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Upfront fees are deferred upon receipt and recognized ratably over the period of benefit which is generally consistent with estimated expected life of LiquidTrusts typically 7 to 10 years. Upfront fees are recorded on the consolidated statements of financial condition as fees receivable with a corresponding amount recorded to deferred revenue. Deferred revenue is subsequently recognized as trust services revenues on the consolidated statements of comprehensive income loss , ratably over the expected life of the LiquidTrust.
Trust Administration Revenues. Trust administration fees are earned for providing administrative services to trustees for existing liquidity solution clients. Fees are recognized monthly based upon the beginning of quarter in advance net asset value plus any remaining unfunded capital commitments and the applicable fee rate of the account as outlined in the agreement.
Payment frequency is defined in the individual contracts, which primarily stipulate billings on a quarterly basis in advance. Trust administration fee receivables are recorded on the consolidated statements of financial condition in the fees receivable line item and in trust services revenues on the consolidated statements of comprehensive income loss.
The table below sets forth the third-party administration revenues and trust services revenues as a percent of total revenues, net:. Interest Income. The consolidated financial statements reflect the assets, liabilities, revenues, expenses, investment income and cash flows of Ben, including, prior to their deconsolidation on December 31, , the consolidated trusts in the ExAlt Plan TM , on a gross basis, and a portion of the economic interests in the Collective Trusts, held by the residual beneficiaries, are attributed to noncontrolling interests in the accompanying consolidated financial statements.
Interest income earned by us from those consolidated trusts in the ExAlt Plan TM is eliminated in consolidation. However, because the eliminated amounts are earned from, and funded by, noncontrolling interests, our attributable share of the net income from the consolidated trusts in the ExAlt Plan TM is increased by the amounts eliminated. Legal Fees. Legal fees and other costs related to litigation and other legal proceedings are expensed as incurred and are included in professional services in the accompanying consolidated statements of comprehensive income loss.
Share-based Compensation. Compensation expense for all equity-based compensation awards is determined using the grant date fair value. For all equity-based plans, we record the impact of forfeitures when they occur. Expense is recognized on a straight-line basis over the requisite service period of the award, which is generally equal to the vesting period.
The details of our equity-based compensation programs are discussed in Note Comprehensive Income Loss. Comprehensive income loss consists of net income loss and other comprehensive income loss. Other comprehensive income loss includes unrealized gains and losses on investments carried at fair value, which are reported as a separate component of equity. Fair Value of Financial Instruments. ASC Topic , Fair Value Measurement , defines fair value as the exchange price that would be received for an asset or paid to transfer a liability an exit price in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
The guidance also specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. Level 1: quoted prices in active markets for identical assets;.
Level 2: inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument; and. Level 3: inputs to the valuation methodology are unobservable for the asset or liability. This hierarchy requires the use of observable market data when available. Fair values of financial instruments are estimated using relevant market information and other assumptions.
Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or market conditions could significantly affect these estimates. Accounting Standards Recently Adopted. ASU , Leases Topic was issued in February , to increase the transparency and comparability of lease recognition and disclosure.
The amendments in this standard require lessees to recognize lease contracts on the consolidated statement of financial condition, while recognizing expenses on the consolidated statement of comprehensive income loss in a manner similar to prior guidance. The Company adopted this ASU as of January 1, , resulting in increases to total assets and total liabilities. The related increase to total assets was due to the recognition of a right-of-use asset recorded in other assets, while the increase in total liabilities was due to recognition of the lease payment liability recorded in other liabilities.
This standard simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. ASU is effective for annual periods beginning after December 15, , including interim periods within those periods, for public business entities. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, Ben adopted this ASU on January 1, , and it did not have a material impact on its consolidated financial statements and related disclosures.
The amendments in this standard expand the scope of Topic to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments in this standard align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license.
Accordingly, the amendments require an entity customer in a hosting arrangement that is a service contract to follow the guidance in Topic to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense.
The amendments also require the entity customer to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement, which includes reasonably certain renewals. Related assets are reflected on the consolidated statements of financial condition in other assets and the related amortization expense is reflected in other expenses on the consolidated statements of comprehensive income loss.
Accounting Standards Not Yet Adopted. This standard broadens the information that an entity must consider in developing its expected credit loss estimate for loans and other financial assets measured either collectively or individually. Current U. GAAP delays recognition of credit losses until it is probable a loss has occurred, generally only considering past events and current conditions in measuring the incurred loss. Once implemented, this new standard will eliminate the probable initial recognition threshold and instead, will require the measurement of expected credit losses based on historical experience, current conditions, and reasonable and supportable forecasts covering the entire term of the instrument through contractual maturity.
An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. This standard requires enhanced disclosures around significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of the portfolio. The effective date of this ASU has been extended for smaller reporting companies and private companies to fiscal years beginning after December 15, , including interim periods within those fiscal years.
Ben is evaluating the impact of this ASU on the consolidated financial statements and disclosures. The amendments in this standard add or modify certain disclosure requirements for fair value measurements. The guidance is effective for fiscal years and interim periods beginning after December 15, Certain of the amendments require prospective application, while the remainder require retrospective application. Early adoption is permitted either for the entire standard or only the provisions that eliminate or modify the requirements.
The Company believes that we are currently compliant with this pronouncement but continues to evaluate potential impact of this guidance on our consolidated financial statements and related disclosures. The amendments in ASU eliminate certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.
ASU also clarifies and simplifies other aspects of the accounting for income taxes. ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, , for public business entities. Early adoption is permitted, including adoption in any interim period. The Initial Transactions, which were entered into on September 1, , included:. The Second Transactions, which were entered into in December and January , were carried out in a manner consistent with the Initial Transactions.
The loan proceeds were applied toward the purchase of Common Units of Ben. The Initial and Second Transactions have been transacted with a limited number of family offices, fund-of-funds and institutions. Refer to Note 15 for further information on the debt issued in connection with this redemption. Registration Rights Agreement. Pursuant to this Registration Rights Agreement, GWG Holdings is entitled to certain customary demand registration, shelf takedown and piggyback registration rights with respect to the Ben Common Units, subject to certain customary limitations including with respect to minimum offering size and a maximum number of demands and underwritten shelf takedowns within certain periods.
The agreement remains in effect until the earlier of the date GWG Holdings is permitted to sell all registrable securities under Rule or until the registrable securities are sold. Specifically, Messrs. GWG Holdings intends to reduce capital allocated to its traditional business while cooperating to build a larger diversified portfolio of loans against alternative assets investment portfolios through additional investment by GWG Holdings in Ben.
Pursuant to the Consent and Joinder, Messrs. The proceeds from the Promissory Note are used by the LiquidTrusts to purchase senior beneficial interests held by these certain trusts of the ExAlt Plan TM that were required to be consolidated in our financial statements prior to December 31, The remaining purchase of senior beneficial interests will occur during January Ben utilized the proceeds from the loan repayments to BCC to provide working capital to the Company and to pay other liabilities.
The Promissory Note is unsecured and is subject to certain covenants including a restriction on the incurrence of any indebtedness senior to the Promissory Note other than the existing senior loan obligations described in Note 15 to HCLP Nominees L. The intercreditor and subordination agreements, among other things, subordinate the Promissory Note to the secured obligations of Ben outstanding to the Senior Lenders; stipulates that GWG Holdings agrees to not take any liens to secure the Promissory Note and to subordinate such liens, if any, to the liens of the Senior Lenders , prohibits any voluntary prepayment of all or any portion of the Promissory Note until the Senior Lenders are paid in full unless such prepayment is agreed to by the Senior Lenders; and stipulates that GWG Holdings agrees not to take enforcement actions under the Promissory Note until existing obligations to the Senior Lenders are paid in full.
The Intercreditor Agreements establish various other inter-lender and subordination terms, including, without limitation, with respect to permitted actions by each party, permitted payments, waivers, voting arrangements in bankruptcy, application of certain proceeds and limitations on amendments of the respective loan obligations of the parties.
The Senior Lenders have agreed to not extend the maturity of their respective loan obligations beyond June 30, , or increase the outstanding principal of the loans made by the Senior Lenders without the written consent of GWG Life. GWG Life has agreed to not transfer the Promissory Note except with the written consent of the Senior Lenders such consent not to be unreasonably withheld or to GWG Holdings or direct or indirect wholly-owned subsidiaries thereof.
As a result of the change-in-control, Ben elected to apply pushdown accounting in its separate consolidated financial statements as of December 31, Under the pushdown accounting guidance included in ASC Topic , Business Combinations , Ben recorded all of its assets and liabilities at fair value, with the excess of the purchase price over the aggregate fair values recorded in goodwill. Loans receivable, other borrowings, commercial loan with parent and goodwill were the assets and liabilities impacted in any material respect by the purchase accounting adjustments.
Refer to Note 8 for further discussion on the application of pushdown accounting and the resulting impact of recording our assets and liabilities at fair value, including a description of the methodologies used to determine the fair values. In connection with the change-of-control event, the preliminary enterprise value and the preliminary estimated fair value of identifiable assets acquired and liabilities assumed as of the date of the change-of-control transaction are summarized in the following table:.
The following is a description of the valuation methodologies used to estimate the fair value of equity and the fair values of major categories of assets acquired and liabilities assumed. In many cases, determining the fair value of equity and the acquired assets and assumed liabilities required management to estimate cash flows expected from those assets and liabilities and to discount those cash flows at appropriate rates of interest.
This required the utilization of significant estimates and management judgment in accounting for the change-of-control event. Equity : The values for each equity component were calculated after determination of an overall enterprise value for the Company. The OPM Backsolve approach uses a Black-Scholes option pricing model to calculate the implied equity value of the firm. Once an overall equity value was determined, amounts were allocated to the various classes of equity based on the security class preferences.
The inputs to the OPM Backsolve approach are the equity value for one component of the capital structure, expected time to exit, the risk-free interest rate and an assumed volatility based on the volatility of similar publicly traded companies.
The value for the common units includes an amount related to outstanding share-based payment awards that remain outstanding after the change-of-control. For these awards, the portion of the acquisition-date fair value of the share-based payment awards attributable to pre-combination service is recognized in the common unit value as of December 31, Loans receivable : The loan portfolio was valued based on current guidance which defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date.
Level 3 inputs were utilized to value the loan portfolio and included the use of present value techniques employing cash flow estimates and incorporated assumptions that marketplace participants would use in estimating fair values, specifically market interest rate and general credit fair value assumptions.
In instances where reliable market information was not available, management used assumptions in an effort to determine reasonable fair value. There was no carryover related allowance for loan losses. Fees receivable : These fees receivable were valued using the current carrying amount which approximates fair value. Cash and cash equivalents : The estimated fair values of cash and cash equivalents approximate their stated value. Other assets : Other assets include miscellaneous receivables that were valued using the current carrying amount as that amount approximates fair value due to the relatively short time between their origination date and the fair value date.
Other assets were valued using the current carrying amount which approximates fair value. Investment in public equity securities: The fair value of the investments in public equity securities was determined using quoted market prices. Intangible assets: Intangible assets include an insurance license and a non-compete agreement. Both assets were valued using the current carrying amount which approximates fair value. Other borrowings and commercial loan agreement from parent : The measurement of the fair value of other borrowings and commercial loan agreement from parent was based on market prices that generally are observable for similar liabilities at commonly quoted intervals and is considered a Level 2 fair value measurement.
Other liabilities and deferred revenue : The carrying amounts of other liabilities and deferred revenue approximate the fair value. Accounts payable and accrued expenses : Due to their short-term nature, the carrying amounts of accounts payable and accrued expenses approximate the fair value.
Goodwill : The resulting excess of the overall enterprise value after deducting the fair values of assets acquired and liabilities assumed is recognized as goodwill. The goodwill recognized is the result of the inherent value associated with the assembled business after all separately identifiable assets acquired and liabilities assumed are deducted from the enterprise value. The accounting for the estimates of equity values in the change-of-control event and the fair value of loans receivable and any separately identifiable intangibles was based on the facts and circumstances that existed as of the acquisition date.
Should management obtain new information about facts and circumstances that existed at the acquisition date, adjustments to the fair values assigned to these items could occur during the measurement period of one year from the acquisition date.
Any such adjustment will result in corresponding adjustments to goodwill. Through the initial capitalization transactions described in Note 3, a third-party institutional investor held an indirect interest in all or substantially all of the outstanding Common Units of Ben through the Exchange Trusts.
In connection with the change-of-control event, the enterprise value and the estimated fair value of identifiable assets acquired, and liabilities assumed as of the date of the change-of-control transaction are summarized in the following table:. The enterprise value of the Company was determined using the OPM Backsolve approach under the market method.
Investments in senior beneficial interests : The investments in senior beneficial interests accounted for as equity securities were valued based on current guidance which defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. Level 3 inputs were utilized to value the investments in senior beneficial interest portfolio and included the use of present value techniques employing cash flow estimates and incorporated assumptions that marketplace participants would use in estimating fair values.
Specifically, the model includes assumptions related to i equity market risk premiums, ii alternative asset beta to public equities, iii NAVs, iv volatilities, v distribution rates, and vi market discount rates. In instances where reliable market information was not available, management used historical market data proxies and assumptions to determine a reasonable fair value.
Due from unconsolidated affiliates and trusts and due to unconsolidated affiliates and trusts : These assets and liabilities were valued at their current carrying amount which approximates fair value due to their short-term nature. Other receivables and other assets : Other receivables were valued using the current carrying amount which approximates fair value due to the short time between their origination date and the fair value date. Insurance license : The insurance license asset was valued using the guideline transactions approach under the market method.
The recent transactions approach indicates the value of an asset by deriving multiples from recent transactions involving similar assets. The recent transactions methodology utilizes Level 2 inputs. Other borrowings : The fair value of the other borrowings approximates the carrying value of the debt based on the recent issuance of the debt, its variable interest rate, and the short remaining term.
The fair value of other borrowings was determined using Level 2 inputs in the fair value hierarchy. Repurchase options : Repurchase options were fair valued using a Black-Scholes option pricing model with a time-dependent strike for the repurchase price. Other model assumptions include i a period of restricted exercise, ii the dividend yield, iii underlying NAVs, iv alternative asset growth rates, v volatilities and vi market discount rate.
Goodwill : The resulting excess of the overall enterprise value after deducting the fair values of the assets acquired and liabilities assumed is recognized as goodwill. The goodwill recognized is the result of the inherent value associated with the assembled business after all separately identifiable assets acquired and liabilities assumed are deducted from the determined enterprise value.
As of December 31, , the estimates of the equity value in the change-of-control event and the fair values of identifiable assets and liabilities assumed in the change-of-control event were final. Assets and Liabilities. During the fourth quarter of , an agreement was executed whereby all remaining earnout payments, contingent payments, and conditional payments were settled in return for a total of , Class S Ordinary Units.
In connection with the ACE Portal acquisition, the following table details the consideration paid, the initial estimated fair value of identifiable assets acquired, and liabilities assumed as of the date of acquisition and the resulting goodwill recorded:. As of December 31, , the fair values of the consideration paid and the identifiable assets and liabilities assumed in the change-of-control event and the ACE Portal, Inc.
The loans receivable held by the Company as of December 31, were originated primarily by the initial capitalization transactions discussed in Note 3. These loans are principally collateralized by the cash flows originating from the Exchange Portfolio.
As a result of the push-down accounting described in Note 8, the carrying value is the estimated fair value of the loans and there is no allowance for loan losses recorded as of December 31, In addition, the comparative period on the statement of financial condition of December 31, , is not comparable as the loans were not presented on that statement due to the consolidation of certain trusts included within the ExAlt Plan TM.
Refer to Note 10 for further discussion of the investments in senior beneficial interests. Investments in senior beneficial interests held by the Company as of December 31, and up to the date of deconsolidation on December 31, , of certain trusts included with the ExAlt Plan TM , were primarily originated by the transactions discussed in Note 3. Prior to the deconsolidation, the Company held investments in senior beneficial interests in each LiquidTrust that has been established.
Investments in senior beneficial interests are entitled to the repayment of the initial contribution and any additional contributions required to be made under the LiquidTrust agreement. The LiquidTrust agreements require additional contributions in limited situations to fund obligations of the LiquidTrusts such as capital commitment calls from alternative asset funds above certain thresholds or the fulfillment of required cash reserves at the LiquidTrust to pay trustee fees and expenses after the passage of one year.
As cash distributions for the alternative asset funds held by the LiquidTrusts are received, the allocation of such proceeds is determined based on a waterfall. Based on the allocation results of the waterfall, the proceeds applied against the investments in senior beneficial interests for the repayment of the total net contributions and the Base Return are utilized ultimately to repay BCC the amounts due under the loan agreement between BCC and a certain trust included within the ExAlt Plan TM.
Enhanced Return amounts earned and not utilized in the above manner are not available to BCC or other Ben entities and represent noncontrolling interests trusts. The investments in senior beneficial interests are collateralized by cash flows generated by the Exchange Portfolio.
See Note 19, Fair Value Measurements, for additional required disclosures for financial instruments accounted for at fair value on a recurring basis. Fixed assets are included in other assets in the consolidated statements of financial condition and consist of the following:.
Depreciation and amortization expense related to fixed assets was immaterial for the seven months ended December 31, and for the five months ended May 31, Prior to June 1, , Ben did not have any goodwill or intangible assets.
We expect that amortization expense for our existing intangibles subject to amortization for the succeeding five years and thereafter will approximate the following:. Barring a triggering event that suggests possible impairment, the Company conducts impairment tests for goodwill and indefinite-lived assets during the fourth quarter each year, using generally accepted valuation methods. During the fourth quarter of , the Company tested for impairment and determined there was no impairment of goodwill or indefinite-lived intangible assets during During , the Company determined that the developed technology, which related to the purchase of Ace Portal discussed in Note 8, was fully impaired.
The impairment is recorded in the other expenses line item on the consolidated statements of comprehensive income loss. Other liabilities consist of the following:. Option Agreement Liability. The settlement amount determined at the time of exercise is based on the number of Common Units in Ben that a holder of Preferred Series A Subclass 2 Units would receive if such holder were converting as of the settlement date.
The debt discount was being amortized to interest expense over the five years life of the Commercial Loan Agreement. The value of the Option Agreement was allocated between expense and debt discount using the relative values of the sources of proceeds utilized to redeem Ben Common Units from the Exchange Trusts as part of the transaction with the GWG Parties. Preferred Stock Series A Subclass 1 Units held by a Related Entity is allocated any expenses incurred by the Company, in the period recognized, as a result of the delivery of the Option Agreement to GWG to consummate the transactions contemplated by the MEA, including the amortization of the debt discount.
In connection with the change-of-control event described in Note 8, the commercial loan agreement was recorded at fair value at December 31, and thus this debt discount is no longer reflected in the December 31, statement of financial condition. The value of the Option Agreement adjusts each period until exercised by GWG based on the allocation of profit and losses, tax distributions, and other amounts allocated to the Preferred Stock Series A Subclass 2 Units. This adjustment results in income or expense being recognized by Ben each period until the option is exercised that will be directly allocated to all Preferred Stock Series A Subclass 1 Unitholders on a pro-rata basis.
Liability to Redeem Common Units. On December 14, , the Company entered into an amendment to the August 10, agreement. The Company evaluated this obligation under ASC Topic , Distinguishing Liabilities from Equity, and recorded a liability related to the obligation to redeem the Ben Common Units by transferring assets with a corresponding reduction in Ben Common Units. The Company also agreed to pay interest on this outstanding liability on a semi-annual basis at a rate of 1-month LIBOR plus 3.
No amount of this accrued interest was paid during the year ended December 31, ; however, the accrued interest and principal were paid in full during the year ended December 31, The liability to redeem Common Units was paid in full in November including all accrued interest. Interest Commitment. The Company does not have an obligation to repurchase or redeem the Ben Common Units held by the Exchange Trusts.
Accrued interest on this commitment is reflected in other liabilities. No amount of accrued interest has been paid through December 31, Commercial Loan Agreement. The principal amount under the Commercial Loan Agreement bears interest at 5. From and after the Final Closing Date, one-half of the interest, or 2. The effective interest rate for the year ended December 31, on the Commercial Loan Agreement from the Final Closing Date is approximately 7. The Commercial Loan Agreement contains covenants including limitations on the amount of additional indebtedness senior in right of payment, delivery of audited financial statements within 60 days of year-end, and unaudited quarterly financial statements within 25 days of each quarter-end other than the fourth quarter.
As of December 31, , the Company was in compliance with the covenants related to the Commercial Loan Agreement. Exchangeable Note. The Exchangeable Note accrued interest at a rate of Interest was payable in cash on the earlier to occur of the maturity date or the Final Closing Date; provided that Ben could, at its option, add to the outstanding principal balance under the Commercial Loan Agreement, the accrued interest in lieu of payment in cash of such accrued interest thereon at the Final Closing Date or, if earlier, the maturity date of the Exchangeable Note.
The principal amount of the Exchangeable Note was payable in cash on August 10, In the event the Final Closing Date occurred prior to the maturity date, Ben could, at its option, pay the accrued interest on the Exchangeable Note in the form of Ben Common Units or in the form of a promissory note providing for a term of up to two years and cash interest payable semi-annually at the rate of 5. Maturities of principal on the Commercial Loan Agreement and the other borrowings described in Note 15 for the next five years are as follows:.
Senior Credit Agreement. The advance commitment period expired on January 19, and no further borrowings were made by the Company or other related entities. Through December 31, , Ben has paid all interest due under the Loan Agreement. Voluntary prepayments of the outstanding principal are allowed subject to a prepayment premium equal to the product of x 3.
The aggregate prepayment premium is capped at an amount equal to 1. A prepayment premium is not due on prepayments sourced from the proceeds of cash distributions from the eligible underlying investments. In March , the Loan Agreement was amended to include an additional mandatory prepayment clause.
The Loan Agreement contains standard provisions, including customary covenants and events of default and termination, including cross-default provi sions. As of December 31, , the Company was in compliance with all covenants in this agreement excep t for certain covenants related to providing financial statements and information related to the eligible underlying investments by a specified date.
Subsequent to December 31, but before these consolidated financial statements were issued, the Loan Agreement covenants were amended whereby the Company is in compliance with all such covenants. The Loan Agreement had a scheduled maturity of December 31, Both extensions were made under substantially the same terms as the original agreements, other than the additional mandatory prepayment clause described above for the Loan Agreement.
Second Lien Credit Agreement. Ben agreed instead to provide the early liquidity in the form of a note issued by BCC on terms no more favorable to BHI than the terms of the Loan Agreement described above. The promissory note required that within 30 days of execution or such later date as BHI may agree that the parties enter into a credit agreement evidencing a secured credit facility consistent with the terms and provisions of the Loan Agreement.
Such credit agreement was finalized in May Prior to the execution of the credit agreement, BHI approved the extension of the maturity date of this debt to June 30, A prepayment premium is not due on prepayments sourced from the proceeds of cash distributions from the underlying collateral. Through December 31, , no prepayments have been required or voluntarily made on the Second Lien Credit Agreement. Prior to the assignment to HCLP Nominees, the Second Lien Credit Agreement was classified as debt due to related parties on the consolidated statements of financial condition.
Following the assignment to HCLP Nominees, the Second Lien Credit Agreement is now classified as other borrowings on the consolidated statements of financial condition. The Second Lien Credit Agreement contains standard provisions, including customary covenants and events of default and termination, including cross-default pro visions. As of December 31, , the Company was in compliance with all cove nants in this agreement except for certain covenants related to providing financial statements and information related to the eligible underlying investments by a specified date.
Subsequent to December 31, but before these consolidated financial statements were issued, the Second Lien Credit Agreement covenants were amended whereby the Company is in compliance with all such covenants. Additionally, the lender relinquished its security position resulting in this debt becoming subordinated. The credit agreement executed in May provides for a June 30, maturity date but allows for further extensions at the discretion of the lender, if requested by Ben, through March 31, There were no interest payments made under the promissory note during During the fourth quarter of , a waiver was received from the lender in order to obtain their consent to the change-in-control of Ben as a result of the transaction described in Note 7.
The awards are generally non-transferable. The awarded BMP Equity Units were primarily fully vested upon grant date, though some of the awards are subject to service-based vesting of a four-year period from the date of hire. Expense associated with the vesting of these awards is based on the fair value of the BMP Equity Units on the date of grant.
As of December 31, , compensation cost has been recognized for the granted awards using the straight-line method over the requisite service period. The remaining unrecognized compensation cost for granted awards will be recognized prospectively over the remaining requisite service period, on a straight-line basis using the graded vesting method and forfeitures will be accounted for at the time that such forfeitures occur.
As of December 31, , a total of Of this amount, 8. All awards are classified in equity upon issuance. The remaining 6. This cost is expected to be recognized over a weighted average period of 3. In , the fair value of the BMP Equity Units was determined on the grant-date using a probability-weighted discounted cash flow analysis. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy.
The resultant probability-weighted cash flows were then discounted using a rate that reflects the uncertainty surrounding the expected outcomes, which the Company believes is appropriate and representative of a market participant assumption. Ben Equity Incentive Plan. In , initial awards were granted under the Ben Equity Incentive Plan. All awards are subject to two performance conditions. The first performance condition pertains to entry into certain transactions with GWG Holdings prior to July 1, This performance condition was met on April 26, by the transaction described in Note 5.
The second performance condition pertains to entry into an exchange agreement with GWG Holdings. This performance condition was met on December 31, by the transaction described in Note 7. Additionally, if a change-of-control event occurs prior to July 1, , then all units, vested and unvested, will settle within 60 days. For the REUs awarded under the Ben Equity Incentive Plan, expense associated with the vesting of these awards will be based on the fair value of the Ben Common Units on the date of grant.
Expense will be recognized when it is probable that the performance conditions will be met. A cumulative catch up of expense will be recognized for the portion of granted awards once the performance conditions are met. As of December 31, , a total of 6.
Of this amount, 2. The remaining 4. This cost is expected to be recognized over a weighted-average period of 1. In , the fair value of the Ben Common Units was estimated on the grant date using recent equity transactions involving third parties, which provided the Company with observable fair value information sufficient for estimating the grant date fair value.
Preferred Equity. Accounting for services provided to the Company but paid by a principal shareholder follows the substance of the transaction and is therefore accounted for similar to a share-based payment in exchange for services rendered. The awards vest upon grant, subject to a performance condition whereby each of the directors must be a board member at the time that a certain level of additional capital is raised.
Expense will be recognized and allocated to certain non-controlling interest holders at the time the performance condition is considered probable, which will be when the necessary additional capital is obtained. This expense will be directly allocated to the Preferred Series A Subclass 1 Unit Account holders, on a pro-rata basis based on their capital account balance when it is recognized.
The performance condition was not met as of December 31, Below is a description of the outstanding classes of the equity of the Company, including quasi-equity amounts that are required to be reported as temporary equity between the liabilities and equity sections on the consolidated statements of financial condition.
All equity interests are limited partnership interests. Common Units. As of December 31, and December 31, , Ben had a total of 44,, and 45,, Common Units issued and outstanding, respectively. Noncontrolling Interests:. BCH, a consolidated subsidiary of Ben, had non-unitized equity outstanding as of December 31, and December 31, The Preferred Series A Subclass 1 Unit accounts are non-participating and convertible on a dollar basis. The 4th Amended and Restated LPA also instituted a quarterly preferred return rate cap, which is further described below.
Beginning June 1, , the Preferred Series A Subclass 1 Unitholders agreed to temporarily reduce the preferred return rate. On March 31, , Preferred Series A Subclass 1 Unit Account holders signed an agreement to forbear the right to receive an annualized preferred return in excess of a rate determined materially consistent with the methodology below until the earlier of December 31, or three months following the issuance of the limited trust association charters by the Texas Department of Banking.
The charters from the Texas Department of Banking were not issued as of December 31, Therefore, the income allocation methodology for was as follows:. Annualized revenues are defined as four times the sum of total quarterly interest, fee and dividend income plus total noninterest revenues. This quarterly rate cap is defined as follows:. The weighted average preferred return rate for the year ended December 31, , the seven months ended December 31, , and the five months ended May 31, was approxim ately 2.
No amounts have been paid to the Preferred Series A Subclass 1 Unit Account holders related to the preferred return from inception through December 31, , and any amounts earned have been accrued and are included in the balance of redeemable noncontrolling interests presented on the consolidated statements of financial condition. Additionally, effective December 31, , if the Preferred Series A Subclass 1 Unit Accounts have not been converted, they will redeem for cash in an amount equal to the then outstanding capital account balance of the accounts.
The 4th Amended and Restated LPA of BCH also included certain limitations of BCH, without the consent of a majority-in-interest of the Preferred Series A Unit Account holders, to i issue any new equity securities and ii except as otherwise provided, incur indebtedness that is senior to or pari passu with any right of distribution, redemption, repayment, repurchase or other payments relating to the Preferred Series A Unit accounts.
The Preferred Series A Subclass 1 Unit Accounts are recorded on the consolidated statements of financial condition in the redeemable noncontrolling interest line item. Class S Ordinary Units. The Class S Ordinary Units participate on an as-converted basis pro-rata in the share of the profits or losses of BCH and subsidiaries following all other allocations made by BCH and its subsidiaries. The Class S Ordinary Units are exchangeable for Common Units in Ben on a one-for-one basis, subject to customary conversion rate adjustments for splits, distributions and reclassifications, as well as compliance with any applicable vesting and transfer restrictions.
The Class S Ordinary Units are recorded on the consolidated statements of financial condition in the noncontrolling interests line item. Class S Preferred Units. The Class S Preferred Units are entitled to a quarterly preferred return based on a fraction i the numerator of which is A the positive percentage rate change, if any, to the seasonally adjusted CPI-U covering the period from the date of the last allocation of profits to such holders, plus B 0. The Class S Preferred Units also participate on an as-converted basis pro-rata in the share of the profits or losses of BCH and subsidiaries following all other allocations made by BCH and its subsidiaries.
As of December 31, , 0. No amounts have been paid to the Class S Preferred Unit holders related to the preferred return from inception through December 31, a nd any amounts earned have been accrued and are included in the balance of Class S Preferred Units presented on the consolidated statements of financial condition. The Class S Preferred Units are recorded on the consolidated statements of financial condition in the noncontrolling interests line item.
The net service fee revenue interest for an entity is equal to the total revenues of the entity multiplied by the lower of i x the EBITDA of the entity divided by the total revenues of the entity not less than zero minus y 0. Amounts allocated to the FLP Unit Accounts are reinvested equally in additional Class S Ordinary Units and Class S Preferred Units on a quarterly basis at a price equal to the book value if the units are not listed on a national securities exchange or, if the units are listed on a national securities exchange, the closing price of the units on such exchange on the date of allocation, thereby creating additional Class S Ordinary Units and Class S Preferred Units.
In the event BCH is sold or liquidated, following distribution of proceeds to any outstanding non-participating convertible unit accounts, Class S Preferred Units, Class S Ordinary Units and Class A Units to the extent of the balance of their capital accounts, remaining distributions will include distributions to the FLP Unit Accounts reflecting in substantial economic part the profits interests and net revenue interests otherwise applicable to the FLP Unit Accounts.
Residual Beneficiaries in the Collective Trusts. Prior to the changes made to certain trust agreements that resulted in the deconsolidation of certain of the trusts included in the ExAlt Plan TM that previously were consolidated entities of Ben, each of the eight Collective Trusts included in the ExAlt Plan TM had one or more beneficiaries and a residual beneficiary.
The other beneficiaries of the Collective Trusts were principally the Funding Trusts with each Funding Trust entitled to receive proceeds from its designated Collective Trust sufficient for the Funding Trust to satisfy any loan amounts due to Ben. The residual beneficiary of each Collective Trust was entitled to any remaining distributions from the Collective Trusts once all amounts owed to the other beneficiaries have been satisfied.
Through the date of changes to the trust agreements that led to deconsolidation, the residual beneficiaries of the eight Collective Trusts were unrelated charity organizations. The residual beneficiaries account balances cannot be reduced to below zero. The residual beneficiaries in the Collective Trusts are recorded on the consolidated statements of financial condition in the noncontrolling interests line item as of December 31, The trusts related to the residual beneficiaries were deconsolidated on December 31, , and thus there are no amounts reflected on our consolidated statement of financial condition as of December 31, The components of income tax expense benefit for the year ended December 31, , the seven months ended December 31, and the five months ended May 31, are as follows:.
Income tax expense differs from the amounts computed by applying the Federal statutory rate to pre-tax income loss. The components of gross deferred tax assets and gross deferred tax liabilities as of December 31, and are as follows included in other assets :. There were no state net operating loss carryforwards as of December 31, and The Company does not have any significant uncertain tax positions as of December 31, and and both tax years remain subject to examination by major tax jurisdictions.
Fair Value Measurements. Fair value is estimated based on a hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs are inputs that reflect the assumptions that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. The fair value hierarchy prioritizes the inputs to valuation techniques into three broad levels whereby the highest priority is given to Level 1 inputs and the lowest to Level 3 inputs.
Financial instruments on a recurring basis. The following is a description of the valuation methodologies used for financial instruments measured at fair value on a recurring basis:. Investment in public equity security. The fair value of the investments in public equity securities was determined using quoted market prices. Investments in senior beneficial interests. The investments in senior beneficial interests accounted for as equity securities were fair valued using industry-standard valuation models.
The unrealized impact of this Level 3 measurement on earnings is reflected in investment income loss. Repurchase options. Repurchase options were fair valued using a Black-Scholes option pricing model with a time-dependent strike price for the repurchase price.
The option pricing model has assumptions related to a period of restricted exercise price, dividend yield, underlying NAVs, alternative asset growth rates, volatilities, and market discount rate. The Company uses Level 3 inputs for its fair value estimates. Contingent consideration. In instances where reliable market information was not available, management used assumptions in an effort to determine a reasonable fair value. The impact of this Level 3 measurement on earnings is reflected in other expenses.
The contingent consideration balance is recorded in other liabilities. The following tables show the changes in Level 3 assets and liabilities measured at fair value on a recurring basis:. There have been no transfers between levels for any assets or liabilities recorded at fair value on a recurring basis or any changes in the valuation techniques used for measuring the fair value as of December 31, and December 31, Successor. Financial instruments on a non-recurring basis. There were no assets or liabilities measured at fair value on a non-recurring basis as of December 31, Carrying amounts and estimated fair values.
Ben is required to disclose the estimated fair value of financial instruments, whether or not recognized in the consolidated statements of financial condition, for which it is practicable to estimate those values. These fair value estimates are made based on relevant market information and information about the financial instruments. Fair value estimates are intended to represent the price at which an asset could be sold or the price at which a liability could be settled.
Changes in assumptions could significantly affect the estimated values. Nonfinancial instruments are excluded from disclosure requirements. The following methods and assumptions were used by Ben in estimating its fair value disclosures for each class of financial instruments:.
Fees Receivable: The carrying value of fees receivable generally approximates fair value. Loans Receivable : The loan portfolio was valued based on current guidance which defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. Due to and Due from Unconsolidated Affiliates and Trusts: The carrying value of cash due from unconsolidated affiliates and trusts approximates fair value because of the relatively short period of time between their origination and realization.
Option Agreement: The carrying value of liability related to the participating option equity contract generally approximates fair value as the liability represents the dollar amount as of the balance sheet date of Common Units that will be issued when the holder exercises the option. Other Borrowings and Debt Due to Related Parties: The measurement of the fair values of these debt instruments are based on market prices that generally are observable for similar liabilities at commonly quoted intervals and are considered a Level 2 fair value measurement.
Commercial Loan from Parent: The measurement of the fair value of this debt instrument is based on market prices that generally are observable for similar liabilities at commonly quoted intervals and is considered a Level 2 fair value measurement. Relationship with Beneficient Management Counselors, L. In the event of a tie vote of the Nominating Committee on a vote for the removal of a director, the Chairman of the Nominating Committee may cast the tie-breaking vote.
Bradley Capital is a Related Entity. Ben is also required to reimburse Bradley Capital for out-of-pocket expenses incurred by Bradley Capital employees, including reimbursement for private travel including the family members of designated executives of Bradley Capital for both business and personal use. We regret that due to local restrictions we can not comply with your request. Thank you for your understanding.
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