GWG HOLDINGS, INC. – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. – InsuranceNewsNet

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GWG HOLDINGS, INC. – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Edgar Glimpses
The following discussion should be read in conjunction with the condensed
consolidated financial statements and accompanying notes and the information
contained in other sections of this report. This discussion and analysis is
based on the beliefs of our management, as well as assumptions made by, and
information currently available to, our management.
Unless the context otherwise indicates, all references in this Management's
Discussion and Analysis of Financial Condition and Results of Operations, or
MD&A, to the "Company," "we," "us," "our" or "ours" or similar words are to GWG
Holdings Inc. and its direct and indirect wholly-owned and consolidated
subsidiaries, references to "GWG Holdings" refer to GWG Holdings Inc.,
references to "GWG Life" refer to GWG Life, LLC (a wholly-owned subsidiary of
GWG Holdings), references to "DLP IV" refer to GWG DLP Funding IV, LLC (a
wholly-owned subsidiary of GWG Life), references to "DLP V Holdings" refer to
GWG DLP Funding V Holdings, LLC (a wholly-owned subsidiary of GWG Life),
references to "DLP V" refer to GWG DLP Funding V, LLC (a wholly-owned subsidiary
of DLP V Holdings), references to "DLP VI Holdings" refer to GWG DLP Funding
Holdings VI, LLC (a wholly-owned subsidiary of GWG Life), references to "DLP VI"
refer to GWG DLP Funding VI, LLC (a wholly-owned subsidiary of DLP VI Holdings),
references to "Ben LP" refer to The Beneficient Company Group, L.P. (a
consolidated subsidiary of GWG Holdings), references to "Beneficient" refer to
Ben LP and all of its consolidated subsidiaries, references to "BCH" refer to
Beneficient Company Holdings, L.P. (of which Ben LP is the general partner),
references to "Beneficient Management" refer to Beneficient Management, L.L.C.
(the general partner of Ben LP), references to "BCC" refer to Beneficient
Capital Company, L.L.C. (a subsidiary of Ben LP), references to "BACC" refer to
Beneficient Administrative and Clearing Company, L.L.C. (a subsidiary of Ben
LP), references to "Pen" refer to Pen Indemnity Insurance Company, LTD (a
subsidiary of Ben LP), references to "Ben Markets" refer to Ben Markets L.L.C.
(a subsidiary of Ben LP), references to "FOXO" refer to FOXO Technologies Inc.
(formerly, FOXO BioScience LLC, an equity investee of GWG Holdings), references
to "FOXO Labs" refer to FOXO Labs Inc. (formerly, Life Epigenetics Inc., a
wholly-owned subsidiary of FOXO), references to "FOXO Life" refer to FOXO Life
LLC (formerly, youSurance General Agency, LLC, a wholly-owned subsidiary of
FOXO), and references to the "ExAlt PlanTM" refer to a trust structure
comprising customized trust vehicles (the "ExAlt Trusts" and each, an "ExAlt
Trust") .
Risk Relating to Forward-Looking Statements
This report contains forward-looking statements that reflect our current
expectations and projections about future events. Actual results could differ
materially from those described in these forward-looking statements.
The words "believe," "could," "possibly," "probably," "anticipate," "estimate,"
"project," "expect," "may," "will," "should," "seek," "intend," "plan,"
"expect," or "consider" and similar expressions are intended to identify
forward-looking statements but are not the exclusive means of identifying such
statements. Forward-looking statements are subject to risks and uncertainties,
which could cause actual results to differ materially from such statements. Many
of the forward-looking statements contained in this report can be found in the
following discussion and analysis.
Such risks and uncertainties include, but are not limited to:
•substantial doubt about our ability to continue as a going concern;
•the valuation of assets reflected on our financial statements;
•the illiquidity of our life insurance investments and receivables from
affiliates;
•the continued success of the alternative assets industry;
•our ability to realize the anticipated benefits from our consolidation of
Beneficient;
•Beneficient's financial performance and ability to execute on its business
plan;
•Beneficient's ability to obtain the trust company charter from the Texas
Department of Banking and its trust bank charter from the Kansas State Bank
Commissioner necessary to implement its business plan;
•changes resulting from the evolution of our business model and strategy with
respect to Beneficient and the life insurance secondary market;
•our reliance on debt financing and continued access to the capital markets;
•our significant and ongoing financing requirements;
•our predominant use of short-term debt to fund a portfolio of long-term assets
could result in a liquidity shortage;
                                    Page 48
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•our ability to make cash distributions in satisfaction of dividend obligations
and redemption requests;
•our ability to satisfy our debt obligations if we were to sell our assets;
•general economic outlook, including prevailing interest rates;
•the novel coronavirus pandemic, the ongoing economic downturn and its impact on
our business;
•federal, state, FINRA and other regulatory matters;
•litigation risks;
•our ability to comply with financial and non-financial covenants contained in
borrowing agreements;
•the reliability of assumptions underlying our actuarial models, including life
expectancy ("LE") estimates and our projections of mortality events and the
realization of policy benefits;
•risks relating to the validity and enforceability of the life insurance
policies we purchase;
•our reliance on information provided and obtained by third parties, including
changes in underwriting tables and underwriting methodology;
•life insurance company credit exposure;
•cost-of-insurance (premium) increases on our life insurance policies;
•performance of our investments in life insurance policies; and
•risks associated with our investment in FOXO Technologies Inc. (formerly FOXO
BioScience LLC).
We caution you that the foregoing list of factors is not exhaustive.
Forward-looking statements are only estimates and predictions, or statements of
current intent. Actual results, outcomes or actions that we ultimately undertake
could differ materially from those anticipated in the forward-looking statements
due to risks, uncertainties or actual events differing from the assumptions
underlying these statements. We assume no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events, or otherwise, except as required by law.
Overview
We are an innovative financial services firm based in Dallas, Texas that is a
leader in providing unique liquidity solutions and services for the owners of
illiquid investments. In 2018 and 2019, GWG Holdings and GWG Life consummated a
series of transactions with The Beneficient Company Group, L.P. ("Ben LP"
including all of the subsidiaries it may have from time to time -
"Beneficient"), as more fully described in Note 1 to our condensed consolidated
financial statements in this Form 10-Q. On December 31, 2019, GWG Holdings
obtained the right to appoint a majority of the board of directors of
Beneficient Management. As a result of this change-of-control event, GWG
Holdings reported the results of Beneficient on a consolidated basis beginning
on the transaction date of December 31, 2019. As further described in Note 17 to
the condensed consolidated financial statements, on August 13, 2021, GWG
Holdings, Ben LP, and BCH entered into a non-binding term sheet (the "Term
Sheet"), which, if completed, is expected to result in, among other things, the
deconsolidation of Beneficient from GWG Holdings.
Beneficient is a financial services company, based in Dallas, Texas, that
markets an array of liquidity and trust administration products to alternative
asset investors primarily comprised of mid-to-high-net-worth individuals having
a net worth between $5 million and $30 million ("MHNW") and small-to-midsize
institutional investors and family offices with less than $1 billion in
investable assets ("STMIs"). Ben LP plans to offer its products and services
through its five operating subsidiaries, which include (i) Ben Liquidity, L.L.C.
and its subsidiaries (collectively, "Ben Liquidity"), (ii) Ben Custody, L.L.C.
and its subsidiaries (collectively, "Ben Custody Admin"), (iii) Ben Insurance,
L.L.C. and its subsidiaries (collectively, "Ben Insurance"), (iv) Ben Markets,
L.L.C., and its subsidiaries (collectively, "Ben Markets") and (v) The
Beneficient Company Group (USA), L.L.C ("Beneficient USA"). Ben Liquidity plans
to operate a trust company that is a Kansas Technology Enabled Fiduciary
Financial Institutions ("TEFFI") authorized to serve as an alternative asset
custodian, trustee and lender with statutory powers granted for each of these
activities and permitting Ben Liquidity to provide fiduciary financing for
certain of its customer liquidity transactions. Ben Custody Admin plans to
operate a Texas trust company that is being organized to provide its customers
with certain administrative, custodial and trustee products and specialized
services focused on alternative asset investors. Ben Insurance has been
chartered as a Bermuda based insurance company that plans to offer certain
customized insurance products and services covering risks relating to owning,
managing and transferring alternative assets. Ben Markets is in the regulatory
process for acquiring a captive registered broker-dealer that would conduct
certain of its activities attendant to offering a suite of products and services
from the Beneficient family of companies. Certain of Ben LP's operating
subsidiary products and services involve or are offered to certain of the ExAlt
Trusts, which operate for the benefit of the Non-Controlling Interest Holders,
and are consolidated subsidiaries of Ben LP for financial reporting purposes
(such trusts are and may
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individually be referred to as Custody Trusts, Collective Trusts, LiquidTrusts,
and Funding Trusts). Beneficient USA employs a substantial majority of the
executives and staff for Beneficient's operating subsidiaries to which
Beneficient USA provides administrative and technical services.
We believe that Beneficient's operations will generally produce higher risk
adjusted returns than those we can achieve from life insurance policies acquired
in the secondary market; however, returns on equity in life settlements,
especially with the current availability of financings on favorable terms,
appear to be an attractive option to diversify our exposure to alternative
assets, and we have begun exploring the feasibility of acquiring such policies.
Furthermore, although we believe that our portfolio of life insurance policies
is a meaningful component of a growing diversified alternative asset portfolio,
we continue to explore strategic alternatives for our life insurance portfolio
aimed at maximizing its value, including a possible sale, refinancing,
recapitalization, partnership, reinsurance guarantees, life insurance operations
or other transactions involving our life insurance portfolio, as well as
pursuing other alternatives to increase our exposure to alternative assets.
These operations are in addition to allocating capital to provide liquidity to
holders of a broader range of alternative assets, which we currently provide
through GWG Holdings' and GWG Life's investments in Beneficient.
GWG Holdings completed the transactions with Beneficient, in part, to provide
the Company with a significant increase in assets and common stockholders'
equity. In addition, the transactions with Beneficient may provide us with the
opportunity for a diversified source of future earnings within the alternative
asset industry. We believe the Beneficient transactions and the other strategies
we are pursuing will transform GWG Holdings from a niche provider of liquidity
to owners of life insurance to a diversified provider of financial products and
services with exposure to a broad range of alternative assets.
Restatement
The Company restated its previously issued (i) consolidated balance sheet as of
December 31, 2019, included in its Annual Report on Form 10-K for the year ended
December 31, 2019 and (ii) the consolidated statement of operations, (iii) the
consolidated statement of changes in stockholders' equity, and (iv) the
consolidated statement of cash flows for the year ended December 31, 2019,
included in its Annual Report on Form 10-K for the year ended December 31, 2019,
(the "Restatement") as part of its 2020 Form 10-K. The Restatement also impacted
each of the quarters for the periods beginning with GWG Holdings, Inc.'s
consolidation with The Beneficient Company Group, L.P. ("Ben LP," including all
of the subsidiaries it may have from time to time - "Beneficient") as of
December 31, 2019 through the quarter ended September 30, 2020.

The historical interim periods included in this Form 10-Q have been restated to
reflect the Restatement.
Critical Accounting Policies and Estimates
Critical Accounting Estimates
The preparation of our condensed consolidated financial statements in accordance
with accounting principles generally accepted in the United States of America
("GAAP") requires us to make significant judgments, estimates, and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. We base our judgments, estimates, and assumptions on
historical experience and on various other factors believed to be reasonable
under the circumstances. Actual results could differ materially from these
estimates. We evaluate our judgments, estimates, and assumptions on a regular
basis and make changes accordingly.
Material estimates that are particularly susceptible to change, in the near
term, relate to: determining the assumptions used in estimating the fair value
of our investments in life insurance policies; determining the grant date fair
value for equity-based compensation awards; determining the allocation of income
(loss) to Beneficient's equity holders; and evaluation of potential impairment
of goodwill and other intangibles. We believe these estimates are likely to have
the greatest potential impact on our condensed consolidated financial statements
and accordingly believe these to be our critical accounting estimates.
As it relates to the goodwill intangible asset, in light of Beneficient's
significant recurring losses from operations, negative cash flows from
operations, and delays in executing its business plans, management plans to
engage a third-party valuation firm to assist in performing a quantitative
goodwill impairment test in the fourth quarter of 2021. The valuation work
related to the goodwill intangible is not complete, and we expect the work to be
completed before the filing of our 2021 annual financial statements. While
management has implemented strategies to execute its business plans, a failure
to execute our business plans or adverse market changes in the future could
result in changes in management's forecasts, which could result in a decline in
                                    Page 50
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estimated fair value of the Beneficient reporting unit and would result in an
impairment of our goodwill intangible. Key assumptions in our quantitative
goodwill impairment test include assumptions regarding Ben LP's ability to raise
substantial amounts of capital as disclosed in the 2020 Form 10-K (as defined
below). Beneficient is actively engaged in capital raising efforts that may
include the issuance of equity or debt of Ben LP or one of its subsidiaries and
has received non-binding indications of interest from potential investors. The
outcome of Ben LP's capital raising efforts will have a direct impact on
management's forecasts and consequently, have a direct impact on the magnitude
of future goodwill intangible impairment losses, if any. The outcome of Ben LP's
capital raising efforts is uncertain, and it is not certain that the potential
investors that have submitted non-binding indications of interest ultimately
will invest in Ben LP, or the amount of any such investments. As a result, our
quantitative goodwill intangible impairment analysis, once complete, could
result in material goodwill intangible impairment in the near future.
Critical Accounting Policies
Refer to our Annual Report on Form 10-K for the year ended December 31, 2020
filed with the SEC on November 5, 2021 ("2020 Form 10-K") for a discussion of
our critical accounting policies and estimates. There have been no significant
changes to our critical accounting policies during the three months ended
March 31, 2021.
Recent Developments
We define "recent developments" as material transactions or matters that
occurred in the most recent fiscal quarter or in the period between the end of
the fiscal quarter and the filing of the quarterly or annual financial
statements with the SEC. The following recent developments are described in more
detail in the notes to the condensed consolidated financial statements. A
reference to the corresponding note is included below:
•The amendment of Beneficient's Credit Agreements (Note 17).
•During the first quarter of 2021, Beneficient executed 10 liquidity
transactions, pursuant to which customers sold interests in private equity funds
with an aggregate net asset value of $5.6 million to certain of the ExAlt Trusts
in exchange for agreed upon consideration. In connection with these
transactions, GWG Life issued an aggregate of $0.3 million of principal in
Liquidity Bonds on January 8, 2021 and January 15, 2021.
•In addition, on March 25, 2021, Beneficient filed provisional patent
applications pending on certain of its systems and processes underlying its
liquidity products and trust services. These patent applications cover the
following aspects of Beneficient's business:
•Ben ExAlt PlanTM Patent Application.
?ExAlt Plan. System and process for providing liquidity to customers for their
alternative assets.
•Underwriting Systems Patent Applications.
?AltScore. Alternative asset quality scoring system.
?ValueAlt. Method to value interests in alternative asset funds.
?AltRating. Method to assign credit ratings to structured debt that is backed by
alternative assets.
•Risk Assessment and Risk Reduction Patent Applications.
?AltC. Tool to measure portfolio concentration relative to an established limit
or target.
?OptimumAlt. Portfolio optimization and allocation tool specifically designed
for alternative asset funds.
?AlphaAlt. Proprietary forecast of expected returns and cash flows for
alternative asset fund types.
?AltQuote. Real-time indicator of liquidity solutions for holders of alternative
assets.
                                    Page 51
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•In April 2021, the Kansas Legislature adopted, and the governor of Kansas
signed into law, a bill that would allow for the chartering and creation of
Kansas trust companies, known as TEFFIs, that provide fiduciary financing (e.g.,
lending to ExAlt Trusts), custodian and trustee services in all capacities
pursuant to statutory fiduciary powers, to investors and other participants in
the alternative assets market, as well as the establishment of alternative asset
trusts. The legislation became effective on July 1, 2021 and designates BFF as
the pilot trust company under the TEFFI legislation. A conditional trust charter
was issued by the Kansas Bank Commissioner to a subsidiary of Ben LP on July 1,
2021. Under the pilot program, BFF will not be authorized to exercise its
fiduciary powers as a TEFFI until the earlier of the date the Kansas Bank
Commissioner promulgates applicable rules and regulations or December 31, 2021
or. The bill also permits the Kansas Bank Commissioner to request a six-month
extension of the pilot program period, which could delay Beneficient's exercise
of fiduciary powers under the charter until July 1, 2022. As a result, the
directors of GWG Holdings who serve on the new TEFFI trust company Board of
Directors resigned their membership, effective June 14, 2021, on GWG Holdings'
Board of Directors to devote their time to serving as directors of the
Beneficient TEFFI trust company, which the Company believes is the highest and
best use of their available time and skills and will support the development of
the Beneficient TEFFI trust company and the successful execution of
Beneficient's business plan (Note 17).
•On June 28, 2021, DLP IV entered into a Third Amended and Restated Loan and
Security Agreement with LNV Corporation (the "Third Amended Facility") that
resulted in a $52.5 million advance from LNV Corporation, or $51.2 million
including certain fees and expenses incurred in connection with the entry into
the Third Amended Facility (Note 17).
•On August 11, 2021, GWG DLP Funding VI, LLC, a Delaware limited liability
company ("DLP VI"), entered into a Credit Agreement (the "NF Credit Agreement")
with each lender from time to time party thereto and National Founders LP, a
Delaware limited partnership, as the administrative agent (the credit facility
evidenced by such NF Credit Agreement, the "NF Credit Facility") that resulted
in a one-time $107.6 million advance with a scheduled maturity date of August
11, 2031 (Note 17). Approximately $56.7 million of such advanced amount was used
to pay off the remaining amount due under the Third Amended Facility.
•On August 13, 2021, GWG Holdings, Ben LP, and BCH entered into a Term Sheet
that contemplates a series of transactions, which, if completed, will result in,
among other things, (i) GWG Holdings receiving certain proposed enhancements to
its investments in Beneficient; (ii) GWG Holdings no longer having the right to
appoint directors of the board of directors of Beneficient Management; and (iii)
Beneficient no longer being a consolidated subsidiary of GWG Holdings (Note 17).
•On September 7, 2021, DLP IV entered into a Fourth Amended and Restated Loan
and Security Agreement with LNV Corporation, as lender, and CLMG Corp., as the
administrative agent on behalf of the lenders under the agreement (the "Fourth
Amended Facility") that resulted in a $30.3 million advance from LNV
Corporation, with such advance including amounts to cover certain fees and
expenses incurred in connection with the entry into the Fourth Amended Facility
(Note 17).
•An update on the current state of the Company and potential impact of the
COVID-19 pandemic (Note 17).
Asset Diversification
As of March 31, 2021, we held a combined portfolio of assets consisting of 78%
of fair value secondary life insurance policies and 22% of indirect interests in
alternative assets held by certain of the ExAlt Trusts. The table presented
below reflects classifications based on GWG Holdings' and Beneficient's current
exposure types as of March 31, 2021 (dollar amounts in thousands). Additional
information regarding the Collateral portfolio is available on its website at
www.trustben.com. The information on Beneficient's website is not part of, or
incorporated by reference in, this report.
                                    Page 52
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                    Exposure Type                            Value         Percent of Total
Near-Duration Life Insurance Policies (1)                $   329,128                 32.6  %
Intermediate-Duration Life Insurance Policies (1)            313,811                 31.0  %
Long-Duration Life Insurance Policies (1)                    148,560                 14.7  %
Growth Stage Private (2)                                      83,124                  8.2  %
Late Stage Venture Backed (2)                                 52,096                  5.2  %
Other (2)                                                     29,933                  2.9  %
Early Stage Venture Backed (2)                                28,149                  2.8  %
Corporate Buyouts (2)                                         26,127                  2.6  %
Total                                                    $ 1,010,928                100.0  %

______________________________________________________

(1)Represents fair value of life insurance policies.
(2)Represents the net asset value ("NAV") of the interests in alternative assets
that provide cash flows, which comprise the Collateral of the ExAlt Loans
(defined in section below entitled ExAlt Trusts' Investment in Alternative
Assets). Excludes collateral exchanged in the Collateral Swap, which are
eliminated in consolidation. These ExAlt Loans eliminate upon consolidation in
the presentation of our condensed consolidated financial statements. The Net
Asset Value ("NAV") calculation reflects the most current report of NAV and
other data received from firm/fund sponsors. If no such report has been
received, Beneficient estimates NAV based upon the last NAV calculation reported
by the investment manager and adjusts it for capital calls and distributions
made in the intervening time frame.
The underlying exposure data represents GWG Holdings' exposure to life insurance
policies included in its portfolio and its exposure to the underlying Collateral
of Beneficient's loan portfolio to the ExAlt Trusts. Exposure type reflects
classifications based on each company's portfolio as determined by management.
Figures are based on third-party information and other relevant information as
determined by management. "Other" includes private debt strategies, natural
resources strategies, and hedge funds. "Near-Term", "Intermediate-Term", and
"Long-Term" life insurance policies represent policies with life expectancies
between 0 - 47 months, 48 - 95 months, and 96 - 240 months, respectively.
The following sections contain information on each of the secondary life
insurance assets and the interests in alternative assets held by certain of the
ExAlt Trusts separately.
Secondary Life Insurance Assets
Our portfolio of life insurance policies, owned by GWG Holdings' subsidiaries as
of March 31, 2021, is summarized below:
                        Life Insurance Portfolio Summary

Total life insurance portfolio face value of policy benefits (in
thousands)

                                                                $                 1,879,895
Average face value per policy (in thousands)                              $                     1,822
Average face value per insured life (in thousands)                        $                     1,973
Weighted average age of insured (years)                                                          83.2
Weighted average life expectancy estimate (years)                                                 6.9
Total number of policies                                                                        1,032
Number of unique lives                                                                            953
Demographics                                                                     74% Male; 26% Female
Number of smokers                                                                                  40
Largest policy as % of total portfolio face value                                              0.7  %
Average policy as % of total portfolio                                                         0.1  %
Average annual premium as % of face value                                                      3.9  %


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Our portfolio of life insurance policies, owned by GWG Holdings' subsidiaries as
of March 31, 2021, organized by the insured's current age and the associated
number of policies and policy benefits, is summarized below:
     Distribution of Policies and Policy Benefits by Current Age of Insured
                                                                                                             Percentage of Total
                                                                          Policy Benefits                                                           Weighted Average
    Min Age               Max Age              Number of Policies          (in thousands)        Number of Policies         Policy Benefits            LE (Years)
      64                     69                                  33       $      33,436                       3.3  %                   1.8  %                    11.1
      70                     74                                 183             229,808                      17.7  %                  12.2  %                    10.4
      75                     79                                 210             349,775                      20.3  %                  18.6  %                     9.3
      80                     84                                 204             360,035                      19.8  %                  19.2  %                     7.5
      85                     89                                 220             532,925                      21.3  %                  28.3  %                     4.7
      90                     94                                 157             320,539                      15.2  %                  17.1  %                     3.2
      95                    101                                  25              53,377                       2.4  %                   2.8  %                     1.9
Total                                                         1,032       $   1,879,895                     100.0  %                 100.0  %                     6.9

Our portfolio of life insurance policies, owned by GWG Holdings' subsidiaries as
of March 31, 2021, organized by the insured's estimated life expectancy
estimates and associated policy benefits, is summarized below:

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        Distribution of Policies by Current Life Expectancies of Insured
                                                                                                                          Percentage of Total
                                                                                      Policy Benefits
   Min LE (Months)             Max LE (Months)            Number of Policies           (in Thousands)         Number of Policies          Policy Benefits
          0                          47                                     296       $     513,334                       28.6  %                   27.4  %
         48                          71                                     230             434,338                       22.3  %                   23.1  %
         72                          95                                     193             342,562                       18.7  %                   18.2  %
         96                          119                                    139             244,181                       13.5  %                   13.0  %
         120                         143                                     98             160,624                        9.5  %                    8.5  %
         144                         179                                     68             162,581                        6.6  %                    8.6  %
         180                         240                                      8              22,275                        0.8  %                    1.2  %
Total                                                                     1,032       $   1,879,895                      100.0  %                  100.0  %


We rely on the payment of policy benefit claims by life insurance companies as a
significant source of cash inflow. The life insurance assets we own represent
obligations of third-party life insurance companies to pay the benefit amount
under the policy upon the mortality of the insured. As a result, we manage this
credit risk exposure by generally purchasing policies issued by insurance
companies with investment-grade credit ratings from Standard & Poor's, and
diversifying our life insurance portfolio among a number of insurance companies.
The yield to maturity on bonds issued by life insurance carriers reflects, among
other things, the credit risk (risk of default) of such insurance carrier. We
follow the yields on certain publicly traded life insurance company bonds
because this information is part of the data we consider when valuing our
portfolio of life insurance policies for our financial statements.
The average yield to maturity of publicly traded life insurance company bonds
data we consider as inputs to our life insurance portfolio valuation process was
1.48% as of March 31, 2021. We believe this average yield to maturity reflects,
in part, the financial market's judgment that credit risk is low with regard to
these carriers' financial obligations. The obligations of life insurance
carriers to pay life insurance policy benefits ranks senior to all of their
other financial obligations, including the senior bonds they issue. As of
March 31, 2021, 95.7% of the face value benefits of our life insurance policies
were issued by insurers having an investment-grade credit rating (BBB or better)
by Standard & Poor's.
                                    Page 54
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As of March 31, 2021, our ten largest life insurance company credit exposures
and the Standard & Poor's credit rating of their respective financial strength
and claims-paying ability is set forth below:
         Distribution of Policy Benefits by Top 10 Insurance Companies
                   Policy Benefits        Percentage of Policy                                                    S&P Insurer Financial
    Rank            (in Thousands)           Benefit Amount                    Insurance Company                     Strength Rating
     1             $     262,493                       14.0  %       John Hancock Life Insurance Company                   AA-
                                                       11.2  %       Lincoln National Life Insurance                       AA-
     2                   209,614                                     

Company

                                                       10.7  %       Equitable Financial Life Insurance                    A+
     3                   201,236                                     

Company

     4                   164,491                        8.8  %       Transamerica Life Insurance Company                   A+
     5                   157,244                        8.4  %       Brighthouse Life Insurance Company                    AA-
                                                        4.6  %       American General Life Insurance                       A+
     6                    86,339                                     

Company

     7                    84,998                        4.5  %       Pacific Life Insurance Company                        AA-
     8                    63,876                        3.4  %       ReliaStar Life Insurance Company                      A+
                                                        3.1  %       Security Life of Denver Insurance                     A+
     9                    57,862                                     

Company

     10                   54,969                        2.9  %       Protective Life Insurance Company                     AA-
                   $   1,343,122                       71.6  %


ExAlt Trusts' Investment in Alternative Assets
Beneficient's primary operations, which commenced on September 1, 2017, consist
of offering its liquidity and trust administration services to its customers,
primarily through certain of Ben LP's operating subsidiaries, Ben Liquidity (as
defined below) and Ben Custody Admin (as defined below), respectively. Ben
Liquidity offers simple, rapid and cost-effective liquidity products to its
customers through the use of customized trust vehicles, the ExAlt Trusts, that
facilitate the exchange of a customer's alternative assets for consideration
using a unique financing structure. A subsidiary of Ben Liquidity makes ExAlt
Loans to certain of the ExAlt Trusts. Ben Liquidity generates interest and fee
income earned in connection with such ExAlt Loans to certain of the ExAlt
Trusts, which are collateralized by the cash flows from the exchanged
alternative assets (the "Collateral"). Ben Custody Admin provides trust
administration services to the trustees of certain of the ExAlt Trusts that own
the exchanged alternative asset following a liquidity transaction for fees
payable quarterly. The Collateral supports the repayment of the loans plus any
related interest and fees. Since the ExAlt Trusts are consolidated, Ben LP's
operating subsidiary ExAlt Loans and interest and fee income are eliminated in
the presentation of our condensed consolidated financial statements.

The ExAlt Trusts' investments in alternative assets are the source of the
Collateral supporting the ExAlt Loans. These assets consist primarily of limited
partnership interests in various alternative investments, including private
equity funds. These alternative investments are valued using NAV as a practical
expedient. Changes in the NAV of these investments are recorded in investment
income, net in our consolidated statements of operations. The ExAlt Trusts'
investments in alternative assets provide the economic value creating the
Collateral to the ExAlt Loans made in connection with each liquidity
transaction.

The ExAlt Trusts held interests in alternative assets with a net asset value of
$219.4 million and $221.9 million at March 31, 2021 and December 31, 2020,
respectively. As of March 31, 2021, the ExAlt Trusts' portfolio had exposure to
115 professionally managed alternative investment funds, comprised of 321
underlying investments, 97 percent of which are investments in private
companies.
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The portfolio of alternative assets, excluding the collateral exchanged in the
Collateral Swap, which is eliminated in consolidation, covers the following
industry sectors and geographic regions as of the dates shown below (dollar
amounts in thousands):
                                                                       March 31, 2021                           December 31, 2020
                                                                                     Percent of                               Percent of
                  Industry Sector                                Value                 Total                Value               Total
Diversified Financials                                             28,923                 13.2  %           28,462                 12.8  %
Food and Staples Retailing                                         28,556                 13.0  %           24,450                 11.0  %
Software and Services                                              26,728                 12.2  %           23,310                 10.5  %
Telecommunication Services                                         26,274                 12.0  %           27,401                 12.3  %
Utilities                                                          20,963                  9.6  %           21,740                  9.8  %
Not Applicable (e.g., Escrow, Earnouts)(1)                         18,985                  8.7  %           18,138                  8.2  %
Semiconductors and Semiconductor Equipment                         13,154                  6.0  %           21,271                  9.6  %
Health Care Equipment and Services                                 12,243                  5.6  %           14,682                  6.6  %
Other(1)                                                           43,603                 19.7  %           42,440                 19.2  %
Total                                                      $      219,429                100.0  %       $  221,894                100.0  %



                                                                     March 31, 2021                           December 31, 2020
                                                                                   Percent of                               Percent of
                    Geography                                  Value                 Total                Value               Total
North America                                            $      100,670                 45.8  %       $   95,569                 43.1  %
Western Europe                                                   46,235                 21.1  %           50,219                 22.6  %
Latin & South America                                            29,318                 13.4  %           25,255                 11.4  %
Asia                                                             28,671                 13.1  %           36,436                 16.4  %
Other(2)                                                         14,535                  6.6  %           14,415                  6.5  %
Total                                                    $      219,429                100.0  %       $  221,894                100.0  %

_______________________________________________________________

(1)Industries in this category each comprise less than 5 percent as of March 31,
2021.
(2)Locations in this category each comprise less than 5 percent.
Assets in the portfolio consist primarily of interests in alternative investment
vehicles (also referred to as "funds") that are managed by a group of U.S. and
non-U.S. based alternative asset management firms that invest in a variety of
financial markets and utilize a variety of investment strategies. The vintages
of the funds in the portfolio as of March 31, 2021 ranged from 1993 to 2018.
As the ExAlt Trusts grow their portfolio, they will monitor the diversity of the
portfolio through the use of concentration guidelines. These guidelines were
established, and will be periodically updated, through a data driven approach
based on asset type, fund manager, vintage of fund, industry segment and
geography to manage portfolio risk. Beneficient will refer to these guidelines
when making decisions about new financing opportunities; however, these
guidelines will not restrict Beneficient from entering into financing
opportunities that would result in Beneficient having exposure outside of its
concentration guidelines. In addition, changes to the ExAlt Trusts' portfolio
may lag changes to the concentration guidelines. As such, the ExAlt Trusts'
portfolio may, at any given time, have exposures that are outside of its
concentration guidelines to reflect, among other things, attractive financing
opportunities, limited availability of assets, or other business reasons. Given
the ExAlt Trusts' limited operating history, the portfolio as of March 31, 2021
had exposure to certain alternative investment vehicles and investments in
private companies that were outside of those guidelines.
Classifications by industry sector, exposure type and geography reflect
classification of investments held in funds or companies held directly in the
portfolio. Investments reflect the assets listed by the general partner of a
fund as held by the fund and have a positive or negative net asset value.
Typical assets include portfolio companies, limited partnership interests in
other funds, and net other assets, which are a fund's cash and other current
assets minus liabilities. The underlying interests in alternative assets
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are primarily limited partnership interests, and the limited partnership
agreements governing those interests generally include restrictions on
disclosure of fund-level information, including fund names and company names in
the funds.
Industry sector is based on Global Industry Classification Standard (GICS®)
Level 2 classification (also known as "Industry Group") of companies held in the
portfolio by funds or directly, subject to certain adjustments by us. "Other"
classification is not a GICS® classification. "Other" classification reflects
companies in the GICS® classification categories of Automobiles & Components,
Banks, Capital Goods, Commercial & Professional Services, Consumer Durables &
Apparel, Consumer Services, Energy, Food, Beverage & Tobacco, Household &
Personal Products, Insurance, Materials, Media & Entertainment, Pharmaceutical,
Biotechnology & Life Sciences, Real Estate, Retailing, Tech Hardware &
Equipment, and Transportation. N/A includes investments assets that we have
determined do not have an applicable GICS® Level 2 classification, such as Net
Other Assets and investments that are not operating companies.
Investment exposure type reflects classifications based on each fund's current
investment strategy stage as determined by us. "Other" includes private debt
strategies, natural resources strategies and hedge funds.
Geography reflects classifications determined by us based on each underlying
investment. "Other" geography classification includes Israel, Australia,
Northern Europe, and Eastern Europe.
Principal Revenue and Expense Items
During the three months ended March 31, 2021 and 2020, we earned revenues from
the following primary sources:
•Revenue Realized from Maturities of Life Insurance Policies. We recognize the
difference between the face value of the policy benefits and carrying value when
an insured event has occurred and determine that collection of the policy
benefits is realizable and reasonably assured. Revenue from a transaction must
meet both criteria in order to be recognized. We generally collect the face
value of the life insurance policy from the insurance company within 45 days of
our notification of the insured's mortality, but this collection time varies
depending on the insurance company and individual policy.
•Change in Fair Value of Life Insurance Policies. We value our life insurance
portfolio investments for each reporting period in accordance with the fair
value principles discussed herein, which reflects the expected receipt of policy
benefits in future periods, net of premium costs, as shown in our condensed
consolidated financial statements.
•Investment Income. Includes the change in NAV of the alternative assets held by
certain of the ExAlt Trusts.
•Interest Income. Primarily includes interest earned from policy benefits
receivable and cash held in banks.
•Other Income. Includes changes in the fair value of Beneficient's investment in
put options, L Bond redemption fees, and other miscellaneous income.
During the three months ended March 31, 2021 and 2020, our main components of
expense are summarized below:
•Interest Expense. Includes interest incurred under the second amended and
restated senior credit facility with LNV Corporation (as amended from time to
time, "LNV Credit Facility"), as well as interest paid on GWG Holdings' L Bonds,
Seller Trust L Bonds and other outstanding indebtedness, including Beneficient's
debt due to related parties. When we issue debt, we amortize the financing costs
(commissions and other fees) associated with such indebtedness over the
outstanding term of the financing and classify it as interest expense.
•Employee Compensation and Benefits. Employee compensation and benefits includes
salaries, bonuses and other incentives and costs of employee benefits. Also
included are significant non-cash compensation expenses totaling $5.2 million
and $68.9 million for the three months ended March 31, 2021 and 2020,
respectively, related to Beneficient's equity incentive plans.
•Selling, General and Administrative Expenses. We recognize and record expenses
incurred in our business operations, including operations related to the
servicing of life insurance policies, the origination and servicing of ExAlt
Loans and costs associated with trust administration. These expenses include
legal and professional fees, sales, marketing, occupancy and other expenditures.
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Additional components of our net earnings include:
•Earnings (Loss) from Equity Method Investment. We account for GWG Holdings'
investment in FOXO as an equity method investment, which is included in earnings
(loss) from equity method investment in our condensed consolidated statements of
operations. We had losses from equity method investments of $3.5 million and
$1.5 million during the three months ended March 31, 2021 and 2020,
respectively.
Results of Operations -Three Months Ended March 31, 2021 Compared to the Same
Period in 2020
The following is our analysis of the results of operations for the periods
indicated below. This analysis should be read in conjunction with our condensed
consolidated financial statements and related notes (dollar values in
thousands).
Net Loss Attributable to Common Shareholders
Net loss attributable to common shareholders was $54.4 million and $47.3 million
for the three months ended March 31, 2021 and 2020, respectively. The results of
operations for the three months ended March 31, 2021 reflect higher interest
expense as result of increased average debt balances and higher operating
expenses as a result of increased headcount and ongoing transactions and other
business initiatives, combined with a lower gain on life insurance policies.
More details regarding revenue and expenses for the three months ended March 31,
2021 and 2020 are included in the discussion below.
Revenue from Secondary Life Insurance
                                                                     Three 

Months Ended March 31,

                                                                       2021                  2020

Revenue realized from maturities of life insurance policies $ 17,385

           $   19,467

Revenue recognized from change in fair value of life insurance
policies

                                                                 8,162               12,177
Premiums and other annual fees paid                                    (18,635)             (17,199)
Gain on life insurance policies, net                             $       6,912           $   14,445

Attribution of gain on life insurance policies, net:
Change in estimated probabilistic cash flows, net of premium and
other annual fees paid

                                           $      (5,388)          $      652
Net revenue recognized at maturity                                      12,300               13,793
Gain on life insurance policies, net                             $       6,912           $   14,445

Number of policies matured                                                  26                   20
Face value of matured policies                                   $      25,960           $   25,502

Net revenue recognized at maturity event (% of face value
matured)

                                                                  47.4   %             54.1  %


Revenue from changes in estimated probabilistic cash flows, net of premiums paid
was a charge of $5.4 million compared to a return of $0.7 million during the
three months ended March 31, 2021 and 2020, respectively. The decrease of $7.5
million in gain on life insurance policies for the three months ended March 31,
2021, over the comparable prior year period, was driven by lower revenue
realized from maturities of life insurance policies (see more details in the
following paragraph), a lower amount of revenue recognized from changes in fair
value of the policies still in force at March 31, 2021, and higher premium costs
due to the aging of the portfolio.
The face value of matured policies was $26.0 million and $25.5 million for the
three months ended March 31, 2021 and 2020, respectively, reflecting an increase
in face value of matured policies of $0.5 million. The resulting revenue
realized at maturity was $17.4 million and $19.5 million during the three months
ended March 31, 2021 and 2020, respectively. The decreased revenue realized at
maturity during the comparable periods was due to the higher carrying value of
the policies that matured during the first quarter of 2021 compared to the first
quarter of 2020.
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Investment Income, Interest Income, and Other Income (in thousands)

                              Three Months Ended March 31,
                             2021             2020        Variance
Investment income     $    2,090            $ 7,556      $ (5,466)
Interest income              317                715          (398)
Other (loss) income       (1,560)                96        (1,656)
Total                 $      847            $ 8,367      $ (7,520)


Investment income decreased $5.5 million during the three months ended March 31,
2021, compared to the same period in 2020, primarily due to a decrease in the
NAV of the alternative assets held by certain of the ExAlt Trusts.
Interest income decreased $0.4 million during the three months ended March 31,
2021, compared to the same period in 2020, primarily due to a decrease in
average cash balances and corresponding bank interest earned.
Other loss during the three months ended March 31, 2021, includes a $2.2 million
decrease to the fair value of Beneficient's investment in put options, compared
to L Bond early redemption fees and other miscellaneous income items recorded in
the comparable period in 2020.
Interest and Operating Expenses (in thousands)
                                                                           

Three Months Ended March 31,

                                                                    2021                2020             Variance

Interest expense (including amortization of deferred
financing costs)

                                                $   41,382          $  35,871          $   5,511
Employee compensation and benefits                                  15,024             77,704            (62,680)
Legal and professional fees                                          8,128              6,163              1,965
Other expenses                                                       7,003              3,612              3,391
Total expenses                                                  $   71,537          $ 123,350          $ (51,813)


Interest expense, including amortization of deferred financing costs, increased
$5.5 million during the three months ended March 31, 2021, compared to the same
period in 2020, primarily due to the increase in the average balance of
outstanding L Bonds.
The decrease in employee compensation and benefits in the three months ended
March 31, 2021, compared to the same period of 2020, was primarily related to
Beneficient's equity incentive plans. Specifically, the Company recognized $5.2
million compared to $68.9 million of equity-based compensation expense related
to Beneficient's equity incentive plans during the three months ended March 31,
2021 and 2020, respectively. The decrease is due to the full vesting of some
awards upon grant during the first quarter of 2020 compared to predominately
service-based vesting during the first quarter of 2021. In addition to
Beneficient's equity-based compensation expense, we recognized additional
retention, severance and other costs in the first quarter of 2020 related to the
relocation of GWG Holdings' principal offices from Minneapolis to Dallas in late
2019. Finally, these decreases were partially offset by higher salary and
benefit costs recognized as a result of higher headcount for the comparable
periods.
The increase in legal and professional fees in the three months ended March 31,
2021, compared to the same periods of 2020, is primarily the result of recent
transactions, the engagement of certain service providers subsequent to first
quarter 2020, and other ongoing initiatives.
The increase in other expenses, in the three months ended March 31, 2021
compared to the same periods of 2020, is primarily due to the $2.0 million
write-off of an investment related to legacy business initiatives of GWG
Holdings combined with a $1.3 million partial expense reversal of a service
provider accrual by Beneficient during the first quarter of 2020.
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Income Taxes
The Company applies an estimated annual effective rate to interim period pre-tax
income to calculate the income tax provision for the quarter in accordance with
the principal method prescribed by the accounting guidance established for
computing income taxes in interim periods.
The Company's effective tax rate was 0.43% for the three months ended March 31,
2021. The income tax benefit for the three months ended March 31, 2021 was $0.3
million, compared to $16.1 million for the three months ended March 31, 2020.
The effective tax rate differs from the statutory U.S. federal income tax rate
of 21% primarily due to valuation allowances recorded on the current year
losses, offset by a current state tax expense. The income tax benefit for the
three months ended March 31, 2021 primarily reflects a downward adjustment to
the deferred tax liability for specific expense allocations to the holders of
the Preferred Series A Subclass 1 Unit Accounts.
The Company currently records a valuation allowance against its deferred tax
assets that cannot be realized solely by the future reversal of existing
temporary differences. Due to the uncertain timing of the reversal of certain of
these taxable temporary differences due to the constraint described below, they
cannot be considered as a source of future taxable income for purposes of
determining a valuation allowance; therefore, the vast majority of the existing
deferred tax liability cannot be utilized in determining the realizability of
the deferred tax assets. Due to a prior deemed ownership change, net operating
loss carryforwards are subject to Section 382 of the Internal Revenue Code.
The Company determined it cannot utilize the reversal of a taxable temporary
difference related to GWG Life's ownership in the Preferred Series A Subclass 1
Unit Accounts described in Note 1, until such time as the preferred equity is no
longer constrained, as a source of income to realize existing deferred tax
assets related to the net operating loss and Internal Revenue Code Section
163(j) limitations. As a result, the Company recorded a large net deferred tax
liability on December 31, 2019, the majority of which remained as of March 31,
2021 and December 31, 2020. The disposition of this investment is constrained by
the Pledge and Security Agreement in favor of the holders of the L Bonds of GWG
Holdings. As such, the timing of recognition of the necessary taxable income
related to this investment and the future reversal of this taxable temporary
difference cannot be predicted.
Revenue and Earnings before Tax by Reportable Segment - Three Months Ended
March 31, 2021 Compared to the Same Period in 2020
We have two reportable segments: 1) Secondary Life Insurance and 2) Beneficient.
Corporate & Other includes certain activities not allocated to specific business
segments. These activities include holding company financing and investing
activities, management and administrative services to support the overall
operations of the Company, and GWG Holdings' equity method investment in FOXO.
Comparison of revenue by reportable segment for the periods indicated (in
thousands):
                                   Three Months Ended March 31,
Revenue:                        2021             2020        Variance
Secondary Life Insurance   $   7,172          $ 15,148      $  (7,976)
Beneficient                      587             7,664         (7,077)

Total                      $   7,759          $ 22,812      $ (15,053)


The primary components of the changes in revenue during the three months ended
March 31, 2021 compared to the same periods in 2020 were as follows:
•Secondary Life Insurance revenue decreased by $8.0 million during the three
months ended March 31, 2021, compared to the comparable period in 2020,
primarily as a result of a decrease of $4.6 million in the change in estimated
probabilistic cash flows, a decrease of $1.5 million in net revenue recognized
at maturity and an increase of $1.4 million in premium expense.

•Beneficient segment revenue decreased for the three months ended March 31, 2021
compared to the same period in 2020, due to a $5.5 million decrease in
investment income driven by the decrease in NAV combined with a $2.2 million
loss on investment in put option during the first quarter of 2021.
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Comparison of loss before tax by reportable segment for the periods indicated
(in thousands):

                                  Three Months Ended March 31,
Segment Loss Before Tax        2021            2020         Variance
Secondary Life Insurance   $  (22,389)     $  (14,721)     $ (7,668)
Beneficient                   (31,593)        (80,194)       48,601
Corporate & Other(1)          (13,310)         (7,153)       (6,157)
Total                      $  (67,292)     $ (102,068)     $ 34,776

_______________________________________________

(1)Includes loss from equity method investments as presented in our condensed
consolidated statements of operations, related to GWG Holdings' investment in
FOXO.
The primary drivers of the changes in loss before tax during the three months
ended March 31, 2021, compared to the same period in 2020 were as follows:
•Secondary Life Insurance loss before tax increased by $7.7 million for the
three months ended March 31, 2021 compared to the same period in 2020, as a
result of the following:
•$7.5 million decrease in gain on life insurance policies, net for the
comparative period as described above in the revenue comparison discussion;
•$4.9 million increase in interest expense during the comparative periods as a
result of higher average debt outstanding; and
•$5.2 million decrease in operating expenses during the comparative period,
primarily resulting from lower employee compensation and benefits.
•Beneficient segment loss before tax decreased by $48.6 million for the three
months ended March 31, 2021, respectively, compared to the same period in 2020,
primarily due to:
•a decrease of $60.1 million in non-cash charges for equity incentive
compensation;
•a decrease in investment income of $5.5 million combined with an increase in
loss on put option of $2.2 million as described above in the revenue comparison
discussion; and
•increases in interest and other operating expenses of approximately $3.6
million.
•Corporate and Other operating loss was higher during the three months ended
March 31, 2021 compared to the same period in 2020, primarily due to an increase
in loss from equity method investment of $2.0 million, the write-off of a $2.0
million investment related to legacy business initiatives, and higher legal fees
and other expenses of approximately $2.0 million.
Liquidity and Capital Resources
As of March 31, 2021 and December 31, 2020, we had approximately $114.2 million
and $124.2 million, respectively, in combined available cash, cash equivalents,
and restricted cash. We generated net losses attributable to common shareholders
of $54.4 million and $47.3 million for the three months ended March 31, 2021 and
2020, respectively. As of October 15, 2021, we had cash, cash equivalents, and
restricted cash of approximately $54.3 million. Besides funding operating
expenditures, we are obligated to pay other items, such as interest payments.
debt maturities, and preferred stock dividends and redemptions.
We have historically financed our businesses primarily through a combination of
L Bond sales, preferred stock sales, the LNV Credit Facility, and the NF Credit
Facility. We have also financed our business through proceeds from life
insurance policy benefit receipts, cash distributions from the ExAlt Trusts'
alternative asset portfolio, dividends and interest on investments, and
Beneficient's debt due to related parties. We have traditionally used proceeds
from these sources for policy acquisition, policy premiums and servicing costs,
working capital and financing expenditures including paying principal, interest
and dividends. We have also used proceeds to allocate capital to Beneficient;
however, if Ben LP becomes an independent company pursuant to the terms of the
Term Sheet, the Company expects that Ben LP would reduce its reliance on GWG
Holdings to fund its
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operations and would raise future capital from other sources. Ben LP's capital
raising efforts and participation in liquidity transactions may include the
issuance of equity or debt of Ben LP or one of its subsidiaries, and the newly
issued securities may be dilutive to GWG Holdings' and GWG Life's investments in
Ben LP and BCH and may include preferential terms relative to GWG Holdings' and
GWG Life's investments in Ben LP and BCH, as applicable.
We currently fund our business primarily with debt that generally has a shorter
duration than the duration of our long-term assets. The resulting
asset/liability mismatch can result in a liquidity shortfall if we are unable to
renew maturing short-term debt or secure suitable additional financing. In such
a situation, we could be forced to sell assets at less than optimal (distressed)
prices. Substantially all of our life insurance policies are pledged as
collateral under the LNV Credit Facility and the NF Credit Facility and we would
not be able to dispose of them without compliance with the terms of those credit
facilities. We heavily rely on GWG Holdings' L Bond offering to fund our
business operations, including, among other things, interest and principal
payments on existing L Bonds and capital allocations to Beneficient. We
temporarily suspended the offering of GWG Holdings' L Bonds, commencing April
16, 2021, as a result of our delay in filing certain periodic reports with the
SEC, including this Quarterly Report on Form 10-Q, and were required to seek
alternative sources of capital.

As a result of the suspension of GWG Holdings' L Bond offering, on June 28, 2021
(as described in more detail below), we pledged additional life insurance
policies as collateral and received an additional advance of $51.2 million under
the Third Amended Facility. Subsequently, on August 11 2021, we entered into the
NF Credit Agreement (as described in more detail above and in Note 17 to the
condensed consolidated financial statements) and received a one-time advance of
$107.6 million under this agreement. Approximately $56.7 million of such
advanced amount was used to pay off the remaining amount due, including interest
and penalties, under the Third Amended Facility and the additional pledged life
insurance policies used as collateral for the Third Amended Facility were
released and pledged under the NF Credit Facility. Further, on September 7,
2021, DLP IV entered into the Fourth Amended Facility, that replaced the
aforementioned Third Amended Facility. The Fourth Amended Facility resulted in
an additional advance of $30.3 million from LNV Corporation, with no additional
pledged collateral.

Primarily due to the current suspension of GWG Holdings' L Bond offering, the
Company may require additional capital to continue its operations over the next
twelve months if our ability to sell L Bonds dissipates, or if we are forced to
suspend the L Bond offering. However, the Company may not be able to obtain
additional borrowings under existing debt facilities or new borrowings with
other third-party lenders. To the extent that GWG Holdings or its subsidiaries
raise additional capital through the future issuance of debt, the terms of those
debt securities may include terms that adversely affect the rights of our
existing debt and/or equity holders or involve negative covenants that restrict
GWG Holdings' ability to take specific actions, such as incurring additional
debt or making additional investments in growing the operations of the Company.
If GWG Holdings is unable to fund its operations and other obligations, or
defaults on its debt, then the Company will be required to either i) sell assets
to provide sufficient funding, ii) exercise our right to decline requests for
early L Bond redemptions or redemptions of preferred stock, or iii) to raise
additional capital through the sale of equity and the ownership interest of our
equity holders may be diluted. Substantially all of our life insurance policies
are pledged as collateral under the LNV Credit Facility and the NF Credit
Facility and we would not be able to dispose of them without compliance with the
terms of those credit facilities.

We anticipate recommencing the offering of GWG Holdings' L Bonds once we become
current with our filing obligations and satisfy applicable NASDAQ listing
requirements. Once we become current with our filing obligations with respect to
the L Bonds, we may be limited in the origination channels in which we sell our
L Bonds in the event that we are unable to meet the applicable NASDAQ listing
requirements in a timely manner, which could result in the L Bonds no longer
being "covered securities" for federal securities law purposes which would
subject the offer and sale of L Bonds to potentially extensive state "blue sky"
securities law requirements. If for any reason we are forced to suspend GWG
Holdings' L Bond offering, are limited in our origination channels in which we
sell our L Bonds, or demand for GWG Holdings' L bonds dissipates, our business
would be adversely impacted and our ability to service and repay our debt
obligations, much of which is short term, would be compromised, thereby
negatively affecting our business prospects and viability.
We had $126.0 million of borrowing base capacity, excluding any potential
capacity for premiums and servicing costs, under the LNV Credit Facility as of
March 31, 2021. Additional future borrowing base capacity for premiums and
servicing costs, created as the premiums and servicing costs of pledged life
insurance policies become due and by additional policy pledges to the facility,
if any, exists under the LNV Credit Facility at the sole discretion of the
lender. The LNV Credit Facility has certain financial and nonfinancial
covenants, and we were in compliance with these debt covenants as of March 31,
2021 and continue to be so as of the filing date of this report. Subsequent to
March 31, 2021, we received additional advances through
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amendments to the LNV Credit Facility and entered into the NF Credit Facility
(as described above and more fully in Note 17 to the condensed consolidated
financial statements).
Beneficient is obligated to make debt payments totaling $75.6 million on certain
outstanding borrowings through May 30, 2022 under the terms of the Amendment No.
1 to the Second Amended and Restated Credit Agreements as discussed further in
Note 17 to the condensed consolidated financial statements. Primarily due to
both the forthcoming debt payments under the Credit Agreement and Second Lien
Credit Agreement and the anticipated deconsolidation of Beneficient from GWG
Holdings, as discussed previously and in Note 17, which is expected to result in
reduced reliance by Beneficient on GWG Holdings to fund its operations,
Beneficient will require additional liquidity to continue its operations over
the next twelve months. Beneficient expects to satisfy these obligations and
fund its operations through anticipated operating cash flows, proceeds from
distributions on the alternative assets portfolio, additional investments into
Beneficient by GWG Holdings and/or other parties and, potentially refinancing
with other third-party lenders some or all of the existing borrowings due prior
to their maturity. Beneficient is currently in the process of raising additional
equity, which is anticipated to close during the fourth quarter of 2021 and/or
the first quarter of 2022.
Beneficient may not be able to refinance or obtain additional financing on terms
favorable to the Company, or at all. To the extent that Beneficient raises
additional capital through the future sale of equity or debt, the ownership
interest of its existing equity holders may be diluted. The terms of these
future equity or debt securities may include liquidation or other preferences
that adversely affect the rights of its existing equity unitholders or involve
negative covenants that restrict Beneficient's ability to take specific actions,
such as incurring additional debt or making additional investments in growing
its operations. If Beneficient defaults on these borrowings, then it will be
required to either i) sell assets to repay these loans or ii) to raise
additional capital through the sale of equity and the ownership interest of our
equity holders may be diluted. Moreover, if Beneficient were to sell assets to
avoid a default of these borrowings, then the price at which Beneficient sold
such assets may not reflect the carrying value of those assets as reflected in
our consolidated financial statements, especially in the event of a bulk or
distressed sale.
As noted in the "Results of Operations" section above, on November 11, 2019, GWG
Holdings contributed the common stock and membership interests of its then
wholly-owned FOXO Labs and FOXO Life subsidiaries to FOXO in exchange for a
membership interest in the entity. On November 13, 2020, FOXO BioScience LLC
converted to a corporation and is now known as FOXO Technologies Inc. With the
corporate conversion, GWG Holdings' previous membership interest in the LLC
converted to preferred equity. GWG Holdings has contributed $1.2 million in cash
to FOXO during the three months ended March 31, 2021, and is committed to
contribute an additional $2.5 million to the entity through October 2021, all of
which has been contributed through such date.
The potential NASDAQ delisting and our current inability to sell L Bonds as
discussed above, in combination with significant recurring losses from
operations, negative cash flows from operations, delays in executing our
business plans, and any potential negative outcome from the ongoing SEC
investigation discussed elsewhere in this Form 10-Q, raise substantial doubt
about our ability to continue as a going concern for the next 12 months
following the filing of this Form 10-Q.
Financings Summary
We had the following outstanding debt balances as of March 31, 2021 and
December 31, 2020, with the following weighted average interest rates as
calculated for the three months ended March 31, 2021, and the year ended
December 31, 2020 (dollars in thousands):
                                                                  March 31, 2021                                 December 31, 2020
                                                    Principal Amount         Weighted Average        Principal Amount         Weighted Average
Issuer/Borrower                                        Outstanding            Interest Rate             Outstanding            Interest Rate
GWG DLP Funding IV, LLC - LNV senior credit                                            9.00  %                                          9.12  %
facility                                            $      174,007                                   $      202,611
GWG Holdings, Inc. - L Bonds                             1,372,305                     7.21  %            1,277,881                     7.21  %
GWG Holdings, Inc. - Seller Trust L Bonds                  272,104                     7.50  %              272,104                     7.50  %
Beneficient - Debt due to related parties                   78,213                     7.87  %               77,176                     6.50  %
Total                                               $    1,896,629                     7.44  %       $    1,829,772                     7.43  %


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The table below reconciles the face amount of our outstanding debt to the
carrying value shown on our balance sheets (dollars in thousands):

                                                 March 31, 2021       December 31, 2020
Senior credit facility with LNV Corporation
Face amount outstanding                         $       174,007      $      

202,611

Unamortized deferred financing costs                     (8,552)            

(8,881)

Carrying amount                                 $       165,455      $      

193,730

L Bonds and Seller Trust L Bonds:
Face amount outstanding                         $     1,644,409      $      

1,549,985

Subscriptions in process                                 24,762             

17,978

Unamortized selling costs                               (51,976)            

(48,957)

Carrying amount                                 $     1,617,195      $      

1,519,006

Debt due to related parties:
Face amount outstanding                         $        78,213      $           77,176
Unamortized discount                                     (1,258)                   (916)
Carrying amount                                 $        76,955      $           76,260


In January 2015, GWG Holdings began publicly offering up to $1.0 billion of L
Bonds as a follow-on to our earlier $250.0 million public debt offering. In
January 2018, GWG Holdings began publicly offering up to $1.0 billion L Bonds as
a follow-on to its earlier offering.
On June 3, 2020, a registration statement relating to an additional public
offering was declared effective permitting us to sell up to $2.0 billion in
principal amount of L Bonds on a continuous basis through June 2023. These bonds
contain the same terms and features as our previous offerings. Through March 31,
2021, we have raised $408.6 million under this offering, including renewals,
since it was declared effective.
Through March 31, 2021, the total amount of L Bonds sold under all offerings,
including renewals, was $2.3 billion. As of March 31, 2021 and December 31,
2020, respectively, we had approximately $1.4 billion and $1.3 billion in
principal amount of L Bonds outstanding (exclusive of Seller Trust L Bonds).
On August 10, 2018, GWG Holdings, GWG Life and the Bank of Utah, as trustee,
entered into the L Bond Supplemental Indenture to the Amended and Restated
Indenture. GWG Holdings entered into the L Bond Supplemental Indenture to add
and modify certain provisions of the Amended and Restated Indenture necessary to
provide for the issuance of the Seller Trust L Bonds. GWG Holdings issued Seller
Trust L Bonds in the amount of $366.9 million to the Seller Trusts in connection
with the Exchange Transaction. As a result of the Collateral Swap discussed in
Note 1 to the condensed consolidated financial statements, $94.8 million of the
Seller Trust L Bonds are eliminated upon consolidation. The maturity date of the
Seller Trust L Bonds is August 9, 2023. The Seller Trust L Bonds bear interest
at 7.5% per annum. Interest is payable monthly in cash (see Note 9 to the
condensed consolidated financial statements). The Amended and Restated Indenture
was subsequently amended on December 31, 2019, primarily to modify the
calculation of the Debt Coverage Ratio in the Indenture to provide GWG Holdings
with the ability to incur indebtedness (directly or through a subsidiary of GWG
Holdings) that is payable in capital stock of GWG Holdings or mandatorily
convertible into or exchangeable for capital stock of GWG Holdings that would be
excluded from the calculation of the Debt Coverage Ratio. On December 31, 2020,
we entered into the Liquidity Bond Supplemental Indenture to add and modify
certain provisions of the Amended and Restated Indenture necessary to provide
for the issuance of the Liquidity Bonds in a principal amount of up to $1.0
billion.
The weighted-average interest rate of GWG Holdings' outstanding L Bonds
(excluding the Seller Trust L Bonds) as of both March 31, 2021 and December 31,
2020 was 7.21%, and the weighted-average maturity at those dates was 3.16 years
and 3.19 years, respectively. GWG Holdings' L Bonds (other than the Seller Trust
L Bonds and Liquidity Bonds) have renewal features. Since we first issued GWG
Holdings' L Bonds, we have experienced $801.3 million in maturities, of which
$424.1 million has renewed through March 31, 2021, for an additional term. This
renewal activity has provided us with an aggregate renewal rate of approximately
52.9% for investments in these securities.
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Future contractual maturities of L Bonds (including the Seller Trust L Bonds and
Liquidity Bonds) at March 31, 2021 are as follows (in thousands):
Years Ending December 31,
Nine months ending 2021(1)       $   414,695
2022                                 292,084
2023                                 235,831
2024                                 159,779
2025                                 166,413
Thereafter                           375,607
                                 $ 1,644,409


(1)As of March 31, 2021, we had approximately $366.9 million in principal amount
of Seller Trust L Bonds outstanding, of which $94.8 million are held by the
ExAlt Trusts and are eliminated in consolidation. Accordingly, the net of these
amounts, $272.1 million, is presented in the table above. As the second
anniversary of the Final Closing Date has passed, the holders of the Seller
Trust L Bonds now have the right to cause GWG Holdings to repurchase, in whole
but not in part, the Seller Trust L Bonds held by such holder within 45 days. As
such, while the maturity date of the Seller Trust L Bonds is in August 2023,
their contractual maturity is reflected in 2021, as that is the first period in
which they could become payable. The repurchase may be paid, at the option of
GWG Holdings, in the form of cash, and/or a pro rata portion of (i) the
outstanding principal amount and accrued and unpaid interest under the
Commercial Loan Agreement, and (ii) Common Units, or a combination of cash and
such property.
The L Bonds (including the Seller Trust L Bonds and Liquidity Bonds) are secured
by all of our assets and are subordinate to the LNV Credit Facility and the NF
Credit Facility.
On September 27, 2017, we entered into a $300 million amended and restated
senior credit facility with LNV Corporation in which DLP IV is the borrower. As
of March 31, 2021, we had approximately $174.0 million outstanding under the
senior credit facility. On November 1, 2019, we entered into the LNV Credit
Facility, which replaced the prior agreement governing the facility. A
description of the agreement governing the LNV Credit Facility is set forth
below under the caption "Amendment of Credit Facility with LNV Corporation." We
intend to use the proceeds from this facility to maintain our portfolio of life
insurance policies, for liquidity and for general corporate purposes.
Beneficient had borrowings with an aggregate carrying value of $77.0 million and
$76.3 million as of March 31, 2021 and December 31, 2020, respectively. This
aggregate outstanding balance includes a first lien credit agreement and a
second lien credit agreement with respective balances, including accrued
interest, of $2.3 million and $73.2 million as of March 31, 2021 and $2.3
million and $72.3 million as of December 31, 2020, respectively. These amounts
exclude an unamortized discount of $1.3 million and $0.9 million as of March 31,
2021 and December 31, 2020, respectively. Both credit agreements were amended
and restated on August 13, 2020, which extended the maturity for both to April
10, 2021, as discussed in detail in Note 9 to the condensed consolidated
financial statements. In accordance with the terms of the Second Amendments,
dated August 13, 2020, both loans accrue interest at a rate of 1-month LIBOR
plus 8.0%, with a maximum rate of 9.5%. Prior to the Second Amendments, both
loans accrued interest at a rate of 1-month LIBOR plus 3.95%, compounded daily.
On March 10, 2021, the Ben Credit Agreements were amended to extend the maturity
for both agreements to May 30, 2022, as discussed in detail in Note 17 to the
condensed consolidated financial statements. These loans are not currently
guaranteed by GWG Holdings as of March 31, 2021.
Beneficient has additional borrowings maturing in 2023 and 2024 with an
aggregate principal balance of $2.7 million and $2.6 million as of March 31,
2021 and December 31, 2020, respectively.
We expect to meet our ongoing operational capital needs for, among other things,
GWG Holdings' investments in Beneficient, alternative asset investments, policy
premiums and servicing costs, new policy acquisitions, exploring opportunities
to establish a life insurance company, working capital and financing
expenditures including paying principal, interest and dividends through a
combination of the receipt of policy benefits from our portfolio of life
insurance policies, net proceeds from GWG Holdings' L Bond offering, dividends
and interest from investments, distributions from the alternative assets held by
certain of the ExAlt
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Trusts, future preferred and common equity offerings, and funding available from
the LNV Credit Facility. We estimate that our liquidity and capital resources
are sufficient for our current and projected financial needs for at least the
next twelve months given current assumptions. However, if we are unable to
continue GWG Holdings' L Bond or preferred stock offerings for any reason, and
we are unable to obtain capital from other sources, our business will be
materially and adversely affected. In addition, our business will be materially
and adversely affected if we do not receive the policy benefits we forecast and
if holders of GWG Holdings' L Bonds fail to renew with the frequency we have
historically experienced. In such a case, we could be forced to sell our
investments in life insurance policies to service or satisfy our debt-related
and other obligations. A sale under such circumstances may result in significant
impairment of the recognized value of our portfolio.
Capital expenditures have historically not been material and we do not
anticipate making material capital expenditures through the remainder of 2021.
Alternative Assets and Secured Indebtedness
The following information is specifically related to GWG Holdings, Inc. and its
subsidiaries (not including the assets and liabilities held by Beneficient or
any eliminations in consolidation).
The following table seeks to illustrate the impact that a hypothetical sale of
our portfolio of life insurance assets (at various discount rates, including the
discount rate used to value our portfolio at March 31, 2021), and the
realization of the investment in Common Units, investment in Preferred Series A
Subclass 1 Unit Account of BCH, investment in Preferred Series C Unit Account of
BCH (a substantial majority of the net assets of which are currently represented
by intangible assets and goodwill), and the Commercial Loan Agreement (in each
case, at their respective carrying amounts and assuming no discount for lack of
marketability or transaction costs, which could be substantial) would have on
our ability to satisfy our debt obligations as of March 31, 2021. The investment
in Common Units, investment in Preferred Series A Subclass 1 Unit Account of
BCH, investment in Preferred Series C Unit Account of BCH, and Commercial Loan
Agreement are discussed in detail in Note 1 and other applicable notes to the
condensed consolidated financial statements. The amounts in the table below do
not include the consolidation of the assets and liabilities of Beneficient and
related eliminations as of March 31, 2021. In all cases, the sale of the life
insurance assets owned by DLP IV will be used first to satisfy all amounts owing
under the LNV Credit Facility. The net sale proceeds remaining after satisfying
all obligations under the LNV Credit Facility would be applied to the L Bonds
and Seller Trust L Bonds on a pari passu basis. All dollar amounts in the table
below are in thousands.
Life Insurance Portfolio Discount Rate                      8.25%(1)                  9.00%                  10.00%                  12.00%             

13.48%

Value of life insurance portfolio                      $       791,499          $      764,699          $      731,570          $      673,041          $  635,435
Common Units                                                   437,990                 437,990                 437,990                 437,990             437,990
Preferred Series A Subclass 1 Unit Account of
BCH                                                            319,030                 319,030                 319,030                 319,030          

319,030

Preferred Series C Unit Account of BCH                         210,624                 210,624                 210,624                 210,624             210,624
Commercial Loan Agreement                                      183,187                 183,187                 183,187                 183,187             183,187
Cash, cash equivalents and policy benefits
receivable                                                     114,641                 114,641                 114,641                 114,641             114,641
Other assets                                                    12,055                  12,055                  12,055                  12,055              12,055
Total assets                                                 2,069,026               2,042,226               2,009,097               1,950,568           1,912,962
Less: Senior credit facility(2)                                174,007                 174,007                 174,007                 174,007          

174,007

Net after senior credit facility                             1,895,019               1,868,219               1,835,090               1,776,561           1,738,955
Less: L Bonds(3)                                             1,739,197               1,739,197               1,739,197               1,739,197           1,739,197
Net remaining                                          $       155,822          $      129,022          $       95,893          $       37,364          $     (242)
Impairment to L Bonds                                       No impairment           No impairment           No impairment           No Impairment          Impairment


(1)The discount rate used to calculate the fair value of our life insurance
portfolio as of March 31, 2021.
(2)This amount excludes unamortized deferred financing costs.
(3)Amount represents aggregate outstanding principal balance of L Bonds and
Seller Trust L Bonds prior to eliminations as of March 31, 2021.
The above table illustrates that our ability to fully satisfy amounts owing
under the L Bonds and Seller Trust L Bonds would likely be impaired upon the
sale or the realization of the investment in Common Units, investment in
Preferred Series A Subclass 1 Unit Account of BCH, investment in Preferred
Series C Unit Account of BCH and Commercial Loan Agreement at their respective
carrying amounts, plus all our life insurance assets at a price equivalent to a
discount rate of approximately 13.48% or higher at March 31, 2021. At
December 31, 2020, the likely impairment occurred at a discount rate of
approximately
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16.12% or higher. Based on a preliminary analysis, at September 30, 2021,
management expects the likely impairment, as calculated in accordance with the
table above, to occur at a discount rate of approximately 8.50% or higher. The
above hypothetical analysis is included for informational purposes only, and the
results of such analysis have no bearing on the current ability of GWG Holdings
to market and sell L Bonds or to satisfy amounts owing under the L Bonds and
Seller Trust L Bonds.
The table does not include any allowance for transactional fees and expenses
(which expenses and fees could be substantial) nor any discount for lack of
marketability associated with a portfolio sale or the realization of the
investment in Common Units, investment in Preferred Series A Subclass 1 Unit
Account of BCH, investment in Preferred Series C Unit Account of BCH, and
Commercial Loan Agreement, respectively, and is provided to demonstrate how
various discount rates used to value our portfolio of life insurance assets
could affect our ability to satisfy amounts owing under our debt obligations in
light of our senior secured lender's right to priority payments under our senior
credit facility with LNV Corporation.
The table also assumes GWG Holdings will realize the full amounts of the
investment in Common Units, investment in Preferred Series A Subclass 1 Unit
Account of BCH, investment in Preferred Series C Unit Account of BCH, and
Commercial Loan Agreement. However, the ultimate value of these investments in
Beneficient depends on multiple factors, including the expected growth of new
service offerings and products. Since predicting the rate of growth attributable
to newly launched products is inherently uncertain, there is no assurance that
GWG Holdings will recover the full book basis of its investments in Beneficient.
Additionally, there is currently no market for the aforementioned assets, and a
market may not develop. Our Commercial Loan receivable and a portion of GWG
Holdings' investment in the Common Units may be used as consideration for
retiring the Seller Trust L Bonds upon a redemption event or at the maturity of
the Seller Trust L Bonds (see Note 9 to the condensed consolidated financial
statements). This table also does not include the yield maintenance fee we are
required to pay in certain circumstances under the LNV Credit Facility, which
could be substantial. The above table should be read in conjunction with the
information contained in other sections of this report, including the notes to
the condensed consolidated financial statements in this Form 10-Q and our 2020
Form 10-K.
Amendments of Senior Credit Facility with LNV Corporation
Effective November 1, 2019, DLP IV entered into the LNV Credit Facility. The LNV
Credit Facility makes available a total of up to $300.0 million in credit to DLP
IV with a maturity date of September 27, 2029. Subject to available borrowing
base capacity, additional advances are available under the LNV Credit Facility
at the LIBOR rate described below. Such advances are available to pay premiums
and servicing costs of pledged life insurance policies as such amounts become
due. Interest will accrue on amounts borrowed under the LNV Credit Facility at
an annual interest rate, determined as of each date of borrowing or quarterly if
there is no borrowing, equal to (a) the greater of 1.50% or 12-month LIBOR, plus
(b) 7.50% per annum. The effective rate at March 31, 2021 was 9.00%. Interest
payments are made on a quarterly basis. As of March 31, 2021, we had
approximately $174.0 million outstanding under the senior credit facility.
Under the LNV Credit Facility, DLP IV has granted the administrative agent, for
the benefit of the lenders under the facility, a security interest in all of DLP
IV's assets. As with prior collateral arrangements relating to the senior
secured debt of GWG Holdings and its subsidiaries (on a consolidated basis), GWG
Life's excess equity value of DLP IV after satisfying all amounts owing under
the LNV Credit Facility is available as collateral for the obligations of GWG
Holdings under the L Bonds and Seller Trust L Bonds (although the life insurance
assets owned by DLP IV do not themselves serve as direct collateral for those
obligations).
We are subject to various financial and non-financial covenants under the LNV
Credit Facility, including, but not limited to, compliance with laws,
preservation of existence, financial reporting, keeping of proper books of
record and account, payment of taxes, and ensuring that neither DLP IV nor GWG
Life become an investment company. As of March 31, 2021, we were in compliance
with all financial and non-financial covenants, except as discussed below.
In addition, the LNV Credit Facility has certain reporting obligations that
require DLP IV to deliver audited annual financial statements no later than
ninety days after the end of each fiscal year. Due to the failure to issue GWG
Life, LLC audited financial statements for 2020 to LNV Corporation within 90
days after the end of the year, we were in violation of our financial reporting
obligations under the LNV Credit Facility. CLMG Corp., as administrative agent
for LNV Corporation, has issued a limited deferral extending the delivery of
these reports to May 17, 2021. We regained compliance on May 17, 2021, when the
audited annual financial statements of GWG Life were delivered to LNV
Corporation.
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On June 28, 2021, DLP IV entered into the Third Amended Facility with LNV
Corporation, as lender, and CLMG Corp., as the administrative agent on behalf of
the lenders under the agreement, that replaced the aforementioned LNV Credit
Facility. The Third Amended Facility resulted in an additional advance of $52.5
million from LNV Corporation.
In conjunction with entering into the Third Amended Facility, DLP V transferred
life insurance policies having an aggregate face value of approximately $440.6
million to DLP IV, which were pledged as additional collateral to the Third
Amended Facility, and DLP IV received proceeds of approximately $51.2 million
(net of certain fees and expenses incurred in connection with the negotiation
and entry into the Third Amended Facility). The Third Amended Facility sets
forth interest and other terms and covenants similar those included in the
previous LNV Credit Facility. The Third Amended Facility was paid off on August
11, 2021, with a portion of the proceeds from the NF Credit Facility described
below.
On September 7, 2021, DLP IV entered into the Fourth Amended Facility with LNV
Corporation, as lender, and CLMG Corp., as the administrative agent on behalf of
the lenders under the agreement, that replaced the aforementioned Third Amended
Facility. The Fourth Amended Facility resulted in an additional advance of $30.3
million from LNV Corporation. The Fourth Amended Facility sets forth interest
and other terms and covenants similar those included in the previous LNV Credit
Facility.

Credit Facility with National Founders LP

On August 11, 2021, DLP VI, entered into the NF Credit Agreement with each
lender from time to time party thereto and National Founders LP, as the
administrative agent. On August 11, 2021, a one-time advance of approximately
$107.6 million was made to the DLP VI under the NF Credit Facility with a
scheduled maturity date of August 11, 2031. Approximately $56.7 million of such
advanced amount was used to pay off the remaining amount due under the Third
Amended Facility. Amounts borrowed under the NF Credit Facility bear interest on
each day on the outstanding principal amount on such day at a per annum rate,
determined on a daily basis, generally equal to 5.5% up to a 65% of the loan to
value percent as calculated in accordance with the NF Credit Agreement, and 7.0%
on anything above that loan to value percent.
A portion of the proceeds from the funding under the NF Credit Facility was used
to purchase life insurance policies that were owned by DLP IV, which used the
funds to repay the most recent advance of $52.5 million plus interest and
penalties under the LNV Credit Facility described above. At August 11, 2021, the
aggregate face value of life insurance policies owned by DLP VI, was
approximately $433.1 million. As of such date, the aggregate face value of life
insurance policies owned by DLP IV was approximately $1.42 billion.
We are subject to various financial and non-financial covenants under the NF
Credit Facility, including, but not limited to, compliance with laws,
preservation of existence, financial reporting, keeping of proper books of
record and account, payment of taxes, and ensuring that neither DLP VI nor GWG
Life become an investment company. Additionally, we are required to maintain a
Debt Coverage Ratio not to exceed 90%. As of August 31, 2021, we were in
compliance with all financial and non-financial covenants in the NF Credit
Facility.
Cash Flows
Interest and Dividend Payments
We finance our businesses through a combination of: life insurance policy
benefit receipts; principal, dividends and interest receipts from investments;
distributions from the alternative assets held by the ExAlt Trusts; debt and
equity offerings; and the LNV Credit Facility and the NF Credit Facility. We
have historically relied on debt (L Bonds and the LNV Credit Facility) and
equity (preferred stock) financing for the majority of our cash expenditures
(for policy acquisition, policy premiums and servicing costs, working capital
and financing expenditures including paying principal and interest on existing
debt, and for GWG Holdings and GWG Life making investments in Beneficient) as
the amount of cash flows from the realization of life insurance policy benefits
and cash flows from our other investments has been insufficient to meet all of
our needs. This has resulted in the Company incurring substantial indebtedness
and, to a lesser extent, obligations to make dividend payments on our classes of
preferred stock.
Beneficient primarily finances its business through repayments on ExAlt Loans.
Such repayments are funded from a portion of the cash distributions the ExAlt
Trusts receive from their alternative assets and additional investments in
Beneficient by GWG Holdings and/or other parties. See Note 9 to the condensed
consolidated financial statements for details on the amendments of Beneficient's
credit agreements. Beneficient uses proceeds from these sources to fund
liquidity transactions and potential unfunded capital commitments, working
capital, debt service payments, and costs associated with potential future
products.
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Beneficient also anticipates the need to establish sufficient regulatory capital
if and when its Texas trust company charter is issued or the Kansas TEFFI trust
company becomes operational. Additionally, Bermuda insurance statutes and
regulations, and the policies of the BMA, require that Pen, among other things,
maintain a minimum level of capital and surplus, satisfy solvency standards, and
restrict dividends and distributions. Beneficient Capital Markets will also be
subject to regulations of the SEC and FINRA that require, among other things,
Beneficient Capital Markets to maintain a minimum level of capital.
Our total interest expense of $41.4 million and $35.9 million for the three
months ended March 31, 2021 and 2020, respectively, represents the largest cash
expense item in each period. Preferred stock cash dividends were $3.2 million
and $4.0 million for the three months ended March 31, 2021 and 2020,
respectively. While reducing our cost of funds and increasing our common equity
base are primary goals of the Company, until we do so we will continue to expend
significant amounts of cash for interest and dividend payments and will thus
continue to rely heavily on our ability to raise cash from GWG Holdings' L Bond
offering, LNV Credit Facility and other means as they are developed and
available.
Life Insurance Policy Premium Payments
The payment of premiums and servicing costs to maintain life insurance policies
represents one of our most significant requirements for cash disbursement. When
a policy is purchased, we are able to calculate the minimum premium payments
required to maintain the policy in-force. Over time as the insured ages, premium
payments will increase. Nevertheless, the probability we will be required to pay
the premiums decreases as mortality becomes more likely. These scheduled
premiums and associated probabilities are factored into our expected internal
rate of return and cash-flow modeling. Beyond premiums, we incur policy
servicing costs, including annual trustee, policy administration and tracking
costs. Additionally, we incur significant financing costs, including principal,
interest and dividends. Both policy servicing costs and financing costs are
excluded from our internal rate of return calculations. We finance our
businesses through a combination of life insurance policy benefit receipts,
dividends and interest on other investments, equity offerings, debt offerings,
and advances under the LNV Credit Facility and NF Credit Facility.
The amount of payments for anticipated premiums, including the requirement under
the LNV Credit Facility and NF Credit Facility to maintain a two month
cost-of-insurance threshold within each policy cash value account, and servicing
costs that we will be required to make over the next five years to maintain our
current portfolio, assuming no mortalities, is set forth in the table below (in
thousands):
Years Ending December 31,         Premiums       Servicing         Total
Nine months ending 2021          $  52,652      $    1,098      $  53,750
2022                                87,374           1,463         88,837
2023                                99,346           1,463        100,809
2024                               108,838           1,463        110,301
2025                               121,088           1,463        122,551
2026                               133,556           1,463        135,019
                                 $ 602,854      $    8,413      $ 611,267


Our anticipated premium expenses are subject to the risk of increased
cost-of-insurance charges (i.e., "COI" or premium charges) for the life
insurance policies we own. We have received notices of COI increases on one
policy in the first three months of 2021 compared to none in the first three
months of 2020.
We have no known pending cost-of-insurance increases on any policies in our
portfolio, but we are aware that cost-of-insurance increases have become more
prevalent in the industry. Thus, we may see additional insurers implementing
cost-of-insurance increases in the future.
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Life Insurance Policy Benefit Receipts
For the quarter-end dates set forth below, the following table illustrates the
total amount of face value of policy benefits owned, and the trailing 12 months
of life insurance policy benefits realized and premiums paid on our portfolio.
The trailing 12-month benefits/premium coverage ratio indicates the ratio of
policy benefits realized to premiums paid over the trailing 12-month period from
our portfolio of life insurance policies.
                                                                         12-Month Trailing            12-Month Trailing                12-Month Trailing
                                         Portfolio Face Amount           Benefits Realized              Premiums Paid              Benefits/Premiums Coverage
Quarter End Date                             (in thousands)                (in thousands)               (in thousands)                       Ratio
March 31, 2017                                  1,447,558                       48,189                       42,753                                    112.7  %
June 30, 2017                                   1,525,363                       49,295                       45,414                                    108.5  %
September 30, 2017                              1,622,627                       53,742                       46,559                                    115.4  %
December 31, 2017                               1,676,148                       64,719                       52,263                                    123.8  %
March 31, 2018                                  1,758,066                       60,248                       53,169                                    113.3  %
June 30, 2018                                   1,849,079                       76,936                       53,886                                    142.8  %
September 30, 2018                              1,961,598                       75,161                       55,365                                    135.8  %
December 31, 2018                               2,047,992                       71,090                       52,675                                    135.0  %
March 31, 2019                                  2,098,428                       87,045                       56,227                                    154.8  %
June 30, 2019                                   2,088,445                       82,421                       59,454                                    138.6  %
September 30, 2019                              2,064,156                      101,918                       61,805                                    164.9  %
December 31, 2019                               2,020,973                      125,148                       63,851                                    196.0  %
March 31, 2020                                  2,000,680                      120,191                       65,224                                    184.3  %
June 30, 2020                                   1,960,826                      137,082                       66,846                                    205.1  %
September 30, 2020                              1,921,067                      149,415                       67,931                                    220.0  %
December 31, 2020                               1,900,715                      125,109                       69,734                                    179.4  %
March 31, 2021                                  1,879,895                      125,566                       71,206                                    176.3  %


We believe that the portfolio cash flow results set forth above are consistent
with our general investment thesis that the life insurance policy benefits we
receive will continue to increase over time in relation to the premiums we are
required to pay on the remaining polices in the portfolio. Nevertheless, we
expect that our portfolio cash flow on a period-to-period basis will remain
inconsistent as we have reduced capital allocated to acquiring a larger, more
diversified portfolio of life insurance policies.
Inflation
Changes in inflation do not necessarily correlate with changes in interest
rates. We presently do not foresee any material impact of inflation on our
results of operations in the periods presented in our condensed consolidated
financial statements.
Off-Balance Sheet Arrangements
Unfunded Capital Commitments
The ExAlt Trusts had $35.5 million and $35.6 million of gross potential capital
commitments as of March 31, 2021 and December 31, 2020, respectively,
representing potential limited partner capital funding commitments on the
interests in alternative asset funds. The trust holding the interest in the
limited partnership for the alternative asset fund is required to fund these
limited partner capital commitments per the terms of the limited partnership
agreement. Capital funding commitment reserves are maintained by the associated
trusts within the ExAlt PlanTM created at the origination of each trust for up
to $0.1 million. To the extent that the associated ExAlt Trust cannot pay the
capital funding commitment, Beneficient is obligated to lend sufficient funds to
meet the commitment. Any amounts advanced by Beneficient to the ExAlt Trusts for
these limited partner capital funding commitments above the associated capital
funding commitment reserves held by the associated ExAlt Trusts are added to the
ExAlt Loan balance between Beneficient and the ExAlt Trusts and are expected to
be recouped through the cash distributions from the interests in alternative
asset fund that collateralizes such ExAlt Loan.
                                    Page 70
--------------------------------------------------------------------------------
Capital commitments generally originate from limited partner agreements having
fixed or expiring expiration dates. The total limited partner capital funding
commitment amounts may not necessarily represent future cash requirements.
Beneficient considers the creditworthiness of the investment on a case-by-case
basis. At both March 31, 2021 and December 31, 2020, Beneficient had no reserves
for losses on unused commitments to fund potential limited partner capital
funding commitments.
Equity Method Investee Commitments
GWG Holdings has contributed $1.2 million in cash to FOXO during the three
months ended March 31, 2021, and is committed to contribute an additional $2.5
million to the entity through October 2021, all of which has been contributed
through such date.
Credit Risk and Interest Rate Risk
We review the credit risk associated with our portfolio of life insurance
policies when estimating its fair value. In evaluating the policies' credit
risk, we consider insurance company solvency, credit risk indicators, economic
conditions, ongoing credit evaluations, and company positions. We attempt to
manage our credit risk related to life insurance policies typically by
purchasing policies issued only from companies with an investment-grade credit
rating by either Standard & Poor's, Moody's, or A.M. Best Company. As of
March 31, 2021, 95.7% of our life insurance policies, by face value benefits,
were issued by companies that maintained an investment-grade credit rating (BBB
or better) by Standard & Poor's.
The LNV Credit Facility, NF Credit Facility, and Beneficient's debt due to
related parties are floating-rate financings. In addition, our ability to offer
interest and dividend rates that attract capital (including in our continuous
offering of L Bonds) is generally impacted by prevailing interest rates.
Furthermore, while GWG Holdings' L Bond offering provides us with fixed-rate
debt financing, our Debt Coverage Ratio is calculated in relation to the
interest rate on all of our debt financing, exclusive of GWG Holdings' Seller
Trust L Bonds. Therefore, increases in interest rates impact our business by
increasing our borrowing costs and reducing availability under our debt
financing arrangements. Earnings from our life insurance portfolio are based
upon the spread, if any, generated between the return on the portfolio and the
total cost of our financing (excluding cost of financing for the Seller Trust L
Bonds). As a result, increases in interest rates will reduce the earnings we
expect to achieve from our investments in life insurance policies.
The ExAlt Trusts hold investments in alternative assets, which are exposed to
risks related to markets, credit, currency, and interest rates. Currently, all
of these alternative assets consist of private equity limited partnership
interests, which are primarily denominated in the U.S. dollar, Euro, and
Canadian dollar. The underlying portfolio companies primarily operate in the
United States and Western Europe, with the largest percentage, based on NAV,
operating in diversified financials, telecommunications services, food and
staples retailing, and software and services industries. The financial
statements risk, stemming from such investments, are those associated with the
determination of estimated fair values, the diminished ability to monetize
certain investments in times of strained market conditions, the recognition of
income and recognition of impairments on certain investments.

As of March 31, 2021, and December 31, 2020, all of the ExAlt Loans, which are
eliminated upon consolidation, are collateralized by the cash flows originating
from the ExAlt Trusts' investments in alternative assets. These ExAlt Loans are
a key determinant in income (loss) allocable to Beneficient's equity holders,
and thus GWG Holdings. Beneficient has underwriting procedures and utilizes
market rates. Additionally, Beneficient has purchased put options to protect the
net asset value of the interests in alternative assets held by certain of the
ExAlt Trusts from impacts associated with a broad market downturn. Finally, the
ExAlt Trusts applicable trust agreements allow for excess cash flows from a
collective pool of alternative assets to be utilized to repay the ExAlt Loans
they have with Beneficient when cash flows from the customer's originally
alternative assets are not sufficient to repay the outstanding principal,
interest, and fees.
Guarantee and Collateral Provisions of L Bonds
GWG Holdings' L Bonds are offered and sold under a registration statement
declared effective by the SEC, and GWG Holdings has issued Seller Trust L Bonds
under the L Bond Supplemental Indenture, as described in Note 9 to the condensed
consolidated financial statements. The L Bonds and Seller Trust L Bonds are
secured by substantially all the assets of GWG Holdings and a pledge of all of
GWG Holdings' common stock held by BCC and AltiVerse Capital Markets, L.L.C., a
limited liability company owned by an entity related to the Ben Initial
Investors, including Brad K. Heppner (GWG Holdings' former Chairman, who served
in such capacity from April 26, 2019 to June 14, 2021, and Beneficient's current
Chief Executive Officer and Chairman) and an entity related to Thomas O. Hicks
(one of Beneficient's current directors and a former director of GWG Holdings)
("AltiVerse"). Together, BCC and AltiVerse represent approximately 12% of our
outstanding common stock, and are
                                    Page 71
--------------------------------------------------------------------------------
guaranteed by GWG Life and a corresponding grant of a security interest in
substantially all the assets of GWG Life. As a guarantor, GWG Life has fully and
unconditionally guaranteed the payment of principal and interest on the L Bonds
and Seller Trust L Bonds. GWG Life's equity in GWG Life Trust, DLP IV, and DLP V
Holdings serves as collateral for GWG Holdings' L Bond and Seller Trust L Bond
obligations. As of March 31, 2021, substantially all of our life insurance
policies were held by DLP IV, DLP V, or GWG Life Trust. The policies held by DLP
IV are not direct collateral for the L Bonds as such policies are pledged under
the LNV Credit Facility.
On December 31, 2020, GWG Holdings, GWG Life and Bank of Utah, as trustee,
entered into the Liquidity Bond Supplemental Indenture that provides for the
issuance of two series of Liquidity Bonds, as described in Note 9 to the
condensed consolidated financial statements. The Liquidity Bonds are issued by
GWG Life and guaranteed by GWG Holdings. The Liquidity Bonds are secured by the
same collateral as the other L Bonds.
Furthermore, regarding the obligations of GWG Holdings and its subsidiaries as
of March 31, 2021:

(1)  The Seller Trust L Bonds are secured obligations of GWG Holdings, ranking
junior to all senior debt of GWG Holdings and pari passu in right of payment and
in respect of collateral with all L Bonds of GWG Holdings (see Note 9). Payments
under the Seller Trust L Bonds are guaranteed by GWG Life. The assets exchanged
in connection with the Beneficent transaction are available as collateral for
all holders of the L Bonds and Seller Trust L Bonds. Specifically, the Common
Units are held by GWG Holdings and the Commercial Loan is held by GWG Life.

(2)  The Liquidity Bonds are secured obligations of GWG Life, ranking junior to
all senior debt of GWG Holdings or GWG Life and pari passu in right of payment
and in respect of collateral with all L Bonds of GWG Holdings. Payments under
the Liquidity Bonds are guaranteed by GWG Holdings.

(3) The terms of the LNV Credit Facility require that we maintain a significant
excess of pledged collateral value over the amount outstanding on the LNV Credit
Facility at any given time. Any excess after satisfying all amounts owing under
the LNV Credit Facility is available as collateral for the L Bonds (including
the Seller Trust L Bonds and Liquidity Bonds).

The following represents summarized financial information as of March 31, 2021
and December 31, 2020, with respect to the financial position, and for the three
months ended March 31, 2021, with respect to results of operations. The tables
present summarized financial information of GWG Holdings and GWG Life on a
combined basis after elimination of (i) intercompany transactions and balances
among such entities, including GWG Holdings' interest in GWG Life, and (ii)
equity in earnings from and investments in any subsidiary that is a
non-guarantor (including DLP IV, DLP V, GWG Life Trust and Beneficient). The
summarized financial information has been prepared in accordance with Rule 13-01
of Regulation S-X.

Summarized Balance Sheet Information (in thousands, not intended to balance):

                                                           March 31, 2021           December 31, 2020
Assets(1)
Cash, cash equivalents and restricted cash               $        63,755          $           65,556
Other assets                                                       3,945                       6,366
Total assets                                             $        67,700          $           71,922
Liabilities
L Bonds                                                  $     1,345,091          $        1,246,902
Seller Trust L Bonds                                             366,892                     366,892
Interest and dividends payable                                    12,318                      12,086
Accounts payable and accrued expenses                              4,257                       7,347
Deferred tax liabilities                                          51,272                      51,469
Total liabilities                                        $     1,779,830          $        1,684,696
Equity
Redeemable preferred stock and Series 2 redeemable
preferred stock                                          $       141,472    

$ 156,833

______________________________________

                                    Page 72

--------------------------------------------------------------------------------

(1) Assets exclude: i) GWG Holdings' investment in GWG Life of $1.2 billion as
of both March 31, 2021 and December 31, 2020; ii) GWG Holdings' aggregate
investments in non-obligor subsidiaries of $660.9 million and $643.1 million as
of March 31, 2021 and December 31, 2020, respectively; and iii) GWG Life's
aggregate investments in and loans to non-obligor subsidiaries of $1.2 billion
as of both March 31, 2021 and December 31, 2020.

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