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JG Wentworth Co (OTCMKTS:JGWE) Is A Speculative Play

JG Wentworth Co (OTCMKTS:JGWE) Is A Speculative Play
Written by
Jim Bloom
Published on
November 16, 2017
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After repeated attempts by JG Wentworth Co (OTCMKTS:JGWE) to keep the company afloat, it is increasingly likely that the company will survive especially when considering the willingness of lenders to restructure its debt.Investors have so far remained skeptical about its chances driving its value down.Take a look at the stock’s price movement JGWE Daily ChartBrief OverviewJ.G. Wentworth Co was formerly known as JGWPT Holdings Inc. and changed its name to The J.G. Wentworth Company in September 2014. The company is headquartered in Radnor, Pennsylvania and provides financial solutions to consumers in the United States. It operates through two segments, Structured Settlement Payments and Home Lending.The Structured Settlement Payments segment offers liquidity to its customers through purchasing structured settlement payments that include financial tool used by insurance companies to settle claims; purchasing annuity payments at a discount to the aggregate face amount of future payments in exchange for a single up-front payment; and purchasing and brokering lottery receivables prizes that have periodic payments and are backed by state lottery commission obligations or insurance company annuities. This segment also provides prepaid card, personal lending, and pre-settlement funding solutions. In addition, this segment engages in the warehousing, and resale or securitization of various financial assets.The Home Lending segment engages in retail mortgage lending activity originating primarily conventional, Federal Housing Administration, and the U.S. Department of Veterans Affairs mortgage loans. This segment’s mortgage loan products include conforming, non-conforming, and government mortgage loans. The company offers its products and services under the J.G. Wentworth and Peachtree brand names.Recent DevelopmentsThe company recently announced an agreement, with lenders holding over 87% of the aggregate principal amount outstanding under the Company’s $449.5 million senior secured credit facility, to significantly deleverage the Company. The agreement, under which current lenders have agreed to exchange their claims under the Credit Facility for cash consideration and at least 95.5% of the equity in the newly-restructured Company, will enable the Company to enhance its financial flexibility, fortify its balance sheet and accelerate its long-term growth initiatives.The terms of the contract will allow the company to fully extinguish the loans under the credit Facility totaling $449.5 million and obtain a new secured revolving credit facility between $65 million and $70 million, to be supplied by one of the Company’s Lenders, significantly reduce the Company’s annual debt service from $32 million to less than $5 million, deleverage the Company’s balance sheet, reducing its gearing ratio from approximately 12.4 to less than 1.0 and reconstitute the Board of Directors to reflect the new ownership of the Company.The restructuring will be accomplished through a voluntary, pre-packaged, in-court process. The company’s operating entities including those serving employees, customers, vendors and suppliers will not be involved in the in-court process, as it is not expected to impact daily management or operations of the company.All of this was after it announced in august 2017 that it had issued through J.G. Wentworth XXXIX LLC, $144.2 million of fixed rate asset backed notes. The notes were collateralized primarily by payments from a pool of rights arising under court ordered structured settlement payment and annuity payment purchase contracts primarily originated by the J.G. Wentworth and Peachtree Financial Solutions companies.Katerina Cozza, Interim Chief Financial Officer of J.G. Wentworth was quoted saying:

“This represents the 46th securitization for J.G. Wentworth and its predecessors, and we are pleased with the execution. This placement demonstrates continued demand for our product across new and returning investors."

Stewart A. Stockdale, Chief Executive Officer of J.G. Wentworth added. “The strong engagement from our investor base is a reflection of the consistent and predictable returns provided through our securitization program.” SourceThe issue consisted of two classes of placed notes: $128.5 million Class A Fixed Rate Asset Backed Notes that will pay 3.53%, and $15.7 million Class B Fixed Rate Asset Backed Notes that will pay 5.09%. The notes were rated AAA (DBRS) and Aaa (Moody’s); and BBB (L) (DBRS) and Baa2 (Moody’s), respectively.Financial PerformanceConsolidated revenues were $101.4 million, an increase of $18.7 million from the $82.7 million reported in the second quarter of 2016. The increase was due primarily to the $19.1 million increase in revenues generated by the structured settlement payments segment's revenue driven principally by a $16.9 million favorable change in unrealized gains (losses) on securitized finance receivables, debt and derivatives, offset by a $0.4 million decrease in J.G. Wentworth’s home lending segment's revenues.Home Lending generated loan lock volume of $1.6 billion and closed loan volume of $859.9 million in the second quarter of 2017. The outstanding unpaid principal balance of mortgage servicing rights (MSR) portfolio was $4.5 billion by the end of June, 2017. The Company's MSR portfolio had a fair value of $46.8 million as the same period.The company had $4.3 billion in VIE and other finance receivables, at fair value, and $4.1 billion in VIE long-term debt issued by securitization and permanent financing trusts, at fair value, as of June 2017. The debt issued by its VIE securitization and permanent financing trusts is recourse only to the respective entities that issued the debt and is non-recourse to the Company and its other subsidiaries.Consolidated net loss was $12.1 million compared to the $23.5 million consolidated net loss in the second quarter of 2016. The $11.4 million favorable change was due to a $22.9 million decline in structured settlements pre-tax loss driven by the $19.1 million increase in the segment's revenue, partially offset by an increase in home lending's operating expenses which was driven by a $2.6 million increase in advertising expense in line with the direct-to-consumer growth plan.ConclusionThe news of its restructuring is still fresh, it is advisable to observe the company’s performance. However, at current levels, the risk/reward is very favorable for those with speculative money.We will be updating our subscribers as soon as we know more. For the latest updates on JGWE, sign up below!Disclosure: We have no position in JGWE and have not been compensated for this article.

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