Shapiro expressed his personal outrage about "troubling reports concerning the structured settlement factoring business." At least some of Shapiro's criticism appeared to be directed toward some JGWPT business practices.
- NASP Executive Director Earl Nesbitt reported a controversial new business practice that is troubling JGWPT and other transfer companies. MetLife apparently is now actively opposing transfers that involve split payments as well as court-approved servicing arrangements. Under such servicing arrangements, structured settlement annuity providers typically remit the entirety of specific periodic payments to transfer companies to administer even when the original recipient/transferor only assigns a portion of the payments.
As S2KM previously reported, JGW, which was founded in 1995, had already experienced a tumultuous recent history prior to November:
- On June 1, 2009, JGW and two affiliated companies entered Chapter 11 bankruptcy protection after the company "encountered liquidity problems amid a tightening credit market".
- Standard & Poor's Rating Services had earlier announced, at JGW's request, that it would no longer rate JGW's counterparty credit and senior secured debt.
- During this period, JGW laid off 120 of its 200 employees and closed its office in Las Vegas.
- According to industry sources at that time, JGW's $325 million of general corporate bonds were "almost worthless" and were trading, if at all, for pennies on the dollar.
- Less than six months later, JGW emerged from bankruptcy with an announcement that owner JLL Partners had invested an additional $100 million in the company.
- By 2011, JGW had re-entered the asset-backed structured settlement securitization market.
- Also in 2011, JGW merged with Peachtree in a stock swap, with JLL Partners retaining control of the merged companies which have each continued to participate in the secondary market.
- On January 30, 2013, Moody's Investors Service announced a downgrade of its Corporate Family Rating (CFR) for JGW from B3 to Caa1. Moody's also issued the same downgrade for JGW's $425 million senior secured term loan and $20 million senior revolving credit facility issued by Orchard Acquisition Company, a subsidiary of JGW.
Estimates of secondary market experts interviewed by S2KM in late 2012 of the post-merger 2012 market share of the JGW and Peachtree varied from a low of 50% to a high of 75%. These experts also believed JGW/Peachtree's share of the estimated 2012 U.S. secondary structured settlement market profits of $120 million was $100 million, or 83%.
JGWPT Holdings Inc.'s Amended Form S-1 Registration Statement, filed October 28, 2013 prior to its November 8, 2013 public offering of common stock, provides more recent financial and marketing information about JGW's holding company. Selected data:
- JGWPT's 2012 revenue sources included: structured settlements (89% of revenues), lotteries (6%), presettlement funding (3%), and non-structured settlement annuities (2%).
- For the year ended December 31, 2012 and the six months ended June 30, 2013, JGWPT:
- Generated revenue from structured settlement purchases totalling $416 million and $222 million.
- Generated cash from the net financing activities of its warehouse financing and permanent securitization financing facilities totalling $314.8 and $131.3 million, not counting $29.9 million generated from its most recent July 2013 securitization.
- Used cash of $225.7 million and $163.3 million in its operating activities.
- During 2013 prior to it IPO, JGWPT distributed $459.6 million to its "common interest holders" resulting in members' capital of $38.4 million and negative tangible equity of ($96.2 million) as of June 30, 2013.
- Since 1995, JGWPT has
- Spent approximately $585 million in marketing through multiple media outlets including $216 million during the past three years.
- Purchased more than $9.1 billion of structured settlement payments. Its average customer has completed two separate transactions.
- During an average four week period, JGWPT generates more than 510 million advertising impressions which result in 80% of its target audience viewing its advertisements five or more times during that four week period.
- Kantar Media estimates that JGW and Peachtree have each spent approximately five-times more than their nearest competitor on television advertising since 2008 and together have spent over 80% of the total amount spent by all participants in the U.S. secondary structured settlement market.
- JGWPT's customer databases included more than 121,000 current or prospective structured settlement recipients as of July 31, 2013 entitled to approximately $31 billion of unpurchased structured settlement payments.
- JGWPT's nationwide attorney network covers over 3,000 counties. Approximately 95% of the proposed structured settlement purchases JGW and Peachtree present to a judge have been approved.
The stated purposes for JGWPT's IPO were to pay down some of its $572 million debt and to provide its pre-IPO equity holders (JLL Partners) an opportunity to earn additional profits. Post-IPO, JLL Partners continues to hold a 39% economic interest and a 63% voting interest in JGWPT while four of its partners sit on the company's Board of Directors.
JGWPT originally anticipated raising $300 million by selling 12.2 million Class A shares at a price between $19 and $22 each. When demand didn't materialize, the IPO opened at $13 per share and fewer shares were offered.
JGWPT's stock trades on the New York Stock Exchange (symbol: JGW) and closed today (December 2, 2013) at $16.45 per share. At least one financial analyst with whom S2KM has spoken believes JGWPT's stock remains substantially undervalued and is worth at least $20 per share.
For additional S2KM reporting about J.G. Wentworth and the structured settlement secondary market, see the structured settlement wiki.