An L bond was a high-yielding debt instrument that financed the purchase of life insurance policies on the secondary market. A type of privately issued, alternative investment, L bonds were created by Dallas-based alternative asset manager GWG Holdings, which ceased selling them, after a previous pause the year earlier, in April 2021. A year later, in April 2022, GWG filed for bankruptcy after accounting issues, client lawsuits, a Securities and Exchange Commission investigation, and the resignation of its auditor stalled efforts to restart sales of the L bonds.

How L Bonds Worked

Life insurance protects the policyholder's beneficiaries in the event of the policyholder's death. An insured party with a life insurance contract can also sell the policy in the insurance secondary market.

The investor who purchases the l💙ife insurance policy becomes the beneficiary after the transaction is settled and is responsible for making the premium payments to the insurance company, and when the original policyholder dies, the buyer receives the payout from the in☂surer.

Life settlement investors buy life insurance policies in a strategy known as a viatical settlement. These investors aim to make a profit by aligning their expected returns with the life expectancy of the seller. If the seller dies before t✱he expected period, the investor makes a higher return as premium payments cease. Most investors that invest in these life insurance assets are institutional investors.

In the case of L bonds, the issuer used the funds to purchase life insurance contractꦐs that were listed on the secondary market, usually as a result of a life insurance settlement and assumed responsibility for the associated premium payments.

GWG Holdings claimed that an L bond could provide a high yield for the bondholder in exchange for bearing the risk that insurance p🐓olicy premiums or benefits may not be paid.

Investors that purchased life insurance policies sometimes financed the initial purch🌌ases and corresponding premium payments with L bonds. In terms of life insurance settlement transactions, the money raised from issuing the L bond was used to m꧒ake the required premium payments to the seller of the life insurance policy.

GWG Holdings and the L Bond

The L bond was a private placement, a specialty high-yield bond created and issued by GWG Holdings (GWGH), a financial services firm based in Dallas that specialized in alternative assets.

The company purchased life insurance contracts from older adults at a discount to their benefit value. In a viatical settlement, the company may pay an older adult $250,000 for their $1 million life insurance policy a𓂃nd take over premium payments of $30,000 a year.

W𒅌hen the person covered by th𓄧e life insurance would die, the insurance company pays GWG the $1 million benefit. The funds raised from the L bond were used to purchase and finance additional life insurance assets.

In 2020, the firm's portfolio held 1,081 insurance policies valued at $1.92 billion in benefits. Of that, about half (46%)—$882 million—were said to be in policies covering people 85 and older.

GWG failed to file its annual report for 2020 and quarterly reports for the end of March 2021. After failing to file its 2020 annual report timely, GWG suspended its offering of L Bonds. Further, several members of the Board of Directors reportedly resigned in the second quarter of 2021. A year later, GWG filed a chapter 11 petition for bankruptcy to address more than $2 billion of liabilities.

Characteristics of the L Bond

• The bonds were sold in denominations of $1,000 and the minimum investment value for any one investor was $25,000.
• The bonds could be purchased either directly from GWG Holdings or a 澳洲幸运5官方开奖结果体彩网:depositary trust company participant.
• An L bondholder had the same interest rate for the entirety of the bond term. If GWG changed its interest rate for the bond, the investor would have the new rate applied to their bond if they choose to renew it upon maturity.
• When the L bond matured, it was automatically renewed to a similar offering unless it was elected to be redeemed by the investor or the issuer.
• The bonds were callable. The firm reserved the right to call and redeem any or all the L bonds without penalty.
• Bondholders couldn't redeem the bond before maturity except in the event of death, insolvency, or disability. For reasons other than the dire circumstances mentioned above, if GWG agreed to redeem a bond, a 6% penalty fee would be applied and subtracted from the number redeemed.
• L bonds were illiquid investments: There was no secondary public market for these offerings. Therefore, reselling these bonds was highly unlikely, a point brought home as 26,000 bondholders were awaiting recovering any of their investments in L bonds once the company entered bankruptcy.
  

The Bottom Line

An L bond, issued by GWG Holdings, financed the purchase of life insurance policies on the secondary market. GWG Holdings sold L Bonds from 2012 until 2021. However, in 2022, GWG filed a chapter 11 petition for bankruptcy to address more than $2 billion of liabilities.