GWG Holdings, Inc.
On April 15, 2019, GWG Holdings, Inc.’s (GWG) reported that Jon Sabes has agreed to resign as chief executive officer and as a director on the board of directors (the Board) of GWG pursuant to the terms of an agreement (the Agreement). Under the Agreement, Mr. Sabes has agreed to sell and transfer his family’s interests in GWG (3.9 million shares which amount to 12% of the outstanding common stock) at a price of $10 per share for 2.5 million shares, with the remaining 1.4 million shares transferred in exchange for interests in a limited liability company that will be controlled by certain members of The Beneficient Group. In 2018, GWG entered into a reverse merger agreement with The Beneficient Group, which closed in late 2018. It is anticipated that Mr. Sabes will be appointed CEO of Life Epigenetics and youSurance, wholly-owned subsidiaries of GWG.
The Agreement is also conditioned upon other events including, but not limited to, the expansion of the Board to 13 members, the resignation of all current members of the Board, the appointment of 13 board members by affiliates of The Beneficient Group, and the termination of the stockholders agreement, which will effectively transfer voting control of the shares of the Company to members of The Beneficient Group and its affiliates. No timetable is presented on the anticipated completion of these matters.
Murray Holland will be appointed interim CEO of GWG.
GWG also reported that it would restate unaudited quarterly financial statements for the quarter ending September 30, 2018, to reflect adjustments related to certain affiliated financing receivables related to the reverse merger with The Beneficient Group. The net effect of this restatement increases assets and liabilities by $405.8 million, which also increased GWG’s debt coverage ratio from 72.8% to 80.3%. This decision was made by the Board at the recommendation of its audit committee.
Additionally, GWG reported that it has updated its fair value methodology for its portfolio of life insurance policies.
GWG noted that frequent changes in methodologies made by the third party medical actuarial underwriting firms contributed to the change in NAV methodology. GWG noted that updates on respective mortality tables and medical underwriting methodologies from its third party medical actuarial firms, “suggest a lengthening of prior life expectancy estimates and relate to revised estimates of the originally issued life expectancy reports. These updates do not encompass any change to the insured’s age and health condition since the report was originally issued.”
GWG’s updated NAV methodology is based on three areas of research, utilization of life expectancy reports from third party medical actuarial underwriting firms (which GWG has historically utilized), historical performance of the portfolio, and relevant market-based observations and inputs. GWG calls this approach the “Longest Life Expectancy” method.
The net effect of the change in NAV methodology is a non-cash charge of $84 million (approximately 10% of the previously reported fair value of GWG’s life insurance policies). GWG noted that additional information on the NAV methodology will be included in the annual report. GWG previously filed a notification of late filing for its annual report citing delays in accounting for certain parts of the transaction with The Beneficient Group and establishing a fair value on its life insurance policies.
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Griffin Capital Essential Asset REIT, Inc. and Griffin Capital Essential Asset REIT II, Inc. Merger
On April 15, 2019, Griffin Capital Essential Asset REIT, Inc.’s (GCEAR) announced that shareholders approved the merger with Griffin Capital Essential Asset REIT II, Inc. (GCEAR II). GCEAR shareholders will receive 1.04807 shares of GCEAR II Class E Common Stock for each share of GCEAR stock they hold.
Additionally, GCEAR II shareholders also approved amendments to its charter that eliminate certain NASAA REIT Guidelines charter provisions, including certain shareholder protections in the event of a roll-up transaction.
Sierra Income Corporation, Medley Management Inc. (NYSE: MDLY), and Medley Capital Corporation (NYSE: MCC)
On April 18, 2019, Sierra Income Corporation (SIC), MDLY and MCC announced that they have respectively postponed their special meetings of stockholders related to the proposed merger of MCC with SIC and SIC’s proposed concurrent acquisition of MDLY. The special meetings are now anticipated to be held no later than the third quarter of 2019. The respective entities continue to negotiate the terms of transaction.
MCC additionally disclosed that it had entered into a settlement agreement with certain shareholders related to litigation (In Re Medley Capital Corporation Stockholder Litigation, C.A. No. 2019-0100-KSJM) in which FrontFour Capital Corp. accused MCC and its board of directors of breaching its fiduciary duties to shareholders. This settlement requires MCC to amend certain portions of its merger agreements with SIC and MDLY, and to engage in a go-shop period, and extending the outside date of the proposed mergers to October 19, 2019. The settlement agreement also establishes a settlement fund for MCC shareholders, in the event of a revised merger transaction closing. The settlement fund will consist of $17 million in cash and $30 million in SIC stock, based on NAV per share of the pro forma for the any revised merger transaction.
MCC also disclosed that David Lorber and Lowell Robinson were appointed to its board of directors and Mr. Lorber was appointed to chair the special committee effective immediately. Mr. Lorber is the co-founder of FrontFour Capital Corp., which is a major shareholder in MCC, and initiated the litigation disclosed above.