Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and John Darer Reviews

Structured Settlement Factoring Is Small Potatoes Despite Ubiquitous Ads

Since 1992, JGWPT's subsidiary companies and their predecessors have purchased over $7 billion of future payment obligations from consumers, according to its December 8, 2011 press release.

According to its May 2009 Bankruptcy Code Section 1125 Disclosure Statement JG Wentworth believed it had 50% market share (of the structured settlement factoring market a/k/a " secondary market"). The merger with/acquisition of Peachtree in 2011, dramatically augments that market share given that Peachtree was JG Wentworth's next largest competitor. As of May 2009,  the combined total of JG Wentworth's securitizations was $3 billion. The $7 billion figure is a combination of the total securitizations completed by the two companies and  their other subsidiaries.

Contrast this with over $124 billion* of structured annuity premium written between 1975 and 2010. The structured annuity premium purchased many multiples of the premium in future payment obligations 

Image: Wikipedia

 

There is a critical distinction between structured annuity premium written and future benefits purchased, which makes it clear that the structured settlement factoring phenomenon has not had that big of a statistical impact. Yet saturation advertising and certain business practices have created a perception of the opposite and jaded some lawyers, judges and the primary market in general.

Judicial review is required in order to determine if a structured settlement factoring transaction is in the best interest of the seller.  Without court approval there is an onerous tax on the purchaser which amounts to 40% of the factoring discount.

*Source: S2KM

 

Structured Settlement Payment Rights: "Insurance Cos. Buy Them In Secondary Market, So Why Shouldn't We?" Why Shouldn't Tort Victims?

"This transaction established a new, more liquid benchmark in the asset backed market which was underlined by strong investor demand from insurance companies, money managers and hedge funds.” Stefano Sola Chief Investment Officer for J.G. Wentworth, Philadelphia Business Journal April 23, 2010

Insurance Companies Are Buying Structured Settlement Payment Rights in Securitizations

If it wasn't out there it is now. Insurance companies ARE buying structured settlement payment rights in the secondary market through securitizations of portfolios like the one that  Sola referred to for $252 million that included both structured settlement and annuity backed receivables.

Some Structured Settlement Brokers and Settlement Planners Want In on the Game

And those that are active in the trading of structured settlement payment rights, including one or two that are members of NSSTA and/or SSP say if the big boys are doing it why shouldn't our clients?  Despite the lack of industry standard, there is nothing illegal about it either.

Since it's not on the agenda at any of the trade association meetings, what are your thoughts?

Incidentally the J.G. Wentworth securitization has been referred to by JG as "the largest-to-date in the structured settlement industry". So there you have it, not the settlement purchasing industry but the "structured settlement industry".

 

 

 

Structured Settlement Securitizations Hype and Questionable Awarenss about Extent of Settlement Factoring

by John Darer® CLU ChFC MSSC RSP

Financial reporters who fail to research their subject sure make easy pickings! To wit, the well deserved critique and ultimate "IxNay" of DealFlow Media Structured Settlements Report. Enter Markets Media, LLC.

This is what Markets Media's Steve Marlin says:

Since 1998, aggregate term issuance of structured settlement securitizations has surpassed $2.4 billion, and the sector continues to grow as more market players take greater notice of off-the-run assets. “These transactions benefit from uncomplicated deal structures, stable assets, and a relatively easy underwriting process,” said Dolan.

With more than $80 billion face value of structured settlements in existence, this sector of the securitization market has even more room to grow".

This about sums up Steve Marlin's research

To be more specific...

A. Definition of Face Value

The nominal, or stated, amount of security. The face value of a bond is the amount the issuer agrees to pay upon maturity. Reporters who don't do their research confuse face value with present value.

B. The "Sound of Philadelphia"  (well..near by)

From the May 7, 2009 a Bankruptcy Code section 1125 Disclosure Statement was issued as part of the Prepetition Solicitation of Votes With respect to the Prepackaged Plan of Reorganization of JGW Holdco, LLC, J.G. Wentworth, LLC and J.G. Wentworth, Inc. JG Wentworth Bankruptcy disclosure submitted under penalty of perjury:
 

1. Cites NSSTA statistics of over $100B in premiums for structured settlements issued in the United States from 1979 through 2007.
2. States that JG Wentworth has completed 51,000 guaranteed and life contingent structured settlement transactions since 1995,  with aggregate payment streams (as opposed to premiums) of approximately $3.9B.

C. The IRS Factoring Audit Technique Guide

"The following background information is excerpted (with permission) from an article that appeared in the ABA Judges’ Journal, Spring 2005 Vol. 44, No. 2 pp. 19-31, “Transfers of Structured Settlement Payment Rights: What Judges Should Know About Structured Settlement Protection Acts”, authored by Daniel W. Hindert and Craig H. Ulman. Structured settlements have enjoyed widespread acceptance and have become an established part of our legal landscape over the past twenty-five years. More than $6 billion is now paid each year to fund new structured settlements in the United States, and an estimated $100 billion or more has been paid in the aggregate TO FUND structured settlements that are in force today".

The structured settlement factoring market only seems big because of the ubiquitous universally annoying advertising.

 

321 Henderson Under Review By Standard & Poors... A Side Issue Highlights Marketplace Identity Confusion

by Structured Settlement Watchdog

Standard and Poors announced October 7, 2008 that it was "reviewing information pertaining to recent orders of the California Superior Court in Fresno County California to determine the potential impact on structured settlement transactions (sic)".

The review by Standard and Poors is and of itself significant  BUT the side issue of market place confusion caused by entities (or individuals) such as 321 Henderson and other NASP members and others (such as NSSTA member Patrick Hindert's "fantasy" structured settlements 3.0), that ultimately leads a rating agency like S&P to mischaracterize the 321 Henderson transactions as "structured settlement transactions" AND is evidence of how widespread the branding problems are for the structured settlement industry.

321 Henderson is well known as one of the JG Wentworth companies. The Fresno Rulings refer to cases in which the court found that various structured settlement factoring companies  (S&P mischaracterizes as structured settlement companies) failed to comply with the California Structured Settlement Protection Act and questioned the validity of numerous previously approved  court -approved assignments of structured settlements to these companies.  Please note that the "assignments" in the S&P report refer to "assignment of periodic payment rights" NOT "qualified assignments". The Fresno Rulings are being appealed.

"Cash Now Pusher" 321 Henderson purchases structured settlement payment rights from tort victims at a discount and then packages them together through securitizations and sells those to investors. These are what S&P is rating. The potentially finanacially devastating implication to investors buying securitizations composed of transactions later deemed to be invalid or illegal needs no further explanation.

S&P is seeking:

1.  The known exposure concentrations of outstanding receivables that originated out of Califiornia and Fresno County; and
2.  The historic performnace details of these receivables as of the most recent determination date.

S&P Reviewing Structured Settlement Transactions (sic) After Fresno Superior Court Rulings (click title to access)

With respect to the side issue here are some definitions of key terms that were mischaracterized by S&P in its October 7, 2008 report:

Structured Settlement Company
A company that engages in the marketing and placement of new structured settlement annuities, which are regulated insurance products. Included in the definition of a structured settlement company are companies that have employees or, who have independent licensed life insurance agents and brokers, whose primary business is to place structured settlements. There even once was a structured settlement annuity brokerage firm called "The Structured Settlement Company". The term "structured settlement company" is sometimes used to refer to certain life insurance companies who manufacture or issue new structured settlement annuities. Some settlement transfer companies, settlement purchasers or "cash now" companies, have tried to favorably position themselves by incorrectly using this term. However make no mistake, none of them can truly make the claim that they are a "structured settlement company."

Structured Settlement Factoring Company:

A company that engages in the purchase of the rights to receive future structured settlement payments. A transaction completed by such companies is known under the Internal Revenue Code Section 5891 as a 'structured settlement factoring transaction". Sometimes referred to as a "secondary market company" "settlement purchaser" , "cash now company", "cash flow purchaser", "transfer company" "factoring company" or more recently by the slang "financial crack dealer". Sometimes mislabeled in advertising by such settlement purchasers as a "structured settlement company". Don't be confused!

Structured Settlement Factoring Transaction
Describes a process, defined at IRC 5891(c)(3)(A), which results in the transfer of structured settlement payment rights for a discounted amount of cash. Don't believe the marketing hype! A structured settlement factoring transaction IS NOT a structured settlement transaction.

Structured Settlement Transaction
Describes the transaction embodied in the process of  how structurred settlements work, which results in a structured settlement. Part of a structured settlement transaction involves the placement of a structured settlement annuity contract or alternative periodic payment funding mechanism described under IRC 130(d).