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November 13, 2020 – The Debtors filed a solicitation version of their First Amended Plan of Reorganization and a related Disclosure Statement [Docket Nos. 114 and 115, respectively]; and separately filed blacklines of each showing immaterial changes to the versions filed on October 15, 2020 [Docket No. 116].
Also on November 13th, the Court hearing the Emergent Capital cases approved (i) the Debtors’ Disclosure Statement, (ii) proposed Plan solicitation and voting procedures, and (iii) a proposed timetable culminating in a December 21, 2020 Plan confirmation hearing [Docket No. 109].
On October 15, 2020, Emergent Capital, Inc and one affiliated Debtor (OTCQX: EMGC; “Emergent” or the “Debtors,” a specialty finance company that invests in life settlements assets) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware noting estimated assets of $175,122,000 and estimated liabilities of $115,856,000 The second filing entity, Red Reef Alternative Investments, is not a holder of the White Eagle assets (see structure chart below) and therefore largely irrelevant from a commercial perspective to these Chapter 11 filings. References to "Debtor" are to Emergent Capital, Inc.
Emergent Capital, Inc., through its subsidiaries, owns a 27.5% equity interest in White Eagle Asset Portfolio, LP, ("White Eagle") which holds a portfolio of life settlement assets, ie life insurance contracts purchased from individuals looking to monetize those contracts during their own lifetimes. White Eagle has a portfolio of 500 life insurance policies having a face value of approximately $2.4bn (the “White Eagle Portfolio”), effectively the amount that would be paid in respect of the 500 insured individuals should they all die tomorrow. As described in "Events Leading to the Chapter 11 Filing," those insured parties continue to die at the wrong time, or not at all, the proceeds from policies that come due unable to cover the Debtors' interest in respect of $117.0mn of borrowings.
In June of 2019, White Eagle, then wholly-owned by the Debtors, exited from its own acrimonious Chapter 11 (the "2018 Chapter 11"). That exit was made possible by a settlement with LNV Corporation and White Eagle's agreement to embark on an expedited effort to sell the White Eagle Portfolio. LNV, White Eagle's then senior lender, had argued that given longer life expectancies, the White Eagle Portfolio was being over-valued by the then debtors and that their collateral package (ie the policies) was insufficient. At the time of White Eagle's exit from the 2018 Chapter 11, LNV was owed $367.9mn, in LNV's view clearly more than the White Eagle Portfolio was worth. In August 2019, 72.5% of the limited partnership interests in White Eagle (the balance being the 27,5% held now by the Debtors) were sold to Palomino JV, L.P. (“Palomino”) with the $374.2mn proceeds used to pay off LNV (see "The White Eagle Transaction" below). Palomino has since been able to divest itself of a considerable portion of that equity and currently holds 20.61%.
Although the underlying assets are largely identical to those involved in the 2018 Chapter 11, the ownership is clearly different, and in that sense we do not consider this a "Chapter 22."
Overview of the Prepackaged Plan
The Disclosure Statement provides: "The Debtor is a holding company with indirect interests in certain valuable life settlement assets held through non-Debtor White Eagle Asset Portfolio, L.P., a Delaware limited partnership (‘White Eagle’). The ultimate goal of the Plan is to preserve and maximize the value of these interests for the benefit of all the Debtor’s constituents, while addressing Emergent’s existing capital structure. The Debtor’s indirect minority share of the equity interests in White Eagle total 27.5% and are held through an indirect subsidiary of the Debtor called Lamington Road Designated Activity Company, an Irish Section 110 Company (‘Lamington’).
Pursuant to the Restructuring Support Agreements and the Plan:
(i) Lamington and a grantor trust to be formed under the laws of the Cayman Islands (the ‘Grantor Trust’), the purpose of which will be to hold certain securities of Lamington that will be issued as part of the restructuring, will dividend or issue certain securities to the Debtor,
(ii) the Debtor will distribute those securities to its noteholders and shareholders in connection with its dissolution,
(iii) the Debtor’s existing securities will be canceled, and
(iv) the Debtor will continue its winding up until it is liquidated. Inactive operations of the Debtor will be eliminated and any assets of Debtor that are outside of Lamington will be liquidated as expeditiously as possible.
As a result of the Plan,
(i) Holders of existing Senior Secured Notes will receive one New Series A Note of Lamington for each $100.00 of augmented principal amount of Senior Secured Notes (which augmented principal amount shall equal 1.04x the total of, as of the exchange, the existing principal amount of, and all accrued but unpaid interest on, the Senior Secured Notes);
(ii) Holders of existing Convertible Unsecured Notes will receive one New Series B Note of Lamington and Grantor Trust Certificates representing ten (10) New PPNs for, as of the exchange, each $100.00 of the total principal amount of, and all accrued but unpaid interest on, the Convertible Unsecured Notes,
(iii) Holders of existing Equity Interests in the Debtor (other than Unvested Warrants), par value $0.01 per share, will receive Grantor Trust Certificates representing one (1) New PPN per share of common stock (subject to adjustment for a cashless exercise in respect of vested warrants to purchase Debtor’s common stock), provided that (i) New Unvested Warrants to purchase Grantor Trust Certificates shall be distributed to Holders of Unvested Warrants, conformed to the extent possible to the Unvested Warrants, and (ii) (x) equity awards of restricted stock under the Omnibus Plan shall be deemed vested as of the Effective Date and treated the same as the other Equity Interests in the Debtor and (y) New SARs exercisable for Grantor Trust Certificates will be distributed to Holders of Existing SARs, conformed to the extent possible to the Existing SARs.
New PPN Warrants also will be issued in order to allow new PPNs to be issued to the Grantor Trust upon the exercise of the New Unvested Warrants. The foregoing ratios were determined based on negotiation among the Debtor, the Supporting Senior Secured Noteholders, and the Supporting Convertible Unsecured Noteholders."
The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are as in the Plan and/or Disclosure Statement):
- Class 1 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $0 and the estimated recovery is 100%.
- Class 2 (“Other Secured Debt Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $0 and the estimated recovery is 100%.
- Class 3 (“Senior Secured Notes Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $48,758,887.50 plus any interest, fees, and expenses and the estimated recovery is 100% over time. Each Holder of an Allowed Senior Secured Notes Claim will receive its Pro Rata share of the New Series A Notes in accordance with the ratios, payment priorities, and descriptions set forth on Exhibit A and Exhibit B attached to the Plan, and (ii) the Debtor shall pay in full in Cash all outstanding Senior Secured Notes Trustee Fees.
- Class 4 (“Convertible Unsecured Notes Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $67,836,966.00 plus any interest, fees, and expenses and the estimated recovery is 100% over time. Each Holder of an Allowed Convertible Unsecured Notes Claim will receive its Pro Rata share of: (a) the New Series B Notes and (b) those Grantor Trust Certificates delivered in connection with the New Series B Notes in accordance with the ratios, payment priorities, and descriptions set forth on Exhibit A and Exhibit B attached to the Plan, and (ii) the Debtor shall pay in full in Cash all outstanding Convertible Unsecured Notes Trustee Fees.
- Class 5 (“General Unsecured Claims”) is unimpaired, deemed to accept and entitled to vote on the Plan. The aggregate amount of claims is $0 – $250,000 (approx.) and the estimated recovery is 100%. FN: There are certain litigation claims pending against the Debtor involving a $9 million life insurance policy. The Debtor disputes such claims and has sought to estimate them at $0.
- Class 6 (“Equity Interests in the Debtor”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is N/A and the estimated recovery is Value of certain Grantor Trust Certificates.
- Voting Deadline: December 17, 2020.
- Deadline for Plan Objections: December 15, 2020.
- Plan Confirmation Hearing: December 21, 2020.
The First Amended Disclosure Statement [Docket No. 115] attached the following documents:
- Exhibit A: Amended Plan of Reorganization [Docket No. 114]
- Exhibit B: Organizational Chart of the Debtor and Relevant Subsidiaries
- Exhibit C: Liquidation Analysis
- Exhibit D: Financial Projections
- Exhibit E: Valuation Analysis
The White Eagle Transaction
On August 16, 2019, White Eagle, Emergent, Lamington and WEGP entered into a subscription agreement (the “Subscription Agreement”) with Palomino JV, L.P. (“Palomino”), pursuant to which 72.5% of the limited partnership interests in White Eagle, consisting of all of the newly issued and outstanding Class A and Class D interests, were sold to Palomino (collectively, the “White Eagle Transaction”) for an aggregate purchase price of approximately
$366,200,000 and $8,000,000 for the Class A and Class D interests, respectively. Pursuant to the Subscription Agreement, Lamington received 27.5% of the limited partnership interests of White Eagle, consisting of all of the newly issued and outstanding Class B interests in exchange for all of its previously owned White Eagle limited partnership interests. The limited partnership agreement of White Eagle was amended and restated to provide for the new classes of interests and their terms. The proceeds of the White Eagle Transaction, together with other funds of White Eagle, were used to satisfy in full the White Eagle Revolving Credit Facility, which was terminated and the underlying collateral, consisting of the White Eagle Portfolio, was released.
Events Leading to the Chapter 11 Filing
The Declaration provides: “As a result of the White Eagle Transaction, Emergent has been able to participate in proceeds of maturities from the White Eagle Portfolio without the burdens of excessive bank debt and, as a result, Emergent’s financial performance has markedly improved. However, Emergent continues to be burdened by approximately $117 million of noteholder obligations that must be serviced on a going forward basis. In order to address Emergent’s liquidity needs over the foreseeable future, it is the Emergent’s business judgment that a restructuring should be effectuated.
Over the course of over a year, Emergent and its representatives heavily negotiated the terms of a possible restructuring, which is now memorialized in the Restructuring Support Agreements and the proposed Plan. At least a majority in principal amount of the holders of the Senior Notes and the Convertible Notes are parties to the Restructuring Support Agreements and support the Plan. Emergent expects that additional noteholders will join the supporting noteholders leading up to confirmation of the Plan.
In accordance with the Restructuring Support Agreements and as reflected in the Plan, Emergent’s restructuring will be accomplished through Lamington, an Irish indirect subsidiary of Emergent. Lamington is located in a tax-favorable jurisdiction. Emergent proposes to transfer the ownership of Lamington to its security holders by having Lamington and the Grantor Trust issue new securities that will be exchanged for the securities currently held by Emergent’s security holders. Emergent’s securities will be cancelled and ultimately Emergent and its subsidiaries other than Lamington and Lamington’s subsidiaries will be liquidated. As a result, current security holders of Emergent, including equity holders, will become security holders of Lamington, with such securities, which will be listed for trading on a public stock exchange deemed suitable for this purpose, representing ownership of the same assets as before the restructuring.”
Significant Prepetition Shareholders
- PJC Investments, LLC/ Pat Curry: 20.61%
- Evermore Global Value Fund: 10.53%
- Sirius International Insurance Corp.: 7.05%
- Opal Sheppard Opportunities Fund I LP: 6.62%
- Brennan Opportunities Fund I LP: 6.43%
- James G. Wolf: 6.09%
Liquidation Analysis (see Exhibit C of First Amended Disclosure Statement [Docket No. 115]
About the Debtors
Debtor Emergent Capital, Inc. (NB: the other Debtor, Red Reef Alternative Investments is not a holder of the White Eagle assets, see structure chart just below) is a holding company that, through its subsidiaries, owns a 27.5% equity investment in White Eagle. White Eagle, which was a wholly-owned indirect subsidiary of the Debtor until August 2019, holds a portfolio of approximately 500 life insurance policies, also referred to as life settlements, having a face value of approximately $2.4 billion (the “White Eagle Portfolio”). The Debtor’s existing common stock is publicly traded on the OTCQX market under the ticker symbol “EMGC”. The Debtor’s principal asset is its indirect interests in the White Eagle Portfolio. The purpose of the Plan is to preserve and maximize the value of such interests for the benefit of all constituents of the Debtor.
Corporate Structure Chart
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