J.G. Wentworth Co - FORM 10-Q - May 11, 2015

Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - J.G. Wentworth CoFinancial_Report.xls
EX-31.1 - EXHIBIT 31.1 - J.G. Wentworth Cojgw33115exhibit311.htm
EX-32.1 - EXHIBIT 32.1 - J.G. Wentworth Cojgw33115exhibit321.htm
EX-31.2 - EXHIBIT 31.2 - J.G. Wentworth Cojgw33115exhibit312.htm
EX-32.2 - EXHIBIT 32.2 - J.G. Wentworth Cojgw33115exhibit322.htm

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
 
ý      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2015
 
Or
 
o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                        to                       
 
Commission File Number: 001-36170
 
THE J.G. WENTWORTH COMPANY
(Exact name of registrant as specified in its charter)
 
Delaware
 
46-3037859
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
201 King of Prussia
Road, Suite 501
Radnor, Pennsylvania
 
19087
(Address of principal executive offices)
 
(Zip Code)
 
(484) 434-2300
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ý  Yes  o  No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  ý  Yes  o  No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer      o
Accelerated filer      x
Non-accelerated filer      o
Smaller reporting company   o
 
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). o  Yes  ý  No 

The number of shares of the registrant’s Class A common stock, par value $0.00001 per share, outstanding was 14,061,734 as of May 8, 2015. The number of shares of the registrant’s Class B common stock, par value $0.00001 per share, outstanding was 10,661,388 as of May 8, 2015.
 



TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

 This Quarterly Report on Form 10-Q contains forward-looking statements which reflect management’s expectations regarding our future growth, results of operations, operational and financial performance and business prospects and opportunities. These forward looking statements are within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, are forward-looking statements. You can identify such statements because they contain words such as ‘‘plans,’’ ‘‘expects’’ or ‘‘does expect,’’ ‘‘budget,’’ ‘‘forecasts,’’ ‘‘anticipates’’ or ‘‘does not anticipate,’’ ‘‘believes,’’ ‘‘intends,’’ and similar expressions or statements that certain actions, events or results ‘‘may,’’ ‘‘could,’’ ‘‘would,’’ ‘‘might,’’ or ‘‘will,’’ be taken, occur or be achieved. Although the forward-looking statements contained in this Quarterly Report on Form 10-Q reflect management’s current beliefs based upon information currently available to management and upon assumptions which management believes to be reasonable, actual results may differ materially from those stated in or implied by these forward-looking statements.

Forward-looking statements necessarily involve significant known and unknown risks, assumptions and uncertainties that may cause our actual results, performance and opportunities in future periods to differ materially from those expressed or implied by such forward-looking statements. Although we have attempted to identify important risk factors that could cause actual actions, events or results to differ materially from those described in or implied by our forward-looking statements, a number of factors could cause actual results, performance or achievements to differ materially from the results expressed or implied in the forward-looking statements. We cannot assure you that forward-looking statements will prove to be accurate, as actual actions, results and future events could differ materially from those anticipated or implied by such statements.

These forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q and except for our ongoing obligations to disclose material information under the federal securities laws, we undertake no obligation to publicly revise any forward-looking statements to reflect circumstances or events after the date of this Quarterly Report on Form 10-Q, or to reflect the occurrence of unanticipated events. These factors should be considered carefully and readers should not place undue reliance on forward-looking statements. You should, however, review the factors and risks we describe in the reports we file from time to time with the Securities and Exchange Commission after the date of this Quarterly Report on Form 10-Q. As set forth more fully under “Part 2, Item 1A. ‘Risk Factors’” in this Quarterly Report on Form 10-Q, these risks and uncertainties include, among other things:

•
our ability to implement our business strategy;
•
our ability to continue to purchase structured settlement payments and other assets;
•
the compression of the yield spread between the price we pay for and the price at which we sell assets due
to changes in interest rates and/or other factors;
•
changes in tax or accounting policies or changes in interpretation of those policies as applicable to our business;
•
changes in current tax law relating to the tax treatment of structured settlements;
•
our ability to complete future securitizations or other financings on beneficial terms;
•
our dependence on the opinions of certain rating agencies;
•
our dependence on outside parties to conduct our transactions including the court system, insurance
companies, outside counsel, delivery services and notaries;
•
our ability to remain in compliance with the terms of our substantial indebtedness;
•
changes in existing state laws governing the transfer of structured settlement payments or the interpretation
thereof;
•
availability of or increases in the cost of our financing sources relative to our purchase discount rate;
•
changes to state or federal, licensing and regulatory regimes;
•
unfavorable press reports about our business model;
•
our dependence on the effectiveness of our direct response marketing;
•
adverse judicial developments;
•
our ability to successfully enter new lines of business and broaden the scope of our business;
•
potential litigation and regulatory proceedings;
•
changes in our expectations regarding the likelihood, timing or terms of any potential acquisitions described
herein;
•
the lack of an established market for the subordinated interest in the receivables that we retain after a
securitization is executed;
•
the impact of the March 2014 and April 2015 Consumer Financial Protection Bureau inquiries and any findings or regulations it issues as related to us, our industries, or products in general;
•
our dependence on a small number of key personnel;



•
our exposure to underwriting risk;
•
our access to personally identifiable confidential information of current and prospective customers and the
improper use or failure to protect that information;
•
our computer systems being subject to security and privacy breaches;
•
the public disclosure of the identities of structured settlement holders;
•
our business model being susceptible to litigation;
•
the insolvency of a material number of structured settlement issuers; and
•
infringement of our trademarks or service marks.



PART I. FINANCIAL INFORMATION 

Item 1.   Financial Statements

1

The J.G. Wentworth Company
Condensed Consolidated Balance Sheets


 
March 31, 2015
 
December 31, 2014
 
(Unaudited)
 
 
 
(In thousands, except share and per share data)
ASSETS
 

 
 

Cash and cash equivalents
$
113,859

 
$
41,648

Restricted cash and investments
204,258

 
198,206

VIE finance receivables, at fair market value (1)
4,548,808

 
4,422,033

Other finance receivables, at fair market value
33,900

 
101,802

VIE finance receivables, net of allowances for losses of $8,184 and $7,674, respectively (1)
113,155

 
113,489

Other finance receivables, net of allowances for losses of $2,219 and $2,454, respectively
16,612

 
17,803

Other receivables, net of allowances for losses of $204 and $204, respectively
12,073

 
14,165

Fixed assets, net of accumulated depreciation of $6,520 and $5,976, respectively
4,119

 
3,758

Intangible assets, net of accumulated amortization of $20,720 and $20,273 respectively
44,989

 
45,436

Goodwill
84,993

 
84,993

Marketable securities
100,348

 
103,419

Deferred tax assets, net
2,395

 
2,170

Other assets
31,584

 
33,787

Total Assets
$
5,311,093

 
$
5,182,709

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Accounts payable
$
6,626

 
$
5,301

Accrued expenses
17,944

 
13,955

Accrued interest
18,107

 
17,416

VIE derivative liabilities, at fair market value
80,417

 
75,706

VIE borrowings under revolving credit facilities and other similar borrowings
38,715

 
19,339

VIE long-term debt
180,127

 
181,558

VIE long-term debt issued by securitization and permanent financing trusts, at fair market value
4,144,251

 
4,031,864

Term loan payable
437,932

 
437,183

Other liabilities
7,073

 
6,677

Deferred tax liabilities, net
33,765

 
36,656

Installment obligations payable
100,348

 
103,419

Total Liabilities
5,065,305

 
4,929,074

Class A common stock, par value $0.00001 per share; 500,000,000 shares authorized, 15,025,457 and 14,143,434 issued and outstanding as of March 31, 2015, respectively, 15,021,147 and 14,420,392 issued and outstanding as of December 31, 2014, respectively.
—

 
—

Class B common stock, par value $0.00001 per share; 500,000,000 shares authorized, 9,945,477 issued and outstanding as of March 31, 2015, 9,963,750 issued and outstanding as of December 31, 2014, respectively.
—

 
—

Class C common stock, par value $0.00001 per share; 500,000,000 shares authorized, 0 issued and outstanding as of March 31, 2015 and December 31, 2014, respectively.
—

 
—

Additional paid-in-capital
95,658

 
95,453

Retained earnings
24,289

 
25,634

 
119,947

 
121,087

Less: treasury stock at cost, 882,023 and 600,755 shares as of March 31, 2015 and December 31, 2014, respectively.
(3,838
)
 
(2,443
)
Total stockholders’ equity, The J.G. Wentworth Company
116,109

 
118,644

Non-controlling interests
129,679

 
134,991

Total Stockholders’ Equity
245,788

 
253,635

Total Liabilities and Stockholders’ Equity
$
5,311,093

 
$
5,182,709

(1) Pledged as collateral to VIE credit and long-term debt facilities. See Note 6 “VIE and Other Finance Receivables, at Fair Market Value” and Note 7 “VIE and Other Finance Receivables, net of Allowance for Losses”.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2
The J.G. Wentworth Company
Condensed Consolidated Statements of Operations (Unaudited)



 
 
 
Three Months Ended 
 March 31,
 
 
2015
 
2014
 
 
(In thousands, except share and per share data)
REVENUES
 
 

 
 

Interest income
 
$
44,392

 
$
47,822

Unrealized gains on VIE and other finance receivables, long-term debt and derivatives
 
39,421

 
87,311

Loss on swap terminations, net
 
(275
)
 
(574
)
Servicing, broker, and other fees
 
881

 
1,142

Realized and unrealized gains on marketable securities, net
 
1,830

 
889

Gain on extinguishment of debt
 
593

 
—

Other
 
(12
)
 
—

Total Revenues
 
$
86,830

 
$
136,590

 
 
 
 
 
EXPENSES
 
 

 
 

Advertising
 
$
15,840

 
$
17,493

Interest expense
 
48,835

 
51,230

Compensation and benefits
 
12,798

 
9,286

General and administrative
 
4,639

 
4,470

Professional and consulting
 
4,438

 
3,444

Debt issuance
 
2,749

 
3,001

Securitization debt maintenance
 
1,496

 
1,557

Provision for losses on finance receivables
 
1,339

 
1,091

Depreciation and amortization
 
991

 
1,081

Installment obligations expense, net
 
2,320

 
1,492

Total Expenses
 
$
95,445

 
$
94,145

Income (loss) before income taxes
 
(8,615
)
 
42,445

Provision (benefit) for income taxes
 
(3,155
)
 
7,912

Net Income (Loss)
 
$
(5,460
)
 
$
34,533

Less net income (loss) attributable to non-controlling interests
 
(4,115
)
 
25,511

Net income (loss) attributable to The J.G. Wentworth Company
 
$
(1,345
)
 
$
9,022


 
 
Three Months Ended 
 March 31, 2015
 
Three Months Ended March 31, 2014
Weighted average shares of Class A common stock outstanding:
 
 

 
 

Basic
 
14,271,842

 
11,641,617

Diluted
 
14,271,842

 
11,642,283

 
 
 
 
 
Net income (loss) per share attributable to stockholders of Class A common stock of The J.G. Wentworth Company
 
 

 
 

Basic
 
$
(0.09
)
 
$
0.77

Diluted
 
$
(0.09
)
 
$
0.77


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

The J.G. Wentworth Company
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)



 
 
Three Months Ended March 31,
 
2015
 
2014
 
(In thousands)
Net income (loss)
$
(5,460
)
 
$
34,533

Other comprehensive gain:
 

 
 

Unrealized gains on notes receivable arising during the year
—

 
404

Total other comprehensive gain
—

 
404

Total comprehensive income (loss)
(5,460
)
 
34,937

Less: comprehensive income (loss) allocated to non-controlling interests
(4,115
)
 
25,756

Comprehensive income (loss) attributable to The J.G. Wentworth Company
$
(1,345
)
 
$
9,181

 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


4
The J.G. Wentworth Company
Condensed Consolidated Statement of Changes in Stockholders’ Equity (Unaudited)



 
(In thousands, except share data)
 
 
 
Non- controlling Interests
 
Retained 
Earnings 

 
Additional Paid-In-
Capital
 
Treasury Stock
 
Common Stock-Class A
 
Common Stock-Class B
 
Total Stockholders’ Equity
 
 
 
 
 
Shares
 
Dollars
 
Shares
 
Dollars
 
Shares
 
Dollars
 
Balance as of December 31, 2014
 
$
134,991

 
$
25,634

 
$
95,453

 
600,755

 
$
(2,443
)
 
14,420,392

 
$
—

 
9,963,750

 
$
—

 
$
253,635

Net loss
 
(4,115
)
 
(1,345
)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(5,460
)
Share-based compensation
 
205

 
—

 
205

 
—

 
—

 
4,310

 
—

 
(18,273
)
 
—

 
410

Repurchases of Class A common stock
 
(1,402
)
 
—

 
—

 
281,268

 
(1,395
)
 
(281,268
)
 
—

 
—

 
—

 
(2,797
)
Balance as of March 31, 2015
 
$
129,679

 
$
24,289

 
$
95,658

 
882,023

 
$
(3,838
)
 
14,143,434

 
$
—

 
9,945,477

 
$
—

 
$
245,788

 
The accompany notes are an integral part of these unaudited condensed consolidated financial statements.


5
The J.G. Wentworth Company
Condensed Consolidated Statements of Cash Flows (Unaudited)



 
 
Three Months Ended March 31,
 
2015
 
2014
 
(In thousands)
Cash flows from operating activities:
 

 
 

Net income (loss)
$
(5,460
)
 
$
34,533

Adjustments to reconcile net income (loss) to net cash used in operating activities:
 

 
 

Provision for losses on finance and other receivables
1,339

 
1,091

Depreciation
544

 
389

Amortization of finance receivables acquisition costs
161

 
85

Amortization of intangibles
447

 
692

Amortization of debt issuance costs
1,884

 
1,949

Change in unrealized gains/losses on finance receivables
(36,376
)
 
(165,714
)
Change in unrealized gains/losses on long-term debt
(7,700
)
 
76,940

Change in unrealized gains/losses on derivatives
4,655

 
1,463

Purchases of finance receivables
(106,993
)
 
(100,678
)
Collections on finance receivables
128,476

 
121,641

Recoveries of finance receivables
1

 
60

Accretion of interest income
(44,445
)
 
(47,636
)
Accretion of interest expense
(11,986
)
 
(7,045
)
Gain on extinguishment of debt
(593
)
 
—

Share-based compensation expense
410

 
502

Change in marketable securities, net
(1,830
)
 
(889
)
Installment obligations expense, net
2,320

 
1,492

Deferred income taxes
(3,155
)
 
7,456

(Increase) decrease in operating assets:
 

 
 

Restricted cash and investments
(6,052
)
 
(105,430
)
Other assets
388

 
894

Other receivables
2,092

 
617

Increase (decrease) in operating liabilities:
 

 
 

Accounts payable
1,364

 
3,513

Accrued expenses
3,989

 
(7,443
)
Accrued interest
691

 
988

Other liabilities
396

 
(431
)
Net cash used in operating activities
$
(75,433
)
 
$
(180,961
)
 
The accompany notes are an integral part of these unaudited condensed consolidated financial statements.

 

6
The J.G. Wentworth Company
Condensed Consolidated Statements of Cash Flows (Unaudited) (Continued)


 
Three Months Ended March 31,
 
2015
 
2014
 
(In thousands)
Cash flows from investing activities:
 

 
 

Receipts from notes receivable
—

 
159

Purchases of fixed assets, net of sales proceeds
(905
)
 
(509
)
Net cash used in investing activities
$
(905
)
 
$
(350
)
Cash flows from financing activities:
 

 
 

Payments of equity financing costs
—

 
(463
)
Purchases of treasury stock
(2,797
)
 
—

Issuance of VIE long-term debt
216,955

 
237,793

Payments for debt issuance costs
—

 
(292
)
Repayments of long-term debt and derivatives
(84,985
)
 
(74,382
)
Gross proceeds from revolving credit facility
89,468

 
94,789

Repayments of revolving credit facilities
(70,092
)
 
(80,544
)
Issuance of installment obligations payable
999

 
—

Purchase of marketable securities
(999
)
 
—

Repayments of installment obligations payable
(6,390
)
 
(6,764
)
Proceeds from sale of marketable securities
6,390

 
6,764

Net cash provided by financing activities
$
148,549

 
$
176,901

Net increase (decrease) in cash
72,211

 
(4,410
)
Cash and cash equivalents at beginning of the period
41,648

 
39,061

Cash and cash equivalents at the end of the period
$
113,859

 
$
34,651

 
 
 
 
Supplemental disclosure of cash flow information:
 

 
 

Cash paid for interest
$
58,322

 
$
54,385

Cash paid for income taxes
$
28

 
$
4

 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


7
The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)



1. Background and Basis of Presentation
 
Organization and Description of Business Activities
 
The J.G. Wentworth Company (the "Corporation") is a Delaware holding company that was incorporated on June 21, 2013. The Corporation operates through its managing membership in The J.G. Wentworth Company, LLC ("JGW LLC"), the Corporation's sole operating asset. JGW LLC is a controlled and consolidated subsidiary of the Corporation whose sole asset is its membership interest in J.G. Wentworth, LLC. As used in these notes, the "Company" refers collectively to the Corporation, and unless otherwise stated, all of its subsidiaries.

The Company, operating through its subsidiaries and affiliates, has its principal office in Radnor, Pennsylvania. The Company provides liquidity to individuals with financial assets such as structured settlements, annuities, and lottery winnings by either purchasing these financial assets for a lump-sum payment, issuing installment obligations payable over time, or serving as a broker to other purchasers of those financial assets. The Company also provides pre-settlement funding to people with pending personal injury claims. The Company engages in warehousing and subsequent resale or securitization of these various financial assets.

Basis of Presentation
 
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and Article 10 of Regulation S-X and do not include all of the information required by GAAP for complete financial statements. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments which are necessary for a fair presentation of financial position, results of operations and cash flows for the interim periods presented. All such adjustments are of a normal, recurring nature. The results of operations for interim periods are not necessarily indicative of the results for the entire year.
 
The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and the amounts of revenues and expenses during the reporting periods. The most significant balance sheet accounts that could be affected by such estimates are variable interest entity (“VIE”) and other finance receivables, at fair market value, VIE derivative liabilities, at fair market value, VIE long-term debt issued by securitization and permanent financing trusts, at fair market value, intangible assets and goodwill. Actual results could differ from those estimates and such differences could be material. These interim financial statements should be read in conjunction with the Company’s 2014 audited consolidated financial statements that are included in its Annual Report on Form 10-K.
 
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, including those entities that are considered VIEs, and where the Company has been determined to be the primary beneficiary in accordance with Accounting Standards Codification (“ASC”) 810, Consolidation (“ASC 810”).
 
JGW LLC meets the definition of a VIE under ASC 810.  Further, the Corporation is the primary beneficiary of JGW LLC as a result of its control over JGW LLC. As the primary beneficiary of JGW LLC, the Corporation consolidates the financial results of JGW LLC and records a non-controlling interest for the economic interest in JGW LLC not owned by the Corporation. The Corporation’s and the non-controlling interests' economic interest in JGW LLC was 49.7% and 50.3%, respectively, as of March 31, 2015. The Corporation’s and the non-controlling interests' economic interest in JGW LLC was 50.2% and 49.8%, respectively, as of December 31, 2014.
 
Net income attributable to the non-controlling interests in the unaudited condensed consolidated statements of operations represents the portion of earnings attributable to the economic interest in JGW LLC held by the non-controlling holders of JGW LLC common membership interests (the "Common Interestholders"). The allocation of net income to the non-controlling interests is based on the weighted average percentage of JGW LLC owned by the non-controlling interests during the reporting period. The Corporation’s and the non-controlling Common Interestholders’ weighted average economic interests in JGW LLC for the three months ended March 31, 2015 were 49.9% and 50.1%, respectively. The Corporation’s and the non-controlling Common Interestholders’ weighted average economic interests in JGW LLC for the three months ended March 31, 2014 were 39.4% and 60.6%, respectively. The net income attributable to The J.G. Wentworth Company in the condensed consolidated statement of

8
The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


operations for the three months ended March 31, 2015 and 2014 does not necessarily reflect the Corporation’s weighted average economic interests in JGW LLC for the respective periods because the majority of the provision for income taxes was specifically attributable to the legal entity The J.G. Wentworth Company, and thus was not allocated to the non-controlling interests. For the three months ended March 31, 2015 and March 31, 2014, $(3.1) million and $7.7 million of the $(3.2) million and $7.9 million total tax provision (benefit), respectively, was specifically attributable to The J.G. Wentworth Company. Refer to Note 13 for a description of the Company's income taxes.
 
Non-controlling interests in the unaudited condensed consolidated balance sheets represents the portion of equity attributable to the non-controlling common membership interests of JGW LLC (the "Common Interests") of JGW LLC. The allocation of equity to the non-controlling interests in JGW LLC is based on the percentage owned by the non-controlling Common Interests in the entity. Refer to Note 15.
 
All material inter-company balances and transactions are eliminated in consolidation.
 
2. Business Changes and Developments
 
On March 6, 2015, the Corporation entered into a stock purchase agreement to acquire WestStar Mortgage, Inc. ("WestStar"), a residential mortgage company specializing in conforming mortgage lending ("WestStar Acquisition"), for an estimated $54 million that will be paid through a combination of cash and the issuance of the Corporation's Class A common stock with a minimum of 75% of the consideration payable in cash. The WestStar Acquisition is subject to customary closing conditions and regulatory approvals and is expected to be completed in the third quarter of 2015.
 
3. Recently Adopted Accounting Pronouncements
 
Effective January 1, 2014, the Company adopted ASU No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“ASU 2013-11”).  ASU 2013-11 requires, unless certain conditions exists, an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, similar tax loss, or a tax credit carryforward. This adoption of ASU 2013-11 did not materially impact the Company’s financial statements.
 
4. Variable Interest Entities
 
In the normal course of business, the Company is involved with various entities that are considered to be VIEs. A VIE is an entity that has either a total investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support or whose equity investors lack the characteristics of a controlling financial interest under the voting interest model of consolidation. The Company is required to consolidate any VIE for which it is determined to be the primary beneficiary. The primary beneficiary is the entity that has the power to direct those activities of the VIE that most significantly impact the VIE’s economic performance and has the obligation to absorb losses from or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company reviews all significant interests in the VIEs it is involved with including consideration of the activities of the VIEs that most significantly impact the VIEs’ economic performance and whether the Company has control over those activities. On an ongoing basis, the Company assesses whether or not it is the primary beneficiary of a VIE.
 
As a result of adopting ASC 810, the Company was deemed to be the primary beneficiary of the VIEs used to securitize its finance receivables (“VIE finance receivables”). The Company elected the fair value option with respect to assets and liabilities in its securitization VIEs as part of their initial consolidation on January 1, 2010.
 
The debt issued by the Company’s securitization VIEs is reported on the Company’s condensed consolidated balance sheets as VIE long-term debt issued by securitization and permanent financing trusts, at fair market value (“VIE securitization debt”).  The VIE securitization debt is recourse solely to the VIE finance receivables held by such special purpose entities (“SPEs”) (Note 6 and 7) and thus is non-recourse to the Company and other consolidated subsidiaries. The VIEs will continue in operation until all securitization debt is paid and all residual cash flows are collected. Most consolidated VIEs have expected lives in excess of 20 years.
 


9
The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


5. Fair Value Measurements
 
ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels are defined as follows:

•
Level 1 — inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that are accessible at the measurement date.
 
•
Level 2 — inputs to the valuation methodology include quoted prices in markets that are not active or 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 financial instrument.

•
Level 3 — inputs to the valuation methodology are unobservable, reflecting the entity’s own assumptions about assumptions market participants would use in pricing the asset or liability.
 
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Fair value is a market based measure considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity specific measure. Therefore, even when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that market participants would use in pricing the assets or liabilities at the measurement date. The Company uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The Company also evaluates various factors to determine whether certain transactions are orderly and may make adjustments to transactions or quoted prices when the volume and level of activity for an asset or liability have decreased significantly.
 
The above conditions could cause certain assets and liabilities to be reclassified from Level 1 to Level 2 or Level 3 or reclassified from Level 2 to Level 3. The inputs or methodology used for valuing the assets or liabilities are not necessarily an indication of the risk associated with the assets and liabilities.
 
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
 
For assets and liabilities measured at fair value in the unaudited condensed consolidated financial statements:
 
Marketable securities — The estimated fair value of investments in marketable securities is based on quoted market prices.
 
VIE and other finance receivables and VIE long-term debt issued by securitization and permanent financing trusts, at fair market value — The estimated fair value of VIE and other finance receivables and VIE long- term debt issued by securitization and permanent financing trusts, at fair value is determined based on a discounted cash flow model using expected future collections discounted at a calculated rate as described below.
 
For guaranteed structured settlements and annuities, the Company allocates the projected cash flows based on the waterfall of the securitization and permanent financing trusts (collectivity the “Trusts”). The waterfall includes fees to operate the Trusts (servicing fees, admin fees, etc.), note holder principal and note holder interest.  Many of the Trusts have various tranches of debt that have varying subordinations in the waterfall calculation (Note 10). The remaining cash flows, net of those obligations, are considered a residual interest which is projected to be paid to the Company as the retained interest holder.
 
The projected finance receivable cash flows used to pay the obligations of the Trusts are discounted using a calculated rate derived from the fair value interest rates of the debt in the Trusts. The fair value interest rate of the debt is derived using a swap curve and applying a calculated spread that is based on either: (i) market indices that are highly correlated with the spreads from the Company’s previous securitizations or (ii) the Company's most recent securitization if it occurs within close proximity to the reporting date. The calculated spread is adjusted for the specific attributes of the debt in the Trusts, such as years to maturity and credit grade. The debt’s fair value interest rates are applied to the projected future cash payments paid on the principal and interest to derive the debt’s fair value. The debt’s fair value interest rates are blended using the debt’s principal balance to obtain

10
The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


a weighted average fair value interest rate; this rate is used to determine the value of the finance receivables’ asset cash flows. In addition, the Company considers transformation cost and profit margin associated with its securitizations to derive the fair value of its finance receivables’ asset cash flows. The finance receivables’ residual cash flows remaining after the projected obligations of the Trusts are satisfied are discounted using a separate yield based on an assumed rating of the residual tranche (6.23% and 5.97% as of March 31, 2015 and December 31, 2014, respectively, with a weighted average life of 20 years as of both dates).
 
The residual cash flows are adjusted for a loss assumption of 0.25% over the life of the finance receivables in its fair value calculation.  Finance receivable cash flows, including the residual asset cash flows, are included in VIE and other finance receivables, at fair market value in the Company’s condensed consolidated balance sheets.  The associated debt’s projected future cash payments for principal and interest are included in VIE long-term debt issued by securitization and permanent financing trusts, at fair market value.
 
For finance receivables not yet securitized, the Company uses the calculated spreads based on market indices, while also considering transformation costs and profit margin to determine the fair value yield adjusting for expected losses and applying the residual yield for the cash flows the Company projects would make up the retained interest in a securitization.
 
For the Company’s Life Contingent Structured Settlements (“LCSS”) receivables and long-term debt issued by its related permanent financing trusts, the blended weighted average discount rate of the LCSS receivables at the time of borrowing (which occurs frequently throughout the year) is used to determine the fair value of the receivables’ cash flows.  The residual cash flows relating to the LCSS receivables are discounted using a separate yield based on the assumed rating of the residual tranche reflecting the life contingent feature of these receivables.
 
Life settlement contracts, at fair market value — The fair values of life settlement contracts are determined by reference to the transfer price of similar life settlement contracts under a discounted cash flow calculation that takes into account the net death benefit under the policy, estimated future premium payments and the life expectancy of the insured, as well as other qualitative factors regarding market participants’ assumptions. Life expectancy is determined on a policy-by-policy basis using the results of medical underwriting performed by independent agencies.
 
VIE derivative liabilities, at fair market value — The fair value of interest rate swaps is based on pricing models which consider current interest rates and the amount and timing of cash flows (Note 12).
 
Assets and liabilities for which fair value is only disclosed:
 
VIE and other finance receivables, net of allowance for losses — The fair value of structured settlement, annuity, and lottery receivables was estimated based on the present value of future expected cash flows using discount rates commensurate with the risks involved. The fair value of pre-settlement funding transactions and attorney cost financing was based on expected losses and historical loss experience associated with the respective receivables using management’s best estimates of the key assumptions regarding credit losses.
 
Other receivables, net of allowance for losses — The estimated fair value of advances receivable and certain other receivables, which are generally recovered in less than three months, is equal to the carrying amount.  The carrying value of other receivables which have expected recoverability of greater than three months, which consist primarily of a note receivable, have been estimated based on the present value of future expected cash flows using management’s best estimate of the key assumptions, including discount rates commensurate with the risks involved.
 
Installment obligations payable — Installment obligations payable are reported at contract value determined based on changes in the measuring indices selected by the obligees under the terms of the obligations over the lives of the obligations. The fair value of installment obligations payable is estimated to be equal to carrying value.
 
Term loan payable — The estimated fair value of the term loan payable is based on recently executed transactions and market price quotations obtained from third-parties (Note 11).
 
VIE borrowings under revolving credit facilities and other similar borrowings — The estimated fair value of borrowings under revolving credit facilities and other similar borrowings is based on the borrowing rates currently available to the Company for debt with similar terms and remaining maturities.
 

11
The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


VIE long-term debt — The estimated fair value of VIE long-term debt is based on fair value borrowing rates available to the Company based on recently executed transactions with similar underlying collateral characteristics, reflecting the specific terms and conditions of the debt.
 
The following table sets forth the Company’s assets and liabilities that are carried at fair value on the Company’s condensed consolidated balance sheets as of:
 
 
Quoted Prices in Active
Markets for Identical Assets
Level 1
 
Significant Other
Observable Inputs
Level 2
 
Significant
Unobservable Inputs
Level 3
 
Total at
Fair Value
 
(In thousands)
March 31, 2015:
 

 
 

 
 

 
 

Assets
 

 
 

 
 

 
 

Marketable Securities:
 

 
 

 
 

 
 

Equity securities
 

 
 

 
 

 
 

US large cap
$
38,037

 
$
—

 
$
—

 
$
38,037

US mid cap
6,232

 
—

 
—

 
6,232

US small cap
7,508

 
—

 
—

 
7,508

International
17,320

 
—

 
—

 
17,320

Other equity
3,164

 
—

 
—

 
3,164

Total equity securities
72,261

 
—

 
—

 
72,261

Fixed income securities:
 

 
 

 
 

 
 

US fixed income
19,418

 
—

 
—

 
19,418

International fixed income
1,828

 
—

 
—

 
1,828

Other fixed income
—

 
—

 
—

 
—

Total fixed income securities
21,246

 
—

 
—

 
21,246

Other securities:
 

 
 

 
 

 
 

Cash & cash equivalents
3,054

 
—

 
—

 
3,054

Alternative investments
1,494

 
—

 
—

 
1,494

Annuities
2,293

 
—

 
—

 
2,293

Total other securities
6,841

 
—

 
—

 
6,841

Total marketable securities
100,348

 
—

 
—

 
100,348

VIE and other finance receivables, at fair market value
—

 
—

 
4,582,708

 
4,582,708

Life settlements contracts, at fair market value (1)
—

 
—

 
—

 
—

Total Assets
$
100,348

 
$
—

 
$
4,582,708

 
$
4,683,056

 
 
 
 
 
 
 
 
Liabilities
 

 
 

 
 

 
 

VIE long-term debt issued by securitization and permanent financing trusts, at fair market value
$
—

 
$
—

 
$
4,144,251

 
$
4,144,251

VIE derivative liabilities, at fair market value
—

 
80,417

 
—

 
80,417

Total Liabilities
$
—

 
$
80,417

 
$
4,144,251

 
4,224,668

(1) Included in other assets on the Company’s unaudited condensed consolidated balance sheet.


12
The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


 
Quoted Prices in Active
Markets for Identical Assets
Level 1
 
Significant Other
Observable Inputs
Level 2
 
Significant
Unobservable Inputs
Level 3
 
Total at
Fair Value
 
(In thousands)
December 31, 2014
 

 
 

 
 

 
 

Assets
 

 
 

 
 

 
 

Marketable Securities:
 

 
 

 
 

 
 

Equity securities
 

 
 

 
 

 
 

US large cap
$
41,246

 
$
—

 
$
—

 
$
41,246

US mid cap
8,192

 
—

 
—

 
8,192

US small cap
7,586

 
—

 
—

 
7,586

International
14,123

 
—

 
—

 
14,123

Other equity
1,051

 
—

 
—

 
1,051

Total equity securities
72,198

 
—

 
—

 
72,198

Fixed income securities:
 

 
 

 
 

 
 

US fixed income
16,699

 
—

 
—

 
16,699

International fixed income
3,526

 
—

 
—

 
3,526

Other fixed income
27

 
—

 
—

 
27

Total fixed income securities
20,252

 
—

 
—

 
20,252

Other securities:
 

 
 

 
 

 
 

Cash & cash equivalents
6,629

 
—

 
—

 
6,629

Alternative investments
1,829

 
—

 
—

 
1,829

Annuities
2,511

 
—

 
—

 
2,511

Total other securities
10,969

 
—

 
—

 
10,969

Total marketable securities
103,419

 
—

 
—

 
103,419

VIE and other finance receivables, at fair market value
—

 
—

 
4,523,835

 
4,523,835

Life settlements contracts, at fair market value (1)
—

 
—

 
—

 
—

Total Assets
$
103,419

 
$
—

 
$
4,523,835

 
$
4,627,254

 
 
 
 
 
 
 
 
Liabilities
 

 
 

 
 

 
 

VIE long-term debt issued by securitization and permanent financing trusts, at fair market value
$
—

 
$
—

 
$
4,031,864

 
$
4,031,864

VIE derivative liabilities, at fair market value
—

 
75,706

 
—

 
75,706

Total Liabilities
$
—

 
$
75,706

 
$
4,031,864

 
4,107,570

(1) Included in other assets on the Company’s condensed consolidated balance sheet.


13
The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


The following table sets forth the Company’s quantitative information about its Level 3 fair value measurements as of:
 
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range
(Weighted Average)
 
(Dollars in thousands)
 
 
 
 
 
 
March 31, 2015
 

 
 
 
 
 
 
Assets
 

 
 
 
 
 
 
VIE and other finance receivables, at fair market value
$
4,582,708

 
Discounted cash flow
 
Discount rate
 
2.49% - 13.00% (3.49%)
Life settlement contracts, at fair market value
—

 
Model actuarial pricing
 
Life expectancy
Discount rate
 
42 to 341 months (216)
18.00% (18.00%)
Total Assets
$
4,582,708

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 

 
 
 
 
 
 
VIE long-term debt issued by securitization and permanent financing trusts, at fair market value
4,144,251

 
Discounted cash flow
 
Discount rate
 
0.92% - 12.55% (3.27%)
Total Liabilities
$
4,144,251

 
 
 
 
 
 
 
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range
(Weighted Average)
 
(Dollars in thousands)
 
 
 
 
 
 
December 31, 2014
 

 
 
 
 
 
 
Assets
 

 
 
 
 
 
 
VIE and other finance receivables, at fair market value
$
4,523,835

 
Discounted cash flow
 
Discount rate
 
2.55% - 12.60% (3.43%)
Life settlement contracts, at fair market value
—

 
Model actuarial pricing
 
Life expectancy
Discount rate
 
45 to 344 months (219)
18.00% (18.00%)
Total Assets
$
4,523,835

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 

 
 
 
 
 
 
VIE long-term debt issued by securitization and permanent financing trusts, at fair market value
4,031,864

 
Discounted cash flow
 
Discount rate
 
0.74% - 12.32% (3.16%)
Total Liabilities
$
4,031,864

 
 
 
 
 
 
 
A significant unobservable input used in the fair value measurement of all of the Company’s assets and liabilities measured at fair value using unobservable inputs (Level 3) is the discount rate. Significant increases (decreases) in the discount rate used to estimate fair value in isolation would result in a significantly lower (higher) fair value measurement of the corresponding asset or liability. An additional significant unobservable input used in the fair value measurement of the life settlement contracts, at fair value, is life expectancy. Significant decreases in the life expectancy used to estimate the fair value of life settlement contracts in isolation would result in a significantly higher fair value measurement.
 

14
The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


The changes in assets measured at fair value using significant unobservable inputs (Level 3) during three months ended March 31, 2015 and 2014 were as follows:
 
 
VIE and other 
finance receivables, 
at fair market value
 
Life settlement 
contracts, at fair 
market value
 
Notes receivable, at 
fair market value
 
Total
 
(In thousands)
Balance as of December 31, 2014
$
4,523,835

 
$
—

 
$
—

 
$
4,523,835

Total gains (losses):
 

 
 

 
 

 
 

Included in earnings / losses
36,449

 
(12
)
 
—

 
36,437

Included in other comprehensive gain
—

 
—

 
—

 
—

Purchases of finance receivables
100,446

 
—

 
—

 
100,446

Life insurance premiums paid
—

 
12

 
—

 
12

Interest accreted
39,284

 
—

 
—

 
39,284

Payments received
(117,306
)
 
—

 
—

 
(117,306
)
Transfers in and/or out of Level 3
—

 
—

 
—

 
—

Balance as of March 31, 2015
$
4,582,708

 
$
—

 
$
—

 
$
4,582,708

The amount of net gains (losses) for the period included in revenues attributable to the change in unrealized gains or losses relating to assets still held as of:
 

 
 

 
 

 
 

March 31, 2015
$
36,449

 
$
(12
)
 
$
—

 
$
36,437

 
 
 
 
 
 
 
 
Balance as of December 31, 2013
$
3,870,649

 
$
—

 
$
5,610

 
$
3,876,259

Total gains (losses):
 

 
 

 
 

 
 

Included in earnings / losses
165,714

 
—

 
—

 
165,714

Included in other comprehensive gain
—

 
—

 
404

 
404

Purchases of finance receivables
92,397

 
—

 
—

 
92,397

Life insurance premiums paid
—

 
—

 
—

 
—

Interest accreted
42,452

 
—

 
—

 
42,452

Payments received
(111,080
)
 
—

 
(159
)
 
(111,239
)
Transfers in and/or out of Level 3
—

 
—

 
—

 
—

Balance as of March 31, 2014
$
4,060,132

 
$
—

 
$
5,855

 
$
4,065,987

The amount of net gains (losses) for the period included in revenues attributable to the change in unrealized gains or losses relating to assets still held as of:
 

 
 

 
 

 
 

March 31, 2014
$
165,714

 
$
—

 
$
—

 
$
165,714

 

15
The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


The changes in liabilities measured at fair value using significant unobservable inputs (Level 3) during three months ended March 31, 2015 and 2014 were as follows:
 
 
VIE long-term debt issued 
by securitizations and 
permanent financing 
trusts, at fair market value
 
(In thousands)
Balance as of December 31, 2014
$
4,031,864

Net (gains) losses:
 

Included in earnings / losses
(8,293
)
Issuances
216,955

Interest accreted
(13,098
)
Repayments
(83,177
)
Transfers in and/or out of Level 3
—

Balance as of March 31, 2015
$
4,144,251

The amount of net (gains) losses for the period included in revenues attributable to the change in unrealized gains or losses relating to long-term debt still held as of:
 

March 31, 2015
$
(7,700
)
 
 

Balance as of December 31, 2013
$
3,431,283

Net (gains) losses:
 

Included in earnings / losses
76,940

Issuances
237,792

Interest accreted
(7,855
)
Repayments
(71,577
)
Transfers in and/or out of Level 3
—

Balance as of March 31, 2014
$
3,666,583

The amount of net (gains) losses for the period included in revenues attributable to the change in unrealized gains or losses relating to long-term debt still held as of:
 

March 31, 2014
$
76,940

 

16
The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


Realized and unrealized gains and losses included in revenues in the accompanying unaudited condensed consolidated statements of operations for the three months ended March 31, 2015 and 2014 are reported in the following revenue categories:
 
 
 
VIE and other finance 
receivables and long-
term debt
 
Life settlement 
contracts income
 
 
(In thousands)
Net gains (losses) included in revenues in the three months ended March 31, 2015
 
$
44,742

 
$
(12
)
 
 
 
 
 
Unrealized gains (losses) for the three months ended March 31, 2015 relating to assets still held as of March 31, 2015
 
$
44,149

 
$
(12
)
 
 
 
 
 
Net gains included in revenues in the three months ended March 31, 2014
 
$
88,774

 
$
—

 
 
 
 
 
Unrealized gains for the three months ended March 31, 2014 relating to assets still held as of March 31, 2014
 
$
88,774

 
$
—


The Company discloses fair value information about financial instruments, whether or not recognized at fair value in the Company’s condensed consolidated balance sheets, for which it is practicable to estimate that value. As such, the estimated fair values of the Company’s financial instruments are as follows:
 
 
 
March 31, 2015
 
December 31, 2014
 
 
(In thousands)
 
 
Estimated
Fair
Value
 
Carrying
Amount
 
Estimated
Fair
Value
 
Carrying
Amount
Financial assets:
 
 

 
 

 
 

 
 

Marketable securities
 
$
100,348

 
$
100,348

 
$
103,419

 
$
103,419

VIE and other finance receivables, at fair market value
 
4,582,708

 
4,582,708

 
4,523,835

 
4,523,835

VIE and other finance receivables, net of allowance for losses (1)
 
121,737

 
129,767

 
123,765

 
131,292

Other receivables, net of allowance for losses (1)
 
12,073

 
12,073

 
14,165

 
14,165

 
 
 
 
 
 
 
 
 
Financial liabilities:
 
 

 
 

 
 

 
 

VIE derivative liabilities, at fair market value
 
80,417

 
80,417

 
75,706

 
75,706

VIE borrowings under revolving credit facilities and other similar borrowings (1)
 
41,318

 
38,715

 
21,415

 
19,339

VIE long-term debt (1)
 
174,749

 
180,127

 
176,635

 
181,558

VIE long-term debt issued by securitization and permanent financing trusts, at fair market value
 
4,144,251

 
4,144,251

 
4,031,864

 
4,031,864

Installment obligations payable (1)
 
100,348

 
100,348

 
103,419

 
103,419

Term loan payable (1)
 
427,459

 
437,932

 
433,904

 
437,183

(1) These represent financial instruments not recorded in the condensed consolidated balance sheets at fair value.  Such financial instruments would be classified as Level 3 within the fair value hierarchy. 





17
The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


6. VIE and Other Finance Receivables, at Fair Market Value
 
The Company has elected to fair value newly originated guaranteed structured settlements in accordance with ASC 810.  Additionally, as a result of the Company including lottery winning finance receivables in its 2013-1 asset securitization, the Company also elected to fair value newly originated lottery winnings effective January 1, 2013. VIE and other finance receivables for which the fair value option was elected consist of the following:
 
 
 
March 31, 2015
 
December 31, 2014
 
 
(In thousands)
Maturity value
 
$
6,625,162

 
$
6,492,863

Unearned income
 
(2,042,454
)
 
(1,969,028
)
Net carrying amount
 
$
4,582,708

 
$
4,523,835


Encumbrances on VIE and other finance receivables, at fair market value are as follows:
 
Encumbrance
 
March 31, 2015
 
December 31, 2014
 
 
(In thousands)
VIE securitization debt (2)
 
$
4,454,054

 
$
4,357,456

$100 million credit facility (1)
 
11,406

 
2

$50 million credit facility (1)
 
—

 
—

$300 million credit facility (1)
 
15,613

 
—

$300 million credit facility (1)
 
—

 
—

$100 million permanent financing related to 2011-A (2)
 
67,735

 
64,575

Encumbered VIE finance receivables, at fair market value
 
4,548,808

 
4,422,033

Not encumbered
 
33,900

 
101,802

Total VIE and other finance receivables, at fair market value
 
$
4,582,708

 
$
4,523,835


(1) See Note 8
(2) See Note 10
 
As of March 31, 2015 and December 31, 2014, the residual cash flows from the Company’s finance receivables, at fair market value, were pledged as collateral for the Residual Term Facility (Note 9).
 
The Company is engaged to service certain finance receivables it sells to third parties. Servicing fee revenue related to those receivables are included in servicing, broker, and other fees in the Company’s unaudited condensed consolidated statements of operations and were as follows:
 
 
Three Months Ended March 31,
 
2015
 
2014
 
(In thousands)
Servicing fees
$
212

 
$
231










18
The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


7. VIE and Other Finance Receivables, net of Allowance for Losses
 
VIE and other finance receivables, net of allowance for losses consist of the following:
 
 
 
March 31, 2015
 
December 31, 2014
 
 
(In thousands)
Structured settlements and annuities
 
$
74,925

 
$
76,253

Less: unearned income
 
(48,340
)
 
(49,270
)
 
 
26,585

 
26,983

Lottery winnings
 
79,688

 
81,169

Less: unearned income
 
(23,426
)
 
(24,389
)
 
 
56,262

 
56,780

Pre-settlement funding transactions
 
57,789

 
57,886

Less: deferred revenue
 
(1,669
)
 
(1,563
)
 
 
56,120

 
56,323

Attorney cost financing
 
1,203

 
1,334

Less: deferred revenue
 
—

 
—

 
 
1,203

 
1,334

VIE and other finance receivables, gross
 
140,170

 
141,420

Less: allowance for losses
 
(10,403
)
 
(10,128
)
VIE and other finance receivables, net of allowances
 
$
129,767

 
$
131,292

 
Encumbrances on VIE and other finance receivables, net of allowance for losses are as follows:
 
Encumbrance
 
March 31, 2015
 
December 31, 2014
 
 
(In thousands)
VIE long-term debt (2)
 
$
74,526

 
$
74,973

$35.0 million pre-settlement credit facility (1)
 
31,379

 
30,423

$45.1 million long-term pre-settlement facility (2)
 
5,759

 
6,453

$2.5 million long-term facility (2)
 
1,491

 
1,640

Encumbered VIE finance receivables, net of allowances
 
113,155

 
113,489

Not encumbered
 
16,612

 
17,803

Total VIE and other finance receivables, net of allowances
 
$
129,767

 
$
131,292


(1) See Note 8
(2) See Note 9
 

19
The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


Activity in the allowance for losses for VIE and other finance receivables are as follows:
 
Structured
settlements and
annuities
 
Lottery
 
Pre-settlement
funding transactions
 
Attorney cost
financing
 
Total
 
(In thousands)
Three Months Ended March 31, 2015
 

 
 

 
 

 
 

 
 

Allowance for losses:
 

 
 

 
 

 
 

 
 

Balance as of December 31, 2014
$
(56
)
 
$
(3
)
 
$
(9,786
)
 
$
(283
)
 
$
(10,128
)
Provision for loss
(26
)
 
—

 
(1,313
)
 
—

 
(1,339
)
Charge-offs
30

 
—

 
1,036

 
—

 
1,066

Recoveries
(2
)
 
—

 
—

 
—

 
(2
)
Balance as of March 31, 2015
$
(54
)
 
$
(3
)
 
$
(10,063
)
 
$
(283
)
 
$
(10,403
)
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
(54
)
 
$
(3
)
 
$
(2,858
)
 
$
—

 
$
(2,915
)
Collectively evaluated for impairment
—

 
—

 
(7,205
)
 
(283
)
 
(7,488
)
Balance as of March 31, 2015
$
(54
)
 
$
(3
)
 
$
(10,063
)
 
$
(283
)
 
$
(10,403
)
 
 
 
 
 
 
 
 
 
 
VIE and other finance receivables, net:
 

 
 

 
 

 
 

 
 

Individually evaluated for impairment
$
26,531

 
$
56,259

 
$
322

 
$
—

 
$
83,112

Collectively evaluated for impairment
—

 
—

 
45,735

 
920

 
46,655

Balance as of March 31, 2015
$
26,531

 
$
56,259

 
$
46,057

 
$
920

 
$
129,767

 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2014
 

 
 

 
 

 
 

 
 

Allowance for losses:
 

 
 

 
 

 
 

 
 

Balance as of December 31, 2013
$
(48
)
 
$
—

 
$
(8,011
)
 
$
(283
)
 
$
(8,342
)
Provision for loss
59

 
(11
)
 
(1,139
)
 
—

 
(1,091
)
Charge-offs
14

 
7

 
974

 
—

 
995

Recoveries
(78
)
 
—

 
—

 
—

 
(78
)
Balance as of March 31, 2014
$
(53
)
 
$
(4
)
 
$
(8,176
)
 
$
(283
)
 
$
(8,516
)
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
(53
)
 
$
(4
)
 
$
(3,573
)
 
$
—

 
$
(3,630
)
Collectively evaluated for impairment
—

 
—

 
(4,603
)
 
(283
)
 
(4,886
)
Balance as of March 31, 2014
$
(53
)
 
$
(4
)
 
$
(8,176
)
 
$
(283
)
 
$
(8,516
)
 
 
 
 
 
 
 
 
 
 
VIE and other finance receivables, net:
 

 
 

 
 

 
 

 
 

Individually evaluated for impairment
$
27,026

 
$
58,721

 
$
4,424

 
$
1,478

 
$
91,649

Collectively evaluated for impairment
—

 
—

 
42,408

 
—

 
42,408

Balance as of March 31, 2014
$
27,026

 
$
58,721

 
$
46,832

 
$
1,478

 
$
134,057

 
Management makes significant estimates in determining the allowance for losses on finance receivables. Consideration is given to a variety of factors in establishing these estimates, including current economic conditions and anticipated delinquencies. Because the allowance for losses is dependent on general and other economic conditions beyond the Company’s control, it is at least reasonably possible that the estimate for the allowance for losses could differ materially from the currently reported amount in the near term.
 
The Company suspends recognizing interest income on a receivable when it is probable that the Company will be unable to collect all payments according to the contractual terms of the underlying agreement. Management considers all information available in assessing collectability. Collectability is measured on a receivable-by-receivable basis by either the present value of estimated future cash flows discounted at the effective rate, the observable market price for the receivable or the fair value of the collateral if the receivable is collateral dependent.  Large groups of smaller balance homogeneous receivables, such as pre-settlement funding transactions, are collectively assessed for collectability.
 
Payments received on past due receivables and finance receivables on which the Company has suspended recognizing revenue are applied first to principal and then to accrued interest. Additionally, the Company generally does not resume recognition of interest income once it has been suspended. As of March 31, 2015, the Company had discontinued recognition of income on pre-settlement funding transactions and attorney cost financing receivables totaling $13.0 million and $0.6 million, respectively.

20
The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


As of December 31, 2014, the Company had discontinued recognition of income on pre-settlement funding transactions and attorney cost financing receivables totaling $14.0 million and $0.6 million, respectively.
 
Pre-settlement funding transactions and attorney cost financing are usually outstanding for a period of time exceeding one year. The Company performs underwriting procedures to assess the quality of the underlying pending litigation collateral prior to making such advances. The underwriting process involves an evaluation of each transaction’s case merits, counsel track record and case concentration.
 
The Company assesses the status of the individual pre-settlement funding transactions to determine whether there are any case specific concerns that need to be addressed and included in the allowance for losses on finance receivables. The Company also analyzes pre-settlement funding transactions on a portfolio basis based on the advances’ age as the ability to collect is correlated to the duration of time the advances are outstanding.
 
The following table presents gross finance receivables related to pre-settlement funding transactions based on their year of origination:
 
Year of Origination
 
March 31, 2015
 
December 31, 2014
 
 
(In thousands)
2009
 
$
2,502

 
$
2,618

2010
 
3,965

 
4,251

2011
 
6,689

 
6,938

2012
 
8,784

 
10,687

2013
 
9,421

 
11,335

2014
 
19,507

 
22,057

2015
 
6,921

 
—

Total
 
$
57,789

 
$
57,886

 
Based on historical portfolio experience, the Company reserved for pre-settlement funding transactions and attorney cost financing $10.1 million and $0.3 million as of March 31, 2015, and $9.8 million and $0.3 million as of December 31, 2014, respectively.

The following table presents portfolio delinquency status excluding pre-settlement funding transactions and attorney cost financing as of:
 
 
30-59
Days
Past Due
 
60-89
Days
Past Due
 
Greater
than
90 Days
 
Total
Past Due
 
Current
 
VIE and Other
Finance
Receivables,
net
 
VIE and Other
Finance
Receivables, net
> 90 days
accruing
 
(In thousands)
March 31, 2015
 

 
 

 
 

 
 

 
 

 
 

 
 

Structured settlements and annuities
$
13

 
$
5

 
$
219

 
$
237

 
$
26,294

 
$
26,531

 
$
—

Lottery winnings
45

 
1

 
124

 
170

 
56,089

 
56,259

 
—

Total
$
58

 
$
6

 
$
343

 
$
407

 
$
82,383

 
$
82,790

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
 

 
 

 
 

 
 

 
 

 
 

 
 

Structured settlements and annuities
$
6

 
$
12

 
$
208

 
$
226

 
$
26,701

 
$
26,927

 
$
—

Lottery winnings
2

 
6

 
120

 
128

 
56,649

 
56,777

 
—

Total
$
8

 
$
18

 
$
328

 
$
354

 
$
83,350

 
$
83,704

 
$
—

 Pre-settlement funding transactions and attorney cost financing do not have set due dates as payment is dependent on the underlying case settling.

21
The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


8. VIE Borrowings Under Revolving Credit Facilities and Other Similar Borrowings
 
VIE borrowings under revolving credit facilities and other similar borrowings on the condensed consolidated balance sheets consist of the following:
 
 
Entity
 
March 31, 2015
 
December 31, 2014
 
 
 
(In thousands)
$100 million variable funding note facility with interest payable monthly at 9.0%, collateralized by JGW-S III, LLC's (“JGW-S III”) structured settlements receivables, 2-year revolving period with 18 months amortization period thereafter upon notice by the issuer or the note holder with all principal and interest outstanding payable no later than October 15, 2048. JGW-S III is charged monthly an unused fee of 1.00% per annum for the undrawn balance of its line of credit.
JGW-S III
 
$
6,849

 
$
—

 
 
 
 
 
 
$50 million credit facility, interest payable monthly at the rate of LIBOR plus an applicable margin (3.43% as of March 31, 2015 and 3.42% as of December 31, 2014) maturing on October 2, 2016, collateralized by JGW IV, LLC's (“JGW IV”) structured settlements and annuity receivables. JGW IV is charged monthly an unused fee of 0.50% per annum for the undrawn balance of its line of credit.
JGW IV
 
—

 
6

 
 
 
 
 
 
$300 million multi-tranche and lender credit facility with interest payable monthly as follows: Tranche A rate comprises 3.0% and either the LIBOR or the Commercial Paper rate depending on the lender (3.18% and 3.24% as of March 31, 2015 and 3.17% and 3.26% at December 31, 2014). Tranche B rate is 5.5% plus LIBOR (5.68% as of March 31, 2015, 5.67% at December 31, 2014). The facility matures on July 24, 2016 and is collateralized by JGW V, LLC's (“JGW V”) structured settlements, annuity and lottery receivables. JGW V is charged monthly an unused fee of 0.625% per annum for the undrawn balance of its line of credit.
JGW V
 
12,258

 
—

 
 
 
 
 
 
$300 million credit facility, interest payable monthly at 2.75% plus an applicable margin (2.93% as of March 31, 2015 and 2.92% at December 31, 2014), maturing on November 15, 2016, collateralized by JGW VII, LLC's (“JGW VII”) structured settlements, annuity and lottery receivables. JGW VII is charged monthly an unused fee of 0.50% per annum for the undrawn balance of its line of credit.
JGW VII
 
—

 
—

 
 
 
 
 
 
$35 million multi class credit facility with interest payable monthly as follows: Class A rate comprises the lender’s “prime rate” plus 1.00%, subject to a floor of 4.50% (4.50% as of March 31, 2015 and December 31, 2014). Class B rate comprises the Class A rate plus 1.00% (5.50% as of March 31, 2015 and December 31, 2014). The facility matures on December 31, 2015 and is collateralized by certain pre-settlement receivables. Peach One is charged monthly an unused fee of 0.50% per annum for the undrawn balance of its line of credit.
Peach One
 
19,608

 
19,333

 
 
 
 
 
 
Total VIE borrowings under revolving credit facilities and other similar borrowings
 
 
$
38,715

 
$
19,339

 
Interest expense, including unused fees, for the three months ended March 31, 2015 and 2014 related to VIE borrowings under revolving credit facilities and other similar borrowings was $2.4 million and $2.2 million, respectively.

The weighted average interest rate on outstanding VIE borrowings under revolving credit facilities and other similar borrowings as of March 31, 2015 and December 31, 2014 was 5.02% and 4.63%, respectively.
 

22
The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


9. VIE Long-Term Debt
 
The VIE long-term debt consisted of the following:
 
 
March 31, 2015
 
December 31, 2014
 
(In thousands)
PLMT Permanent Facility
$
43,667

 
$
44,277

Residual Term Facility
106,748

 
107,043

Long-Term Pre-settlement Facility
8,470

 
8,884

2012-A Facility
1,305

 
1,357

LCSS Facility (2010-C)
12,778

 
12,838

LCSS Facility (2010-D)
7,159

 
7,159

Total VIE long-term debt
$
180,127

 
$
181,558

 
PLMT Permanent Facility
 
The Company has a $75.0 million floating rate asset backed loan with interest payable monthly at one-month LIBOR plus 1.25% which is currently in a runoff mode with the outstanding balance being reduced by periodic cash collections on the underlying lottery receivables. The loan matures on October 30, 2040.
 
The debt agreement with the counterparty requires Peachtree Lottery Master Trust (“PLMT”) to hedge each lottery receivable with a pay fixed and receive variable interest rate swap with the counterparty. The swaps are recorded at fair value in VIE derivative liabilities, at fair market value on the condensed consolidated balance sheets.
 
Residual Term Facility
  
The Company has a $110.0 million Residual Term Facility (the "Residual Term Facility") collateralized by the cash flows from residual interests related to certain securitizations. Interest accrues on the notes at a rate of 7.0% per annum with interest and principal payable monthly from cash flows from these collateralized residual interests. The Residual Term Facility matures on May 15, 2021.
 
Long-Term Pre-settlement Facility
 
In 2011, the Company issued three fixed rate notes totaling $45.1 million, of which, $8.5 million and $8.9 million principal amount remains outstanding as of March 31, 2015 and December 31, 2014, respectively. Interest accrues on the notes at a rate of 9.25% per annum with interest and principal payable monthly from the cash receipts of collateralized pre-settlement funding transactions. The notes mature on June 6, 2016.

2012-A Facility
 
In December 2012, the Company issued a series of notes collateralized by structured settlements. The proceeds to the Company from the issuance of the notes were $2.5 million and interest accrues on the notes at a fixed interest rate of 9.25%. Interest and principal are payable monthly from cash receipts of collateralized structured settlement receivables. The notes mature on June 15, 2024.
 
Long-term Debt for Life Contingent Structured Settlements (2010-C & 2010-D)
 
Long-term Debt (2010-C)
 
In November 2010, the Company issued a private asset class securitization note (“2010-C”) under Rule 144A under the Securities Act of 1933, as amended (“Rule 144A”). The 2010-C bond issuance of $12.9 million is collateralized by life-contingent structured settlements. 2010-C accrues interest at 10% per annum and matures on March 15, 2039.
 

23
The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


The interest and, if available, principal payments are payable monthly from cash receipts of collateralized life-contingent structured settlements receivables.
 
Long-term Debt (2010-D)
 
In December 2010, the Company paid $0.2 million to purchase the membership interests of LCSS, LLC from JLL Partners. LCSS, LLC owns 100% of the membership interests of LCSS II, LLC, which owns 100% of the membership interests of LCSS III, LLC (“LCSS III”). In November 2010, LCSS III issued $7.2 million long-term debt (“2010-D”) collateralized by life-contingent structured settlements. 2010-D accrues interest at 10% per annum and matures on July 15, 2040.
 
The interest and, if available, principal payments are payable monthly from cash receipts of collateralized life-contingent structured settlements receivables.

Interest expense for the three months ended March 31, 2015 and 2014 related to VIE long-term debt was $4.0 million and $3.6 million, respectively.
 
10. VIE Long-term Debt Issued by Securitization and Permanent Financing trusts, at Fair Market Value
 
Securitization Debt
 
The Company elected fair value treatment under ASC 825, Financial Instruments ("ASC 825") to measure the securitization issuer debt and related finance receivables. The Company has determined that measurement of the securitization debt issued by SPEs at fair value better correlates with the value of the finance receivables held by SPEs, which are held to provide the cash flows for the note obligations. Debt issued by SPEs is non-recourse to other subsidiaries. Certain subsidiaries of the Company continue to receive fees for servicing the securitized assets which are eliminated in consolidation. In addition, the risk to the Company’s non-SPE subsidiaries from SPE losses is limited to cash reserves and residual interest amounts.

During the three months ended March 31, 2015, the Company completed one asset securitization transaction that was registered under Rule 144A. The following table summarizes this securitization SPE transaction:
 
 
2015-1
 
(Bond proceeds in $ millions)
Issue date
3/31/2015
Bond proceeds
$214.0
Receivables securitized
2,059
Deal discount rate
3.64%
Retained interest %
5.50%
Class allocation (Moody’s)
 
Aaa
85.25%
Baa2
9.25%

During the three months ended March 31, 2014, the Company also completed one asset securitization transaction that was registered under Rule 144A. The following table summarizes this securitization SPE transaction:
 

24
The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


 
2014-1
 
(Bond proceeds in $ millions)
Issue date
2/18/2014
Bond proceeds
$233.9
Receivables securitized
2,297
Deal discount rate
4.24%
Retained interest %
6.00%
Class allocation (Moody’s)
 
Aaa
85.25%
Baa2
8.75%
 
The following table summarizes notes issued by securitization trusts and permanent financing trusts as of March 31, 2015 and December 31, 2014 for which the Company elected the fair value option and which are recorded as VIE long-term debt issued by securitization and permanent financing trusts, at fair market value in the Company’s condensed consolidated balance sheets:
 
 
Outstanding
Principal as of
March 31, 2015
 
Outstanding
Principal as of
December 31, 2014
 
Fair Value as of
March 31, 2015
 
Fair Value as of
December 31, 2014
 
(In Thousands)
Securitization trusts
$
3,600,266

 
$
3,462,225

 
$
3,895,682

 
$
3,774,902

Permanent financing VIEs
249,834

 
253,955

 
248,569

 
256,962

Total VIE long-term debt issued by securitization and permanent financing trusts, at fair market value
$
3,850,100

 
$
3,716,180

 
$
4,144,251

 
$
4,031,864

 
Interest expense for the three months ended March 31, 2015 and 2014 related to VIE long-term debt issued by securitization trusts and permanent financing facilities, at fair market value, was $32.4 million and $35.5 million, respectively.

11. Term Loan Payable
 
The Company has a senior secured credit facility (the “Credit Facility”) that consists of a term loan (the “New Term Loan”) with an outstanding principal balance of $449.5 million as of March 31, 2015 and December 31, 2014, and a $20.0 million revolving commitment maturing in August 2017. Certain of the Company's subsidiaries are guarantors of the Credit Facility and substantially all of the non-securitized and non-collateralized assets of the Company are pledged as security for the repayment of borrowings outstanding under the facility. There are no principal payments due on the New Term Loan until its maturity in February 2019.
 
At each interest reset date, the Company has the option to elect that the New Term Loan be either a Eurodollar loan or a Base Rate loan. If a Eurodollar loan, interest on the New Term Loan accrues at either Libor or 1.00% (whichever is greater) plus a spread of 6.00%. If a Base Rate loan, interest accrues at prime or 2.00% (whichever is greater) plus a spread of 5.00%. As of March 31, 2015, the interest rate on the New Term Loan was 7.00%. The revolving commitment has the same interest rate terms as the New Term Loan. In addition, the revolving commitment is subject to an unused fee of 0.5% per annum and provides for the issuance of letters of credit equal to $10.0 million, subject to customary terms and fees.
 
The Credit Facility requires the Company, to the extent that as of the last day of any fiscal quarter outstanding balances on the revolving commitment exceed specific thresholds, to comply with a maximum total leverage ratio. As of March 31, 2015 and December 31, 2014, there were no outstanding borrowings under the revolving commitment and, as a result, the maximum total leverage ratio requirement was not applicable. The Credit Facility also limits the Company and certain of its subsidiaries from engaging in certain activities, including mergers and acquisitions, incurrence of additional indebtedness, incurring liens, making investments, transacting with affiliates, disposing of assets, and various other activities. In addition, the Credit Facility limits, with certain exceptions, certain of the Company’s subsidiaries from making cash dividends and loans to the Company. As

25
The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


a result, approximately $79.9 million of the Company's $253.6 million in stockholders' equity as of December 31, 2014 was free of limitations on the payment of dividends.

Interest expense relating to the New Term Loan for the three months ended March 31, 2015 and 2014 was approximately $10.0 million and $9.9 million, respectively.
 
12. Derivative Financial Instruments
 
The Company utilizes interest rate swaps to manage its exposure to changes in interest rates related to borrowings on its revolving credit facilities. Hedge accounting has not been applied to any of the Company’s interest rate swaps.
 
As of March 31, 2015, the Company did not have any outstanding interest rate swaps related to its borrowings on revolving credit facilities. However, during the three months ended March 31, 2015 and 2014, and in connection with its securitizations, the Company terminated interest rate swaps with notional values of $18.7 million and $35.0 million, respectively. The total loss on the termination of these interest rate swaps for the three months ended March 31, 2015 and 2014, was $0.3 million and $0.6 million, respectively. These losses were recorded in loss on swap terminations, net in the Company's unaudited condensed consolidated statements of operations. The unrealized loss for these swaps for the three months ended March 31, 2015 and 2014, was $0 and less than $0.1 million, respectively. These losses were recorded in unrealized gains (losses) on VIE and other finance receivables, long-term debt and derivatives in the Company’s unaudited condensed consolidated statements of operations.
 
The Company also has interest-rate swaps to manage its exposure to changes in interest rates related to its borrowings on certain VIE long-term debt issued by securitization and permanent financing trusts (Note 10). As of March 31, 2015, the Company had 8 outstanding swaps with a total notional amount of approximately $226.3 million. The Company pays fixed rates ranging from 4.50% to 5.77% and receives floating rates equal to 1-month LIBOR plus applicable margin.
 
These interest rate swaps were designed to closely match the borrowings under the respective floating rate asset backed loans in amortization. As of March 31, 2015, the term of these interest rate swaps range from approximately 7 to 21 years. For the three months ended March 31, 2015 and 2014, the amount of unrealized gain (loss) recognized was $(1.3) million and $0.4 million, respectively. These gains (losses) were recorded in unrealized gains (losses) on VIE and other finance receivables, long-term debt and derivatives in the Company’s unaudited condensed consolidated statements of operations.
 
Additionally, the Company has interest-rate swaps to manage its exposure to changes in interest rates related to its borrowings under Peachtree Structured Settlements, LLC (“PSS”), a permanent financing VIE (Note 10), and PLMT (Note 9).  As of March 31, 2015, the Company had 152 outstanding swaps with a total notional value of approximately $224.2 million. The Company pays fixed rates ranging from 4.70% to 8.70% and receives floating rates equal to 1-month LIBOR rate plus applicable margin.

The PSS and PLMT interest rate swaps were designed to closely match the borrowings under the respective floating rate asset backed loans in amortization. As of March 31, 2015, the term of the interest rate swaps for PSS and PLMT range from approximately less than 1 month to approximately 19 years. For the three months ended March 31, 2015 and 2014, the amount of unrealized losses recognized was $3.3 million and $1.9 million, respectively. These losses were included in unrealized gains (losses) on VIE and other finance receivables, long-term debt and derivatives in the Company’s unaudited condensed consolidated statements of operations.
 













26
The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


The notional amounts and fair values of interest rate swaps were as follows:
 
 
Entity
 
Securitization
 
Notional as of
March 31, 2015
 
Fair Market Value
as of
March 31, 2015
 
Notional as of
December 31, 2014
 
Fair Market Value as of
December 31, 2014
 
 
 
 
 
 
(In Thousands)
 
321 Henderson I, LLC
 
2004-A A-1
 
$
30,893

 
$
(3,171
)
 
$
32,628

 
$
(3,019
)
 
321 Henderson I, LLC
 
2005-1 A-1
 
56,033

 
(7,827
)
 
58,735

 
(7,435
)
 
321 Henderson II, LLC
 
2006-1 A-1
 
14,227

 
(1,509
)
 
15,571

 
(1,509
)
 
322 Henderson II, LLC
 
2006-2 A-1
 
18,073

 
(2,820
)
 
18,859

 
(2,718
)
 
323 Henderson II, LLC
 
2006-3 A-1
 
19,875

 
(2,547
)
 
21,361

 
(2,475
)
 
324 Henderson II, LLC
 
2006-4 A-1
 
18,815

 
(2,019
)
 
19,719

 
(2,056
)
 
325 Henderson II, LLC
 
2007-1 A-2
 
31,428

 
(5,879
)
 
32,994

 
(5,624
)
 
326 Henderson II, LLC
 
2007-2 A-3
 
36,945

 
(9,398
)
 
37,592

 
(8,966
)
 
PSS
 
—
 
172,336

 
(34,658
)
 
176,943

 
(31,807
)
 
PLMT
 
—
 
51,856

 
(10,589
)
 
52,907

 
(10,097
)
 
Total
 
 
 
$
450,481

 
$
(80,417
)
 
$
467,309

 
$
(75,706
)
 
13. Income Taxes
 
The Corporation is required to file federal and applicable state corporate income tax returns and recognizes income taxes on its pre-tax income, which to-date has consisted primarily of its share of JGW LLC’s pre-tax income. JGW LLC is organized as a limited liability company which is treated as a “flow-through” entity for income tax purposes and therefore is not subject to income taxes. As a result, the Company’s unaudited condensed consolidated financial statements do not reflect a benefit or provision for income taxes on the pre-tax income or loss attributable to the non-controlling interests in JGW LLC.
 
The Company’s overall effective tax rate was 36.6% for the three months ended March 31, 2015, as compared to an overall effective rate of 18.6% for the three months ended March 31, 2014. The effective tax rate for the Corporation for the three months ended March 31, 2015 and 2014 was 69.8% and 45.9%, respectively. The effective tax rate for JGW LLC for the three months ended March 31, 2015 and 2014 was 1.1% .

The increase in the Company's and the Corporation's effective tax rates was primarily the result of: (i) the impact of permanent differences between book and taxable income and (ii) an increase in the allocation of income (loss) from JGW LLC to the Corporation during the three months ended March 31, 2015 as compared to the three months ended March 31, 2014. The Corporation's share of JGW LLC’s income (loss) increased as a result of Common Interestholders having exchanged their Common Interests for shares of Class A common stock during the year ended December 31, 2014. The variance in effective tax rates between the two legal entities is because JGW LLC is treated as a “flow-through” entity for income tax purposes and therefore is not subject to income taxes.
 
14. Stockholders’ Equity
  
On November 14, 2013, the Corporation consummated an initial public offering ("IPO") and amended and restated its certificate of incorporation to provide for, among other things, the authorization of 500,000,000 shares of Class A common stock (the "Class A common stock"), par value $.00001 per share, 500,000,000 shares of Class B common stock (the "Class B common stock"), par value $.00001 per share, 500,000,000 shares of Class C "non-voting" common stock, par value $.00001 per share (the "Class C common stock"), and 100,000,000 shares of blank check preferred stock. Also concurrent with the consummation of the Corporation's IPO, JGW LLC merged with and into a newly formed subsidiary of the Corporation.
 
As of March 31, 2015, there were 15,025,457 shares of Class A common stock issued and 14,143,434 shares outstanding. Additionally, there were 9,945,477 shares of Class B common stock issued and outstanding, respectively, as of March 31, 2015.
 
Class A Common Stock Repurchase Program
 

27
The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


On May 2, 2014, the Company’s Board of Directors approved the repurchase of an aggregate of $15.0 million of Class A common stock (the “Stock Repurchase Program”) under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended.  Purchases under the Stock Repurchase Program may be made from time to time in open market purchases, privately negotiated transactions, accelerated stock repurchase programs, issuer self-tender offers or otherwise in accordance with applicable federal securities laws. The Stock Repurchase Program does not obligate the Company to acquire any particular amount of Class A common stock and the pace of repurchase activity will depend on factors such as levels of cash generation from operations, cash requirements for investment in the Company’s business, repayment of debt, current stock price, market conditions and other factors. The Stock Repurchase Program may be suspended, modified or discontinued at any time and has no set expiration date.
 
Since the inception of the Stock Repurchase Program, the Company has repurchased 739,973 shares of Class A common stock for an aggregate purchase price of $7.3 million. During the three months ended March 31, 2015, the Company repurchased 281,268 shares of Class A common stock for an aggregate purchase price of $2.8 million, or $9.94 per share. The repurchased shares are classified as treasury stock at cost on the Company’s condensed consolidated balance sheets.
 
Class A Common Stock
 
Holders of Class A common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Holders of Class A common stock are entitled to share ratably (based on the number of shares of Class A common stock held) if and when any dividend is declared by the Company’s board of directors. Upon dissolution, liquidation or winding up, holders of Class A common stock are entitled to a pro rata distribution of any assets available for distribution to common stockholders, and do not have preemptive, subscription, redemption or conversion rights.

Class B Common Stock
 
Shares of Class B common stock will only be issued in the future to the extent that additional Common Interests are issued by JGW LLC, in which case the Company would issue a corresponding number of shares of Class B common stock.
 
Holders of Class B common stock are entitled to ten votes for each share held of record on all matters submitted to a vote of stockholders. Holders of Class B common stock do not have any right to receive dividends and upon liquidation, dissolution or winding up and will only be entitled to receive an amount per share equal to the $0.00001 par value. Holders of Class B common stock do not have preemptive rights to purchase additional shares of Class B common stock.
 
Subject to the terms and conditions of the operating agreement of JGW LLC, each Common Interestholder has the right to exchange their Common Interests in JGW LLC together with the corresponding number of shares of Class B common stock, for shares of Class A common stock, or at the option of JGW LLC, cash equal to the market value of one share of Class A common stock.
 
Class C Common Stock
 
Holders of Class C common stock generally are not entitled to vote on any matters. Holders of Class C common stock are entitled to share ratably (based on the number of shares of Class C common stock held) if and when any dividend is declared by the Company’s board of directors. Upon dissolution, liquidation or winding up, holders of Class C common stock will be entitled to a pro rata distribution of any assets available for distribution to common stockholders (except the de minimis par value of the Class B common stock), and do not have preemptive rights to purchase additional shares of Class C common stock.
 
Subject to the terms and conditions of the operating agreement of JGW LLC, Peach Group Holdings, Inc. ("PGHI Corp.") and its permitted transferees have the right to exchange the non-voting Common Interests in JGW LLC they hold for shares of Class C common stock, or at the option of JGW LLC, cash equal to the market value of Class C common stock.
 
Each share of Class C common stock may, at the option of the holder, be converted at any time into a share of Class A common stock on a one-for-one basis.
 
Preferred Stock
 
The Company’s certificate of incorporation provides that the board of directors has the authority, without action by the stockholders, to designate and issue up to 100,000,000 shares of preferred stock in one or more classes or series and to fix the

28
The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


powers, rights, preferences, and privileges of each class or series of preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, and the number of shares constituting any class or series, which may be greater than the rights of the holders of the common stock.  No preferred stock had been issued or was outstanding as of March 31, 2015.
 
Warrants Issued to PGHI Corp.
 
In connection with the IPO and restructuring, the Class C profits interests of JGW LLC held by PGHI Corp. were cancelled and holders received in exchange warrants to purchase shares of Class A common stock. The warrants issued in respect of the Tranche C-1 profit interests of JGW LLC entitled the holders thereof to purchase up to 483,217 shares of Class A common stock and have an exercise price of $35.78 per share. The warrants issued in respect of the Tranche C-2 profits interests of JGW LLC also entitle the holders thereof to purchase up to 483,217 shares of Class A common stock and have an exercise price of $63.01 per share. All of the warrants issued are currently exercisable, terminate on January 8, 2022, and may not be transferred.
 
JGW LLC Operating Agreement
 
Pursuant to the operating agreement of JGW LLC, the holders of JGW LLC Common Interests (other than the Company) have the right, subject to terms of the operating agreement as described therein, to exchange their Common Interests and an equal number of shares of Class B common stock for an equivalent number of shares of Class A common stock, or in the case of PGHI Corp., an equivalent number of shares of Class C common stock. During the three months ended March 31, 2014, 814,190 Common Interests in JGW LLC, in addition to an equal number of shares of Class B common stock, were exchanged for 814,190 shares of the Class A common stock pursuant to the operating agreement. There were no such exchanges during the three months ended March 31, 2015.
 
Amounts Reclassified Out of Accumulated Other Comprehensive Income
 
ASU 2013-2, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income requires entities to report, either on the face of the income statement or in the notes, the effect of significant reclassifications out of accumulated other comprehensive income (“AOCI”) on the respective line items in net income if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income.  During the three months ended March 31, 2015 and 2014, there were no reclassifications out of accumulated other comprehensive income.

15.  Non-Controlling Interests
 
The Corporation consolidates the financial results of JGW LLC whereby it records a non-controlling interest for the economic interest in JGW LLC held by the Common Interestholders (see Note 2). Pursuant to an agreement between the Corporation and JGW LLC, any time the Corporation cancels, issues or repurchases shares of Class A common stock, JGW LLC cancels, issues or repurchases, as applicable, an equivalent number of Common Interests. In addition, any time Common Interestholders exchange their Common Interests for shares of Class A common stock, JGW LLC is required to transfer an equal number of Common Interests to the Corporation. Changes in the non-controlling and the Corporation's interest in JGW LLC for the three months ended March 31, 2015 are presented in the following table:
 

29
The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


 
Total Common Interests Held By:
 
The J.G. Wentworth
Company
 
Non-controlling
Interests
 
Total
 
Balance as of December 31, 2014
14,420,392

 
14,324,373

 
28,744,765

Common interests acquired by The J.G. Wentworth Company as a result of the issuance of restricted common stock
4,310

 
—

 
4,310

Common interests repurchased as a result of Class A common stock repurchased
(281,268
)
 
—

 
(281,268
)
Common interests forfeited
—

 
(18,273
)
 
(18,273
)
Balance as of March 31, 2015
14,143,434

 
14,306,100

 
28,449,534

 
The non-controlling interests include the Common Interestholders who were issued shares of Class B common stock in connection with the IPO as well as other Common Interestholders who may convert their Common Interests into 4,360,623 shares of Class C common stock.

16. Commitments and Contingencies
 
Arrangements

The Company had an arrangement (the “Arrangement”) with a counterparty for the sale of LCSS assets that met certain eligibility criteria, which expired on June 30, 2012. Pursuant to the Arrangement, the Company also had a borrowing agreement (the “Borrowing Agreement”) with the counterparty that gave the counterparty a borrowing base to draw on from the Company for the purchase of LCSS assets. As of March 31, 2015 and December 31, 2014, the amount owed from the counterparty pursuant to this Borrowing Agreement is approximately $9.8 million and $9.7 million, respectively, and is earning interest at an annual rate of 5.35% and is included in other receivables, net of allowance for losses in the Company’s condensed consolidated balance sheets.
 
The Arrangement also has put options, which expire on December 30, 2019 and 2020, that gives the counterparty the option to sell purchased LCSS assets back to the Company. The put options, if exercised by the counterparty, require the Company to purchase LCSS assets at a target internal rate of return ("IRR") of 3.5% above the original target IRR paid by the counterparty.

Tax Receivable Agreement

Common Interestholders may exchange their Common Interests for shares of Class A common stock or, in the case of PGHI Corp., shares of Class C common stock, on a one-for-one basis or, in each case, at the option of JGW LLC, cash. JGW LLC is expected to make an election under Section 754 of the Internal Revenue Code of 1986 in connection with the filing of its 2014 federal income tax return, which may result in an adjustment to the Corporation’s share of the tax basis of the assets owned by JGW LLC at the time of such initial sale of and subsequent exchanges of Common Interests. The sale and exchanges may result in increases in the Corporation’s share of the tax basis of the tangible and intangible assets of JGW LLC that otherwise would not have been available. Any such increases in tax basis are, in turn, anticipated to create incremental tax deductions that would reduce the amount of tax that the Corporation would otherwise be required to pay in the future.
 
In connection with the IPO, the Corporation entered into a tax receivable agreement with Common Interestholders who held in excess of approximately 1% of the Common Interests outstanding immediately prior to the IPO. The tax receivable agreement requires the Company to pay those Common Interestholders 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that the Company actually realizes in any tax year from increases in tax basis realized as a result of any future exchanges by Common Interestholders of their Common Interests for shares of Class A or Class C common stock (or cash). The cash savings in income tax paid to any such Common Interestholders will reduce the cash that may otherwise be available to the Corporation for operations and to make future distributions to holders of Class A common stock.
 
For purposes of the tax receivable agreement, cash savings in income tax will be computed by comparing the Corporation’s actual income tax liability for a covered tax year to the amount of such taxes that the Corporation would have been required to pay for such covered tax year had there been no increase to the Corporation’s share of the tax basis of the tangible and intangible

30
The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


assets of JGW LLC as a result of such sale and any such exchanges and had the Corporation not entered into the tax receivable agreement. The tax receivable agreement continues until all such tax benefits have been utilized or expired, unless the Corporation exercises its right to terminate the tax receivable agreement upon a change of control for an amount based on the remaining payments expected to be made under the tax receivable agreement.

Loss on Contingencies
 
In the normal course of business, the Company is subject to various legal proceedings and claims. These proceedings and claims have not been finally resolved and the Company cannot make any assurances as to their ultimate disposition. It is in management’s opinion, based on the information currently available at this time, that the expected outcome of these matters will not have a material adverse effect on the financial position, the results of operations or cash flows of the Company.


17. Share-Based Compensation
 
Under the Company’s 2013 Omnibus Incentive Plan (the “Plan”), stock options, restricted stock, restricted stock units and stock appreciation rights units may be granted to officers, employees, non-employee directors and consultants of the Company. As of March 31, 2015, 1.2 million shares of unissued Class A common stock were available for granting under this plan.

As of March 31, 2015, the Company had granted non-qualified stock options and performance-based restricted stock units to its employees and restricted stock shares to independent directors under the Plan. The Company recognizes compensation cost net of a forfeiture rate within the unaudited condensed consolidated statement of operations for only those awards expected to vest. The Company estimates the forfeiture rate based on its expectations about future forfeitures.
 
Stock Options
 
Options were granted to purchase Class A common stock at exercise prices equal to the fair market value on the date of grant, have a contractual term of ten years, and vest generally in equal annual installments over a five year period following the date of grant, subject to the holder's continued employment with the Company through the applicable vesting date.

The fair value of stock options awarded during the three months ended March 31, 2015 was estimated using the Black-Scholes valuation model with the following assumptions and weighted average fair values:
 
 
 
Three Months Ended March 31, 2015
Weighted average fair value of grant
 
$
4.79

Risk-free interest rate
 
1.63
%
Expected volatility
 
47.1
%
Expected life of options in years
 
6.5

Expected dividend yield
 
—

 
The Company recognizes share-based compensation expense for the fair value of the stock options on a straight-line basis over the requisite service period of the awards. During the three months ended March 31, 2015 and 2014, the Company recognized $0.3 million and $0.1 million of share-based compensation expense in connection with the stock options issued under the Plan, respectively.
 









31
The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


A summary of stock option activity for the three months ended March 31, 2015 is as follows:
 
 
Shares
 
Weighted -
Average
Exercise Price
 
Weighted - Average
Remaining 
Contractual
Term (in years)
 
Aggregate 
Intrinsic 
Value
(Dollars in Millions)
Outstanding as of December 31, 2014
1,376,932

 
$
11.44

 
9.44
 
$
0.1

Granted
248,000

 
9.97

 
 
 
 

Exercised
—

 
—

 
 
 
 

Forfeited
(106,437
)
 
11.01

 
 
 
 

Outstanding as of March 31, 2015
1,518,495

 
$
11.23

 
9.30
 
$
0.1

Outstanding, vested and expected to vest as of March 31, 2015
1,459,337

 
11.24

 
9.29
 
$
0.1

Vested as of March 31, 2015
73,571

 
12.46

 
8.04
 
$
—

 
The aggregate intrinsic value represents the total pre-tax value of the difference between the closing price of Class A common stock on the last trading day of the period and the exercise price of the options, multiplied by the number of in-the-money stock options that would have been received by the option holders had all the option holders exercised their options on March 31, 2015. The intrinsic value of the Company’s stock options changes based on the closing price of the Company’s stock. As of March 31, 2015, $6.6 million of total unrecognized compensation expense related to the outstanding stock options is expected to be recognized over a weighted average period of 4.3 years.

Performance-Based Restricted Stock Units
 
A summary of performance-based restricted stock units for the three months ended March 31, 2015 is as follows:
 
 
 
Performance- Based
Restricted Stock
Units
 
Weighted - Average
Grant - Date 
Fair Value
Outstanding as of December 31, 2014
 
130,250

 
$
10.60

Granted
 
124,000

 
9.97

Vested
 
—

 
—

Forfeited
 
(42,500
)
 
10.20

Outstanding as of March 31, 2015
 
211,750

 
10.31

Outstanding and expected to vest as of March 31, 2015
 
203,390

 
10.31

 
Each performance-based unit will vest into 0 to 1.5 shares of Class A common stock depending to the degree to which the performance goals are met. Compensation expense resulting from these awards is recognized ratably from the date of the grant until the date the restrictions lapse and is based on the trading price of the Class A common stock on the date of grant and the probability of achievement of the specific performance-based goals. During the three months ended March 31, 2015, the Company recognized less than $0.1 million of share-based compensation expense in connection with these performance-based units. The Company did not grant performance-based restricted stock units until May 2014, thus there was no share-based compensation recognized during the three months ended March 31, 2014.
 
The aggregate grant-date fair value of the performance-based restricted stock units granted during the three months ended March 31, 2015 was $1.2 million. As of March 31, 2015, there was $1.9 million of total unrecognized compensation cost relating to outstanding performance-based units that is expected to be recognized over a weighted average period of 2.4 years. None of the performance-based restricted stock units were vested as of March 31, 2015.
 


32
The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


Restricted Common Interests in JGW LLC
 
The following table summarizes the activities of Restricted Common Interests in JGW LLC for the three months ended March 31, 2015:
 
 
 
Restricted Common
Interests
 
Weighted - Average
Grant - Date 
Fair Value
Outstanding as of December 31, 2014
 
1,083,114

 
$
5.32

Granted
 
—

 
—

Converted into shares of Class A common stock
 
—

 
—

Forfeited
 
(18,273
)
 
2.62

Outstanding as of March 31, 2015
 
1,064,841

 
5.37

Outstanding, vested and expected to vest as of March 31, 2015
 
1,063,960

 
5.36

Vested as of March 31, 2015
 
925,971

 
4.55

 
As of March 31, 2015, there was $1.1 million of unrecognized compensation cost related to outstanding Restricted Common Interests that is expected to be recognized over a weighted average period of 2.9 years. Total share-based compensation expense recognized for the three months ended March 31, 2015 and 2014 related to the Restricted Common Interests was $0.1 million and $0.4 million, respectively.
 
18. Earnings Per Share
 
Basic earnings per share (“EPS”) measures the performance of an entity over the reporting period. Diluted EPS measures the performance of an entity over the reporting period while giving effect to all potentially dilutive common shares that were outstanding during the period.
 
In accordance with ASC 260 Earnings Per Share, all outstanding unvested share-based payments that contain rights to non-forfeitable dividends and participate in the undistributed earnings with the common stockholders are considered participating securities. The shares of Class B common stock do not share in the earnings of the Company and are therefore not considered participating securities. Accordingly, basic and diluted net earnings per share of Class B common stock have not been presented.
 
In connection with the IPO and restructuring, Class C profit interests of JGW LLC held by PGHI Corp. were exchanged for a total of 966,434 warrants to purchase shares of Class A common stock (Note 14). For the three months ended March 31, 2015 and 2014, these warrants were not included in the computation of diluted earnings (loss) per common share because they were antidilutive under the treasury stock method.
 
During the three months ended March 31, 2015 and 2014, 1,344,958 and 264,047 weighted average stock options outstanding, respectively, were not included in the computation of diluted earnings (loss) per common share because they were antidilutive under the treasury stock method. During the three months ended March 31, 2015, 125,395 weighted-average performance-based restricted stock units were antidilutive under the treasury stock method. None of the performance-based restricted stock units were outstanding during the three months ended March 31, 2014.
 
The operating agreement of JGW LLC gives Common Interestholders the right (subject to the terms of the operating agreement as described therein) to exchange their Common Interests for shares of Class A common stock on a one-for-one basis at fair value, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications. The Company applies the “if-converted” method to the Common Interests and vested Restricted Common Interests in JGW LLC to determine the dilutive weighted average shares of Class A common stock outstanding. The Company applies the treasury stock method to the unvested Restricted Common Interests and the “if-converted” method on the resulting number of additional Common Interests to determine the dilutive weighted average shares of Class A common stock outstanding represented by these interests.
 
In computing the dilutive effect that the exchange of Common Interests and Restricted Common Interests would have on EPS, the Company considered that net income (loss) attributable to holders of Class A common stock would increase due to the elimination of non-controlling interests (including any tax impact). Based on these calculations, for the three months ended

33
The J.G. Wentworth Company
Notes to the Condensed Consolidated Financial Statements (Unaudited)


March 31, 2015 and 2014, 14,167,045 and 17,128,856 weighted average Common Interest and vested Restricted Common Interests outstanding, respectively, and 154,482 and 786,488 weighted average unvested Restricted Common Interests outstanding, respectively, were antidilutive and excluded from the computation of diluted earnings (loss) per common share.

The following table is a reconciliation of the numerator and denominator used in the basic and diluted EPS calculations:
 
 
 
Three Months Ended March 31, 2015
 
Three Months Ended March 31, 2014
 
 
(In thousands, except share and per share data)
Numerator:
 
 

 
 

Numerator for basic EPS- Net income (loss) attributable to holders of The J.G. Wentworth Company Class A common stock
 
$
(1,345
)
 
$
9,022

Effect of dilutive securities:
 
 

 
 

JGW LLC Common Interests and vested Restricted Common Interests
 
—

 
—

JGW LLC unvested Restricted Common Interests
 
—

 
—

Numerator for diluted EPS- Net income (loss) attributable to holders of The J.G. Wentworth Company Class A common stock
 
$
(1,345
)
 
$
9,022

Denominator:
 
 

 
 

Denominator for basic EPS - Weighted average shares of Class A common stock
 
14,271,842

 
11,641,617

Effect of dilutive securities:
 
 

 
 

Stock options
 
—

 
—

Warrants
 
—

 
—

Restricted common stock and performance-based restricted stock units
 
—

 
666

JGW LLC Common Interests and vested Restricted Common Interests
 
—

 
—

JGW LLC unvested Restricted Common Interests
 
—

 
—

Dilutive potential common shares
 
—

 
666

Denominator for diluted EPS - Adjusted weighted average shares of Class A common stock
 
14,271,842

 
11,642,283

 
 
 
 
 
Basic income (loss) per share of Class A common stock
 
$
(0.09
)
 
$
0.77

Diluted income (loss) per share of Class A common stock
 
$
(0.09
)
 
$
0.77

 

34


Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q.  Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should read the “Risk Factors” and the “Cautionary Statement Regarding Forward-Looking Statements” sections of this Quarterly Report on Form 10-Q for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
 
Overview
 
We are a leading direct response marketer that provides liquidity to our customers by purchasing structured settlement, annuity and lottery payment streams and interests in the proceeds of legal claims in the United States. We securitize or sell those payment streams in transactions that are structured to generate cash proceeds to us that exceed the purchase price we paid for those payment streams. We have developed our leading position as a purchaser of structured settlement payments through our highly recognizable brands and multi-channel direct response marketing platform.

Structured settlements are financial tools used by insurance companies to settle claims on behalf of their customers. They are contractual arrangements under which an insurance company agrees to make periodic payments to an individual as compensation for a claim typically arising out of a personal injury. The structured settlement payments we purchase have long average lives of more than ten years and cannot be prepaid.

We operate two leading and highly recognizable brands, J.G. Wentworth and Peachtree, each of which generates a significant volume of inbound inquiries. Brand awareness is critical to our marketing efforts, as there are no readily available lists of holders of structured settlements, annuities or potential pre-settlement customers. Since 1995 through March 2015, we have invested approximately $705.3 million in marketing to establish our brand names and increase customer awareness through multiple media outlets. According to Kantar Media, since 2008 through December 31, 2014, each of our brands has spent approximately five-times the amounts spent by the nearest industry competitor on television advertising and together have spent approximately 80% of the total amount spent by all major participants in the industry. As a result of our substantial marketing investment, we believe our two core brands are the #1 and #2 most recognized brands in their product categories. Since 1995, we have been building proprietary databases of current and prospective customers, which we continue to grow through our marketing efforts and which we consider a key differentiator from our competitors.

We serve the liquidity needs of structured settlement payment holders by providing our customers with cash in exchange for a certain number of fixed scheduled future payments. Customers desire liquidity for a variety of reasons, including debt reduction, housing, automotive, business opportunities, education and healthcare costs. Since 1995, we have purchased over $10.9 billion of undiscounted structured settlement payment streams and have completed 41 asset-backed securitizations totaling over $5.7 billion in aggregate note issuance volume. The Company refers to undiscounted total receivable balances as “TRB.” TRB purchases for the three months ended March 31, 2015 and 2014 were $260.8 million and $260.6 million, respectively.

We act as an intermediary that identifies, underwrites and purchases individual payment streams from our customers, aggregates the payment streams and then finances them in the institutional market at financing rates that are below our cost to purchase the payment streams. We initially fund our purchase of structured settlement payments and annuities with available cash and cash equivalents or through committed warehouse lines. Our guaranteed structured settlement and annuity warehouse facilities totaled $750.0 million as of March 31, 2015. We intend to undertake a sale or securitization of these assets approximately three times per year, subject to our discretion, in transactions that generate excess cash proceeds over the purchase price we paid for those assets and the amount of warehouse financing used to fund that purchase price. We finance the purchase of other payment steams using a combination of other committed financing sources and our operating cash flows.

Because our purchase and financing of periodic payment streams is undertaken on a positive cash flow basis, we view our ability to purchase payment streams as key to our business model. Another key feature of our business model is our ability to aggregate payment streams from many individuals and from a well-diversified base of payment counterparties. We continuously monitor the efficiency of marketing expenses and the hiring and training of personnel engaged in the purchasing process.

35


In addition to growing our existing core business, we are developing strategies to leverage our highly recognizable brands, direct marketing capabilities, operational and underwriting capabilities, and low cost of capital to enter into new lines of business that are logical extensions to our core business, thus allowing us to become a diversified consumer financial services provider. We intend to continue to focus on building our information, data and analytics capabilities, which we believe will strengthen our core business and provide a foundation for expanding into additional products and services. We will pursue this expansion through internal growth, strategic partnerships and acquisitions. As part of this strategy, on March 6, 2015, we entered into a stock purchase agreement to acquire WestStar, a residential mortgage company specializing in conforming mortgage lending.While we anticipate that the WestStar Acquisition will close in the third quarter of 2015, the transaction is subject to customary closing conditions and regulatory approvals, and we cannot assure you when, or if, it will be completed. The WestStar Acquisition represents our entry into the mortgage business.

As part of our overall diversification, we decided, beginning in April 2015, to significantly reduce our purchases of finance receivables associated with pre-settlement funding transactions. We will, however, continue to broker such transactions to third parties in exchange for broker or referral fees. We do not expect this change will have a material impact on our business, financial condition, results of operations or cash flows.

We are subject to federal, state and, in some cases, local regulation in the jurisdictions in which we operate. These regulations govern and/or affect many aspects of our business as set forth more fully under “Part 1, Item 1. Business” in our Annual Report on Form 10-K for the year ended December 31, 2014.
 







































36

Results of Operations
 
Comparison of Consolidated Results for the Three Months Ended March 31, 2015 and 2014

 
 
Three Months Ended
 
 
 
 
 
 
March 31,
 
2015 vs. 2014
 
 
2015
 
2014
 
$ Change
 
% Change
 
 
(In thousands)
REVENUES
 
 
 
 
 
 
 
 
Interest income
 
$
44,392

 
$
47,822

 
$
(3,430
)
 
(7.2
)%
Unrealized gains on VIE and other finance receivables, long-term debt and derivatives
 
39,421

 
87,311

 
(47,890
)
 
(54.8
)
Loss on swap terminations, net
 
(275
)
 
(574
)
 
299

 
(52.1
)
Servicing, broker, and other fees
 
881

 
1,142

 
(261
)
 
(22.9
)
Realized and unrealized gains on marketable securities, net
 
1,830

 
889

 
941

 
105.8

Gain on extinguishment of debt
 
593

 
—

 
593

 
—

Other
 
(12
)
 
—

 
(12
)
 
—

Total Revenues
 
$
86,830

 
$
136,590

 
$
(49,760
)
 
(36.4
)%
 
 
 
 
 
 
 
 
 
EXPENSES
 
 

 
 

 
 
 
 
Advertising
 
$
15,840

 
$
17,493

 
$
(1,653
)
 
(9.4
)%
Interest expense
 
48,835

 
51,230

 
(2,395
)
 
(4.7
)
Compensation and benefits
 
12,798

 
9,286

 
3,512

 
37.8

General and administrative
 
4,639

 
4,470

 
169

 
3.8

Professional and consulting
 
4,438

 
3,444

 
994

 
28.9

Debt issuance
 
2,749

 
3,001

 
(252
)
 
(8.4
)
Securitization debt maintenance
 
1,496

 
1,557

 
(61
)
 
(3.9
)
Provision for losses on finance receivables
 
1,339

 
1,091

 
248

 
22.7

Depreciation and amortization
 
991

 
1,081

 
(90
)
 
(8.3
)
Installment obligations expense, net
 
2,320

 
1,492

 
828

 
55.5

Total Expenses
 
$
95,445

 
$
94,145

 
$
1,300

 
1.4
 %
Income (loss) before income taxes
 
(8,615
)
 
42,445

 
(51,060
)
 
(120.3
)
Provision (benefit) for income taxes
 
(3,155
)
 
7,912

 
(11,067
)
 
(139.9
)
Net Income (Loss)
 
$
(5,460
)
 
$
34,533

 
$
(39,993
)
 
(115.8
)%
Less net income (loss) attributable to non-controlling interests
 
(4,115
)
 
25,511

 
(29,626
)
 
(116.1
)
Net income (loss) attributable to The J.G. Wentworth Company
 
$
(1,345
)
 
$
9,022

 
(10,367
)
 
(114.9
)%
 
 
 
 
 
 
 
 
 
TRB purchases
 
$
260,830

 
$
260,581

 
$
249

 
0.1
 %

Revenues
 
Total revenues for the three months ended March 31, 2015 were $86.8 million, a decrease of $49.8 million, or 36.4%, from $136.6 million for the three months ended March 31, 2014. The decrease was primarily due to a $47.9 million decrease in unrealized gains on VIE and other finance receivables, long-term debt and derivatives and a $3.4 million decrease in interest income. This was partially offset by an $0.9 million increase in realized and unrealized gains on marketable securities, net and a $0.6 million increase in gain on extinguishment of debt.
 

37

Interest income for the three months ended March 31, 2015 was $44.4 million, a decrease of $3.4 million, or 7.2%, from $47.8 million for the three months ended March 31, 2014, due to a decrease in the fair value discount rates used to calculate interest income, partially offset by an increase in our finance receivables balance.
 
Unrealized gains on VIE and other finance receivables, long-term debt and derivatives was $39.4 million for the three months ended March 31, 2015, a decrease of $47.9 million from $87.3 million for the three months ended March 31, 2014. The decrease was primarily driven by a $44.1 million decrease in unrealized gains on securitized finance receivables, debt and related derivatives, including our residual interest in securitized finance receivables, and a $3.8 million decrease in unrealized gains on unsecuritized receivables. The $44.1 million decrease in our unrealized gains on securitized finance receivables, debt and related derivatives was primarily the result of a less favorable movement in the fair value interest rate used to value our residual interest cash flows during the respective periods. The $3.8 decrease in gains on unsecuritized finance receivables was also due to a less favorable movement in interest rates used to value these finance receivables.
 
Realized and unrealized gains on marketable securities, net, was $1.8 million for the three months ended March 31, 2015, an increase of $0.9 million from $0.9 million for the three months ended March 31, 2014, due to higher investment returns on marketable securities. The increase was primarily offset by a corresponding increase in installment obligations expense, net. These amounts relate to the marketable securities and installment obligations payable on our condensed consolidated balance sheets. The marketable securities are owned by us, but are held to fully offset our installment obligations liability. Therefore, increases or decreases in gains on marketable securities do not impact our net income (loss).

The $0.6 million gain on extinguishment of debt during the three months ended March 31, 2015 resulted from the early repayment of the 2004-A securitization debt issued by Structured Receivables Finance #1, LLC. The associated finance receivables were subsequently included in the 2015-1 securitization.
 
Operating Expenses
 
Total expenses for the three months ended March 31, 2015 were $95.4 million, an increase of $1.3 million, or 1.4%, from $94.1 million for the three months ended March 31, 2014.
 
Advertising expense, which consists of our television, internet, direct mail and other marketing related expenses, decreased by $1.7 million to $15.8 million for the three months ended March 31, 2015, from $17.5 million for the three months ended March 31, 2014, primarily due to a decrease in spending for television. We continually assess the effectiveness of our advertising initiatives and adjust the timing, investment and advertising channels on an ongoing basis.
 
Interest expense, which includes interest on our securitization debt, warehouse facilities and the term loan, decreased by 4.7% to $48.8 million for the three months ended March 31, 2015, from $51.2 million for the three months ended March 31, 2014. The $2.4 million decrease was primarily driven by a decline in interest expense associated with our securitization debt that resulted from a decrease in the fair value interest rate used to calculate interest expense, partially offset by an increase in the average outstanding balance of our securitization debt.
 
Compensation and benefits expense increased to $12.8 million for the three months ended March 31, 2015 from $9.3 million for the three months ended March 31, 2014, primarily due to an increase of $2.3 million in severance expense related to former senior managers of the Company, combined with a slight increase in headcount that was necessary to execute on our strategy of entering new lines of business and continuing to build our information, data and analytic capabilities.

Debt issuance expense for the three months ended March 31, 2015 decreased to $2.7 million from $3.0 million for the three months ended March 31, 2014, primarily due to a $19.8 million decline in the aggregate amount of notes issued in connection with our 2015-1 securitization compared to our 2014-1 securitization in the prior year that resulted in lower underwriting fees.

Professional and consulting costs increased to $4.4 million for the three months ended March 31, 2015, from $3.4 million for the three months ended March 31, 2014, primarily due to a $0.6 million increase in due diligence fees incurred in connection with the WestStar Acquisition and a $0.4 million increase in tax consulting, tax compliance and internal control related consulting fees.

Provision for losses on finance receivables for the three months ended March 31, 2015 increased to $1.3 million from $1.1 million for the three months ended March 31, 2014, due to an increase in the provision for losses associated with pre-settlement funding transactions.
 


38

Income (Loss) Before Income Taxes
 
For the three months ended March 31, 2015, we incurred a loss before income taxes of $8.6 million, compared to income before income taxes of $42.4 million for the three months ended March 31, 2014. The $51.1 million decrease was primarily due to: (i) a $47.9 million decrease in unrealized gains on VIE and other finance receivables, long-term debt and derivatives that primarily resulted from a less favorable movement in the fair value interest rate used to value our residual interest cash flows, (ii) a $3.4 million decrease in interest income due to a decrease in the fair value discount rates used to calculate interest income, and (iii) a $3.5 million increase in compensation and benefits primarily due to severance expense related to former senior managers of the Company. These decreases were partly offset by a $2.4 million decline in interest expense primarily resulting from a decrease in the fair value interest rate used to calculate interest expense of our securitization debt.
 
Income Taxes
 
During the three months ended March 31, 2015, we recorded an income tax benefit of $3.2 million, compared to a provision for income taxes of $7.9 million for the three months ended March 31, 2014. The Company’s overall effective tax rate was 36.6% for the three months ended March 31, 2015, as compared to an overall effective rate of 18.6% for the three months ended March 31, 2014. The increase in the overall effective tax rate was primarily the result of: (i) the impact of permanent differences between book income (loss) and taxable income (loss), and (ii) an increase in the allocation of income (loss) from JGW LLC to the Corporation during the three months ended March 31, 2015 compared to the prior year.

Net Income (Loss)
 
Net loss for the three months ended March 31, 2015 was $5.5 million, a decrease of $40.0 million from net income of $34.5 million for the three months ended March 31, 2014, due to the $51.1 million decrease in income before taxes partially offset by the $11.1 million decrease in our provision for income taxes discussed earlier.

Net Income (Loss) Attributable to Non-Controlling Interests

Net income (loss) attributable to non-controlling interests represents the portion of earnings or loss attributable to the economic interests in JGW LLC held by the non-controlling Common Interestholders. The $4.1 million in net loss attributable to non-controlling interests for the three months ended March 31, 2015 represents the non-controlling interests' 50.1% weighted average economic interest in JGW LLC's net loss for the three months ended March 31, 2015. The $25.5 million net income attributable to non-controlling interests for the three months ended March 31, 2014 represents the non-controlling interests' 60.6% weighted average economic interest in JGW LLC's net income for the three months ended March 31, 2014.

Net Income (Loss) Attributable to The J.G. Wentworth Company

Net income (loss) attributable to The J.G. Wentworth Company represents the sum of (i) the portion of earnings (loss) attributable to the economic interests in JGW LLC held by the The J.G. Wentworth Company and (ii) the tax provision (benefit) based on the JGW LLC's income (loss) attributable to The J.G. Wentworth Company. Net income (loss) attributable to The J.G. Wentworth Company for the three months ended March 31, 2015 decreased by $10.4 million to a net loss of $1.3 million from net income of $9.0 million for the three months ended March 31, 2014, primarily due to the net loss incurred by JGW LLC in the current year compared to net income earned by JGW LLC in the prior year.

Liquidity and Capital Resources
 
Cash Flows
 
The following table sets forth a summary of our cash flows for the three months ended March 31, 2015 and 2014.
 

39

 
Three Months Ended March 31,
 
2015
 
2014
 
 
 
 
Net cash used in operating activities
$
(75,433
)
 
$
(180,961
)
Net cash used in investing activities
(905
)
 
(350
)
Net cash provided by financing activities
148,549

 
176,901

Net increase (decrease) in cash and cash equivalents
$
72,211

 
(4,410
)
Cash and cash equivalents at beginning of period
41,648

 
39,061

Cash and cash equivalents at end of period
$
113,859

 
$
34,651

 
For the Three Months Ended March 31, 2015 and 2014
 
Cash Flow from Operating Activities
 
Net cash used in operating activities was $75.4 million and $181.0 million for the three months ended March 31, 2015 and 2014, respectively. The net cash used in operating activities does not reflect the financing of our purchased finance receivables which is an integral part of our business and is reflected in cash flow provided by financing activities. The $105.5 million decrease in cash used in operating activities was principally due to a $99.4 million decrease in the change in restricted cash and investments due to the timing of securitizations in the first quarters of 2015 and 2014 combined with a $9.8 million decrease in the net change in operating liabilities due to the timing of cash disbursements.

Cash Flow from Investment Activities
 
Net cash used in investment activities was $0.9 million for the three months ended March 31, 2015 compared to net cash provided by investment activities of $0.4 million for the three months ended March 31, 2014. The $0.6 million increase was primarily due to a $0.4 million increase in the purchase of fixed assets in the current year related to the building of our information, data and analytic capabilities.

Cash Flow from Financing Activities
 
Net cash provided by financing activities decreased to $148.5 million for the three months ended March 31, 2015 from $176.9 million for the three months ended March 31, 2014. The $28.4 million decrease in net cash provided by financing activities was primarily attributable to a $20.8 million decrease in proceeds received from the issuance of VIE long-term debt and a $10.6 million increase in repayments on our long-term debt and derivatives.
 
Funding Sources
 
We utilize a number of different funding sources to finance our different business lines. These sources are targeted to allow us to maximize our cash proceeds from the different assets that we purchase.

Structured Settlements and Annuities

We finance our guaranteed structured settlement and annuity payment stream purchases with available cash and cash equivalents or through four separate warehouse facilities with $750.0 million of aggregate capacity: (i) a $300.0 million syndicated warehouse facility with Barclays and Natixis with a revolving period that ends in July 2016; (ii) a $300.0 million warehouse facility with Credit Suisse with a revolving period that ends in November 2016; (iii) a $100.0 million warehouse facility with PartnerRe with a two year evergreen feature that requires the lender to give us 24 months’ notice prior to terminating the facility’s revolving line of credit; and (iv) a $50.0 million warehouse facility with Deutsche Bank with a revolving period that ends in October 2016. Subsequent to the expiration or termination of their respective revolving lines of credit, each of our warehouse facilities has an amortization period of between 18 and 24 months before the final maturity, allowing us time to exit or refinance the warehouse facility after the revolving period has ended. As of March 31, 2015, we had $730.9 million in total unused borrowing capacity under the four separate warehouse facilities used to finance our guaranteed structured settlement and annuity payment stream purchases.

Our warehouse facilities are structured with advance rates that range from 92.5% to 95.5% and discount rates that range from 7.3% to 9.2%. The discount rate is either fixed over the term of the facility or is based on a fixed spread over a floating swap rate, which we then fix through interest rate swaps at the time of the borrowing. The discount rate is used to discount the payment

40

streams we have purchased, and these discounted payment streams are then multiplied by the advance rate to determine the amount of funds that are available to us under the warehouse facilities. Our purchases of structured settlement and annuity payment streams are at higher discount rates than the discount rates applied to those payment streams under the warehouse facilities. As a result, the funds available to be drawn under our warehouse facilities exceed the purchase price for the payment streams we purchase. This excess cash is used to support our business and cover a portion of our operating expenses.

We undertake non-recourse term securitizations once we have aggregated in our warehouse facilities a sufficient aggregate value of structured settlement and annuity payment streams to undertake a securitization. At the close of each such securitization, the outstanding amount under each of the warehouse facilities is repaid. The amount of net proceeds we receive from securitizations is typically in excess of the amount of funds required to repay the warehouse facilities, resulting in a positive cash flow at the time of securitization. We completed three securitizations in 2014 and on March 31, 2015, we closed our 2015-1 securitization with an aggregate note issuance amount of $214.1 million and a discount rate of 3.64% which generated net proceeds to us of $144.5 million.

We intend, subject to market conditions, management discretion and other relevant factors, to continue to undertake approximately three securitizations per year in the future. The counterparties to the structured settlement and annuity payment streams we purchase have mostly investment grade credit ratings. Approximately 80% of the counterparties to structured settlement payment streams that we purchased in 2014 were rated “A3” or better by Moody’s. This reduced credit risk, together with the long weighted average life and low pre-payment risk, results in a desirable asset class that can be securitized and sold in the asset-backed security market. Since 1995, we have competed 41 securitizations totaling over $5.7 billion in aggregate note issuance volume relating to $9.4 billion of TRB purchases.

Life Contingent Structured Settlements and Life Contingent Annuities

We finance our purchases of life contingent structured settlement and life contingent annuity payment streams through a committed permanent financing facility with PartnerRe with a capacity of $100.0 million. This facility allows us to purchase life contingent structured settlement and life contingent annuity payment streams without assuming any mortality risk. This facility is structured as a permanent facility, whereby the life contingent structured settlement and life contingent annuity payment streams we purchase are financed for their entire life and remain within the facility until maturity. The payment streams purchased are funded at a fixed advance rate of 94%, while the discount rate used to value the payment streams is variable, depending on the characteristics of the payment streams. The life contingent structured settlement and life contingent annuity payment streams that we purchase are discounted at a higher rate than the discount rates applied to those payment streams under the committed permanent financing facility, with the result that the funds available to be drawn under the facility exceed the purchase price for the payment streams we purchase. This positive cash flow is used to support our business and cover a portion of our operating expenses. As of March 31, 2015, our permanent financing facility with PartnerRe had $40.9 million of unused capacity for our life contingent annuity and structured settlement businesses.

Lotteries

Beginning in 2013, we have been purchasing lottery payment streams utilizing our balance sheets and we have structured two of our guaranteed structured settlement and annuity warehouse facilities to allow us to finance lottery payment streams. This allows us to aggregate a pool of such payment streams that we subsequently securitize together with structured settlement and annuity payment streams. Lottery payment streams were included in all of our securitizations during 2015 and 2014. We intend to continue to securitize lottery payment streams in the future. We believe that our ability to securitize lottery payment streams has the potential to assist us to achieve an industry-leading cost of capital and to drive our future growth in this asset class.

Historically, we have funded the purchase of lottery payment streams through non-recourse financing as well as a diversified institutional funding base of more than five institutional investors who purchase lottery payment streams directly from us. These investors are either insurance companies or asset managers. Lottery payment streams are purchased by the investors and the transactions are structured as an asset sale to the investor. We earn the difference between the discount rate at which we purchase the lottery payment stream from the lottery prizewinner and the discount rate at which we sell the lottery payment stream to the investor.

Pre-Settlement Funding

We historically financed our pre-settlement funding transactions through a revolving credit facility with Capital One Bank. The $35.0 million facility is structured with a revolving period that ends in December 2015 and a subsequent 24 month amortization period. The advance rate applicable to pre-settlement funding financed through the facility is 84%. Due to the shorter duration of pre-settlement funding, we did not require a facility with as large a capacity as for the other asset types above, as the

41

pre-settlement funding transactions revolve more frequently. Positive cash flow is typically generated from the difference between the amount of proceeds we receive on settlement and the amount funded to the plaintiff. As of March 31, 2015, our $35.0 million revolving credit facility had $15.4 million of unused capacity. We have decided, beginning April 2015, to significantly reduce our purchases of pre-settlement transactions. We will, however, continue to broker such transactions to third parties in exchange for broker or referral fees. We do not expect that this change will have a material impact on our business, financial condition, results of operation or cash flows.

Term Loan

We have (i) a widely syndicated senior secured term loan with a principal balance of $449.5 million as of March 31, 2015 which matures in February 2019, and (ii) a $20.0 million revolving commitment that matures in August 2017. At each interest reset date, we have the option to elect that the senior secured term loan be either a Eurodollar loan or a Base Rate loan. If a Eurodollar loan, interest accrues at either Libor or 1.0% (whichever is greater) plus a spread of 6.0%.  If a Base Rate loan, interest accrues at prime or 2.0% (whichever is greater) plus a spread of 5.0%. The revolving commitment has the same interest rate terms as the senior secured term loan. There are no principal payments due on the senior secured term loan until its maturity in February 2019. As of March 31, 2015, there were no outstanding borrowings on our revolving commitment.

Residual Financing

On May 6, 2014, we amended the terms of our Residual Term Facility. The amendment primarily increased the principal balance from $70.0 million to $110.0 million. This facility is now secured by 24 of our securitization residuals and is structured with a $110.0 million A1 Note due in May 2021. Prior to the amendment, the facility was structured with a $56.0 million A1 Note due in September 2018 and a $14.0 million A2 Note due in September 2019. The amendment also decreased the interest rate on the Residual Term Facility to 7.0% from 8.0% and eliminated the requirement of minimum annual principal payments.

Securitization Debt

We elected fair value treatment under ASC 825 to measure the VIE long-term debt issued by securitization and permanent financing trusts and related VIE finance receivables. We have determined that measurement of the VIE long-term debt issued by securitization and permanent financing trusts at fair value better correlates with the fair value of the VIE finance receivables held by SPEs, which are held to provide the cash flow for the note obligations. The VIE debt issued by SPEs is non-recourse to the Company and its other subsidiaries. Certain of our subsidiaries continue to receive fees for servicing the securitized assets which are eliminated in consolidation. In addition, the risk to our non-SPE subsidiaries from SPE losses is limited to cash reserve and residual interest amounts.

Other Financing

We maintain other permanent financing arrangements that have been used in the past for longer term funding purposes. Each of these arrangements has assets pledged as collateral, the cash flows from which are used to satisfy the loan obligations. These other financing arrangements are more fully described in Notes 8 through 11 of the unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q.

Short-Term Liquidity Needs

Our liquidity needs over the next 12 months, including the estimated $54 million purchase price for the previously announced WestStar Acquisition, are expected to be provided through: (i) the excess cash generated by our structured settlement, annuity, and lottery payment stream warehouse facilities, life contingent structured settlement and annuity permanent financing facilities as well as our lottery program, (ii) cash on-hand, and (iii) the issuance of the Company's Class A common stock. Our securitization program for structured settlements, annuities and lottery payment streams also is expected to provide for both a replenishment of our warehouse capacity as well as excess cash to operate the business and make interest payments. However, there can be no assurances that we will be able to continue to securitize our payment streams at favorable rates, obtain financing through borrowing or other means, or be able to raise new equity.

Long-Term Liquidity Needs

Our most significant needs for liquidity beyond the next 12 months are the repayment of the principal and interest amounts of our outstanding senior secured term loan and the repayment of our residual financing facility. We used a portion of the net proceeds of our IPO to repay a portion of our senior secured term loan. We expect to meet our remaining long-term liquidity needs through excess cash flow generated through our securitization program, bank borrowings, debt refinancings, and new debt and

42

equity offerings. However, there can be no assurances that we will be able to continue to securitize our payment streams at favorable rates or obtain financing through borrowing or other means, refinance our debt or raise new debt or equity.

As a consequence of the initial sales and any future exchanges of Common Interests for shares of our Class A common stock or Class C common stock, we may increase our share of the tax basis of the assets then owned by JGW LLC. Any such increase in tax basis is anticipated to allow us the ability to reduce the amount of future tax payments to the extent that we have future taxable income. We are obligated, pursuant to our tax receivable agreement with all Common Interestholders who held in excess of approximately 1% of the Common Interests as of immediately prior to our IPO, to pay to such Common Interestholders, 85% of the amount of income tax we save for each tax period as a result of the tax benefits generated from the initial sales and any subsequent exchange of Common Interests for our Class A common stock or Class C common stock and from the use of certain tax attributes. We expect to fund these long-term requirements under the tax receivable agreement with tax distributions received from JGW LLC and, if necessary, loans from JGW LLC.

Contractual Obligations and Commitments
 
On March 31 2015, we closed our 2015-1 securitization with an aggregate issuance amount of $214.1 million and a discount rate of 3.64%.
 
Critical Accounting Policies
 
In establishing these policies within the framework of U.S. GAAP, management must make certain assessments, estimates, and choices that will result in the application of these principals in a manner that appropriately reflects our financial condition and results of operations. Critical accounting policies are those policies that we believe present the most complex or subjective measurements and have the most potential to affect our financial position and operating results. While all decisions regarding accounting policies are important, there are certain accounting policies and estimates that we consider to be critical.

Emerging Growth Company

We qualify as an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act. As a result, we are permitted to, and may opt to, rely on exemptions from certain financial disclosure requirements under U.S. GAAP that are applicable to other companies that are not emerging growth companies.

Revenue Recognition

On May 28, 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2014-09, Revenue from Contracts with Customers which relates to how an entity recognizes the revenue it expects to be entitled to for the transfer of promised goods and services to customers. The ASU will replace certain existing revenue recognition guidance when it becomes effective for public entities in the fiscal year beginning after December 15, 2016 and for non-public entities in the fiscal year beginning after December 15, 2017. Early adoption is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. Management is currently evaluating the impact of the future adoption of the ASU on our consolidated financial statements.

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the orderly transaction between market participants at the measurement date. Fair value measurement establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. These three levels of fair value hierarchy are defined as follows:

•
Level 1 - inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that are accessible at the measurement date.

•
Level 2 - inputs to the valuation methodology include quoted prices in markets that are not active or 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 financial instrument.

•
Level 3 - inputs to the valuation methodology are unobservable, reflecting the entity’s own assumptions about assumptions market participants would use in pricing the asset or liability.

43


A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Fair value is a market based measure considered from the perspective of a market participant who holds the assets or owes the liabilities rather than an entity specific measure. Therefore, even when market assumptions are not readily available, our own assumptions are set to reflect those that market participants would use in pricing the assets or liabilities at the measurement date. We use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. We also evaluate various factors to determine whether certain transactions are orderly and may make adjustments to transactions or quoted prices when the volume and level of activity for an asset or liability have decreased significantly.

The above conditions could cause certain assets and liabilities to be reclassified from Level 1 to Level 2 or Level 3 or reclassified from Level 2 to Level 3. The inputs or methodology used for valuing the assets or liabilities are not necessarily an indication of the risk associated with the assets and liabilities.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from us, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) when we do not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity, the ability to unilaterally cause the holder to return specific assets or through an agreement that permits the transferee to require the transferor to repurchase the transferred financial assets that is so favorable to the transferee that it is probable that the transferee will require the transferor to repurchase them. Transfers that do not meet the criteria to be accounted for as sales are accounted for as secured borrowings.

The amendments to ASC 860, Transfers and Servicing (“ASC 860”), eliminated the concept of a qualified special purpose entity, changed the requirements for derecognizing financial assets, and required additional disclosures about transfers of financial assets, including securitization transactions and continuing involvement with transferred financial assets.

Consolidation

In August of 2014, the FASB issued ASU No. 2014-13, Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity which relates to how an entity accounts for the financial assets and the financial liabilities of a consolidated collateralized financing entity at fair value. The ASU will allow an entity to elect to measure their financial assets and financial liabilities using either the measurement alternative provided under this ASU, which allows for the entity to measure both the financial assets and the financial liabilities of its collateralized financing entities in its consolidated financial statements using the more observable fair value of either the financial assets or financial liabilities, or under ASC 820 Fair Value Measurements and Disclosure. This ASU becomes effective for public entities in the fiscal year beginning after December 15, 2015 and for non-public entities in the fiscal year beginning after December 15, 2016. Early adoption is permitted. The standard permits the use of either the retrospective or cumulative effect transition method. Management is currently evaluating the impact of the future adoption of this ASU on our consolidated financial statements.

In February of 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810); Amendments to the Consolidation Analysis which requires an entity to re-evaluate its consolidation for limited partnerships or similar entities. The ASU requires an entity to apply this amendment using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the period of adoption. The ASU changes the criteria that an entity uses to identify a variable interest entity, how it characterizes the VIE for a limited partnership or similar entity and how it determines the primary beneficiary. For public entities, the ASU is effective for annual periods beginning after December 15, 2015 and for nonpublic entities beginning after December 15, 2016. Early adoption is permitted. Management is currently evaluating the impact of the future adoption of this ASU on our consolidated financial statements.

VIE and Other Finance Receivables, at Fair Market Value

We acquire receivables associated with structured settlement payments from individuals in exchange for cash (purchase price). These receivables are carried at fair value. Unearned income is determined as the amount the fair value exceeds the cost basis of the receivables. Unearned income on structured settlements is recognized as interest income using the effective interest method over the life of the related structured settlements. Changes in fair value are recorded in unrealized gains on finance receivables, long- term debt and derivatives in our consolidated statements of operations.


44

We, through our subsidiaries, sell finance receivables to SPEs. An SPE issues notes secured by undivided interests in the receivables. Payments due on these notes generally correspond to receipts from the receivables in terms of the timing of payments due. We retain a retained interest in the SPEs and are deemed to have control over these SPEs due to our servicing or subservicing role and therefore consolidate these SPEs.

Intangible Assets and Goodwill

Identifiable intangible assets consist primarily of our databases, customer relationships and domain names. Our databases are amortized over their estimated useful lives of 10 years. Customer relationships are amortized over their useful lives of 8 to 15 years. Domain names are amortized over their estimated useful lives of 10 years. In addition, such identifiable intangible assets are tested for impairment whenever events or changes in circumstances suggest that an asset’s carrying value may not be fully recoverable. An impairment loss, generally calculated as the difference between the estimated fair value and the carrying value of an asset, is recognized if the sum of the estimated undiscounted cash flows relating to the asset is less than the corresponding carrying value. Intangible assets deemed to have indefinite useful lives, which in our case includes a trade name, are not amortized and are subject to annual impairment tests. An impairment exists if the carrying value of the indefinite-lived intangible asset exceeds its fair value.

Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in connection with the 2011 acquisition of Orchard Acquisition Company, LLC. Goodwill has an indefinite useful life and is subject to annual impairment tests whereby impairment is recognized if the estimated fair value of the Company is less than its net book value. Such loss is calculated as the difference between the estimated implied fair value of goodwill and its carrying amount.

Goodwill and intangible assets with indefinite useful lives are evaluated for impairment on an annual basis, or more frequently if events or changes in circumstances indicate potential impairment between annual measurement dates. Management qualitatively determines whether it is more likely than not that the fair value of the Company is less than its carrying amount prior to performing the two-step process to evaluate the potential impairment of goodwill and intangible assets with indefinite useful lives.

In the first quarter of 2015, management performed an assessment of goodwill and intangible assets and found no indications of impairment. Management considered the factors below in its qualitative assessment in determining that it was not more likely than not that the fair value of the Company was less than the carrying value:

•
Macroeconomic factors including the interest rate environment, the securitization and warehouse credit market;
•
Industry specific factors including significant changes in competition and regulatory impediments;
•
Cost related factors including an increase in labor and other operating costs;
•
Overall financial performance, such as declining cash flows and revenues or earnings; and
•
Other relevant entity-specific events such as change in management, changes in stock price, and counterparty risks.

Segment Reporting

We report operating segments in accordance with ASC 280 Segment Reporting. Operating segments are components of an entity for which separate financial information is available that is evaluated regularly by the chief operating decision maker, for the purpose of allocating resources and assessing performance. We have one operating segment because we primarily operate in the structured settlement industry. Our other revenue generating activities, including annuities and lottery are performed at our headquarters in conjunction with or similar to structured settlements.

Debt Issuance Costs

In April of 2015, the FASB issued ASU No. 2015-3, Simplifying the Presentation of Debt Issuance Costs which relates to how an entity accounts for the recognition of debt issuance costs as a deferred charge. The ASU will require an entity to recognize debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. This ASU becomes effective for public entities in the fiscal year beginning after December 15, 2015 and for non-public entities in the fiscal year beginning after December 15, 2016. Early adoption is permitted. The standard requires the new guidance to be adopted on a retrospective basis wherein the balance sheet of each individual period presented will be adjusted to reflect the period-specific effects of applying this ASU. Management is currently evaluating the impact of the future adoption of this ASU on our consolidated financial statements.

45

Item 3.   Quantitative and Qualitative Disclosures About Market Risk
 
Market Risk
 
Market risk is the potential for loss or diminished financial performance arising from adverse changes in market forces, including interest rates and market prices. Market risk sensitivity is the degree to which a financial instrument, or a company that owns financial instruments, is exposed to market forces. Fluctuations in interest rates, changes in economic conditions, shifts in customer behavior and other factors can affect our financial performance. Changes in economic conditions and shifts in customer behavior are difficult to predict, and our financial performance cannot be completely insulated from these forces.
 
Interest Rate Risk
 
We are exposed to interest rate risk on all assets and liabilities held at fair value with all gains and losses recorded in our unaudited condensed consolidated statements of operations. As of March 31, 2015, the sensitivities of our exposed assets and liabilities to a hypothetical change in interest rates of 100 basis points are as follows:
 
 
Balance as of March 31, 2015
 
Impact as of
March 31, 2015
of a 100 bp increase in
interest rates
 
Impact as of
March 31, 2015
of a 100 bp decrease in
interest rates
 
(In Thousands)
Securitized receivables, at fair market value
$
4,199,510

 
$
(262,945
)
 
$
295,137

Company retained interests in finance receivables, at fair market value
318,493

 
(59,661
)
 
68,894

Unsecured finance receivables, at fair market value
64,705

 
(5,855
)
 
6,948

 
 
 
 
 
 
VIE and other finance receivables, at fair market value
4,582,708

 
(328,461
)
 
370,979

VIE long-term debt issued by securitization and permanent financing trusts, at fair market value
4,144,251

 
232,160

 
(261,091
)
VIE derivative liabilities, at fair market value
80,417

 
26,498

 
(29,144
)
Net Impact
N/A

 
(69,803
)
 
80,744

 
These sensitivities are hypothetical and should be used with caution. The impact of rate changes on securitized receivables is largely offset by the corresponding impact on securitization debt leaving the majority of the net change attributed to our retained interests.
 
In addition to the impact to our balance sheet noted above from changes in interest rates, the level of interest rates and our resulting financing costs are a key determinant in the amount of income that we generate from our inventory of structured settlement, annuity and lottery payment streams. If interest rates change between the time that we price a transaction with a customer and when it is ultimately securitized, our profitability on the transaction is impacted. For example, if the cost of our financing were to have increased by 1% for all of the payment streams we purchased during the three months ended March 31, 2015, and we were unable to mitigate the impact of this increase by hedging with interest rate swaps or other means, our income for the three months ended March 31, 2015 would have been reduced by approximately $15.5 million. If instead this increase of 1% in financing costs were to have only affected our March payment stream purchases our income for the three months ended March 31, 2015 would have been reduced by approximately $5.2 million.

Derivative and Other Hedging Instruments
 
We utilize interest rate swaps to manage our exposure to changes in interest rates related to borrowings on our revolving credit facilities. We have not applied hedge accounting to any of our interest rate swaps.
 
As of March 31, 2015, we did not have any outstanding interest rate swaps related to our borrowings on revolving credit facilities. During the three months ended March 31, 2015 and 2014, we terminated $18.7 million and $35.0 million of interest rate swap notional value, respectively, in connection with our securitizations.

46

 
Gains and losses on the termination of these interest rate swaps are recorded in gain (loss) on swap terminations, net in our unaudited condensed consolidated statements of operations. The unrealized gains and losses for these swaps were recorded in unrealized gains (losses) on VIE and other finance receivables, long-term debt and derivatives in our unaudited condensed consolidated statements of operations.
 
We also have interest-rate swaps to manage our exposure to changes in interest rates related to our borrowings on certain VIE long-term debt issued by securitization and permanent financing trusts. As of March 31, 2015, we had 8 outstanding swaps with a total notional amount of approximately $226.3 million, we pay fixed rates ranging from 4.5% to 5.8%, and we receive floating rates equal to 1-month LIBOR plus applicable margin.
 
These interest rate swaps were designed to closely match the borrowings under the respective floating rate asset backed loans in amortization. As of March 31, 2015, the terms of these interest rate swaps range from approximately 7 to approximately 21 years. We recognize unrealized gains (losses) and record these in unrealized gains (losses) on VIE and other finance receivables, long-term debt and derivatives in our unaudited condensed consolidated statements of operations.
 
Additionally, we have interest-rate swaps to manage our exposure to changes in interest rates related to our borrowings under PSS and PLMT. As of March 31, 2015, we had 152 outstanding swaps with a total notional value of approximately $224.2 million. We pay fixed rates ranging from 4.7% to 8.7% and we receive floating rates equal to 1-month LIBOR rate plus applicable margin.
 
The PSS and PLMT interest rate swaps were designed to closely match the borrowings under the respective floating rate asset backed loans in amortization.  As of March 31, 2015, the term of the interest rate swaps for PSS and PLMT range approximately from less than 1 month to approximately 19 years. We recognize the unrealized gains and losses and include them in unrealized gains (losses) on VIE and other finance receivables, long-term debt and derivatives in our unaudited condensed consolidated statements of operations.

Item 4.   Controls and Procedures
 
Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining adequate controls over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Our management, with the participation of our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer each concluded that, as of the end of such period, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported on a timely basis, and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

Our management, including our principal executive officer and principal financial officer, conducted an evaluation of any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our most recently completed fiscal quarter. Based on that evaluation, our principal executive officer and principal financial officer concluded that there has not been any change in our internal control over financial reporting during that quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



47

PART II — OTHER INFORMATION
 
Item 1.   Legal Proceedings
 
Information regarding our legal proceedings appears in “Part I, Item 3 “‘Legal Proceedings’” in our Annual Report on Form 10-K for the year ended December 31, 2014 and is incorporated herein by reference. Other than as described below there have been no material developments to any of our current legal proceedings described in our Annual Report on Form 10-K.

Illinois Proceedings

As noted in our Form 10-K for the year ended December 31, 2014, the parties to the original Illinois proceeding filed March 12, 2011 against Settlement Funding LLC d/b/a Peachtree Settlement Funding, in Circuit Court of Cook County, had filed a complaint against the annuity providers and other remaining parties. Those parties had filed motions to dismiss. Oral argument was held, and after oral argument, the parties announced that they had settled the matters and the Court entered an Agreed Order dismissing the matters. Peachtree Settlement Funding was not a party to the final actions amongst those parties.

As noted in our Form 10-K for the year ended December 31, 2014, in February 2014 a purported class action filing was made against the Company and various subsidiaries, alleging, among other claims, violations of the Illinois Consumer Fraud and Deceptive Business Practices Act and the Racketeer Influenced and Corrupt Organizations Act, which was removed by the defendants to the United States Court for the Southern District of Illinois. The Northern District of Illinois entered an order finding that it lacked subject matter jurisdiction over the case and remanded it back to St. Clair County. The defendants filed appeals. The United States Court of Appeals for the Seventh Circuit granted the relief requested by certain of the defendants, reversed the previous ruling noting that the Northern District did have jurisdiction and remanded the matter back to the Northern District. The remaining defendant, Settlement Funding, LLC, filed its brief in support of its appeal with the United States Court of Appeals for the Seventh Circuit. The Company continues to believe that the ruling relating to that defendant on jurisdiction is incorrect, and that the plaintiffs’ claims in the second amended complaint are time-barred and/or without merit and Defendants intends to vigorously defend the claims on a number of factual and legal grounds in arbitration and/or litigation.

Subsequent to the noted ruling by the United States Court of Appeals for the Seventh Circuit, one of the plaintiffs from the proceeding filed a new action in the Circuit Court for the 20th Judicial District, St. Clair County, Illinois, against J. G. Wentworth Originations, LLC alleging similar facts and violations as the previously filed matter, and also included relief from the Court which would declare each qualified order obtained void. The Company will respond as necessary, believes the plaintiff’s claims are without merit and intends to vigorously defend the claims on a number of factual and legal grounds.

Item 1A. Risk Factors
 
Information regarding our risk factors appears in “Part I, Item 1A, “‘Risk Factors’” in our Annual Report on Form 10-K for the year ended December 31, 2014 and is incorporated herein by reference. There are no material changes in those risk factors other than those described below.

Beginning in April 2015, we significantly reduced our purchase of finance receivables associated with pre-settlement funding transactions. We will, however, continue to broker such transactions to third parties in exchange for broker or referral fees. We do not expect this change will have a material impact on our business, financial condition, results of operations or cash flows. To the extent we may opportunistically purchase finance receivables associated with pre-settlement funding transactions, we may still be exposed to the underwriting risks with respect to our pre-settlement funding transactions as previously disclosed in our Annual Report on Form 10-K.

The Dodd-Frank Act, authorizes the CFPB to adopt rules that could potentially have a serious impact on our business, and it also empowers the CFPB and state officials to bring enforcement actions against companies that violate federal consumer financial laws.

Title X of the Dodd-Frank Act established the CFPB, which has regulatory, supervisory and enforcement powers over providers of consumer financial products and services. Included in the powers afforded the CFPB is the authority to adopt rules describing specified acts and practices as being “unfair,” “deceptive” or “abusive,” and hence unlawful. The CFPB could adopt rules imposing new and potentially burdensome requirements and limitations with respect to our lines of business. In addition to Dodd-Frank’s grant of regulatory powers to the CFPB, Dodd-Frank gives the CFPB authority to pursue administrative proceedings or litigation for violations of federal consumer financial laws.


48

In these proceedings, the CFPB can obtain cease and desist orders and civil monetary penalties. Also, where a company has violated Title X of Dodd-Frank or CFPB regulations under Title X, Dodd-Frank empowers state attorneys general and state regulators to bring civil actions for the kind of cease and desist orders available to the CFPB (but not for civil penalties). If the CFPB or one or more state officials believe we have violated the foregoing laws, they could exercise their enforcement powers in ways that would have a material adverse effect on our business, financial condition, results of operations and cash flows.

In March 2014, the Company and certain of its affiliates were served with Civil Investigative Demands, or CIDs, from the CFPB. The CIDs request various information and documents for the purpose of determining the Company’s compliance with Sections 1031 and 1036 of the Consumer Financial Protection Act of 2010, 12 U.S.C. §§ 5531, 5536; the Truth in Lending Act, 15 U.S.C. §§ 1601 et seq., or its implementing regulations, and other Federal-consumer financial laws.  The CIDs appear to be designed to broadly solicit general information about the Company and its business.

On April 29, 2015, J. G. Wentworth, LLC was sent a second CID requesting oral testimony from a representative or representatives addressing various topics including, but not limited to, consumer interaction, various policies and marketing. The Company will evaluate and respond accordingly. We believe that the Company’s practices are fully compliant with applicable law, and we have cooperated with the CFPB.

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds
 
The following table provides information about our share repurchase program by the Company for the period ended March 31, 2015:

Period
 
(a)
Total Number of
Shares Purchased
 
(b)
Average Price
Paid Per Share
 
(c)
Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs
 
(d)
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
As of December 31, 2014
 
458,705

 
—

 
458,705

 
10,533,269

January 2015
 
117,800

 
9.41

 
117,800

 
9,417,334

February 2015
 
46,800

 
10.06

 
46,800

 
8,946,339

March 2015
 
116,668

 
10.35

 
116,668

 
7,736,365

Total
 
739,973

 
 
 
739,973

 
 

In May of 2014, our Board of Director's approved a share repurchase program, authorizing us to use up to an aggregate of $15 million to repurchase shares of our issued and outstanding Class A common stock, par value $0.00001 per share. We may make purchases under this share repurchase program from time to time in open market purchases, privately negotiated transactions, accelerated stock repurchase programs, issuer self-tender offers or otherwise in accordance with applicable federal securities laws. This share repurchase program does not obligate us to acquire any particular amount of Class A common stock, may be suspended, modified, or discontinued at any time, and has no set expiration date.

Item 3.   Defaults Upon Senior Securities

Not applicable.

Item 4.   Mine Safety Disclosures
 
Not applicable.

Item 5.   Other Information
 
Not applicable.
 




49

Item 6.   Exhibits
 
Exhibit 31.1
 
Chief Executive Officer — Certification pursuant to Rule 13a-14(a).
Exhibit 31.2
 
Chief Financial Officer — Certification pursuant to Rule 13a-14(a).
Exhibit 32.1
 
Chief Executive Officer — Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
Exhibit 32.2
 
Chief Financial Officer — Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
101.INS
 
XBRL Instant Document.
101.SCH
 
XBRL Taxonomy Extension Schema Document.
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
 
XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document.



50

SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
THE J.G. WENTWORTH COMPANY
 
 
 
 
 
May 11, 2015
By:
/s/ Stewart A. Stockdale
 
 
Stewart A. Stockdale
 
 
Chief Executive Officer and Director
 
 
 
 
 
 
May 11, 2015
By:
/s/ John R. Schwab
 
 
John R. Schwab
 
 
Chief Financial Officer


51

Stock widget

Investing forum

J.G. Wentworth Co Reports

Also read