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

The following discussion should be read in conjunction with the accompanying condensed consolidated financial statements…

The following discussion should be read in conjunction with the accompanying
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;
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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 accompanying 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 accompanying condensed consolidated financial statements, on August 13,
2021, GWG Holdings, Ben LP, and BCH entered into a non-binding term sheet (the
"Term Sheet") that contemplates a series of transactions, which, once 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 accompanying 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 accompanying 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
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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 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.
Update on the Investments in Life Insurance Policies
We maintain an actual-to-expected analysis-based valuation methodology ("A2E
Methodology") to ensure more accurate pricing and valuation of our life
insurance policies. Proper maintenance of an A2E Methodology includes the
continual tracking of actual results as well as comparisons to projections. An
A2E Methodology rests on the actuarial premise that mortality results for
sufficiently large populations follow predictable mortality curves. As such,
through the A2E Methodology and the use of the portfolio mortality multiplier
("PMM"), we are able to "fit" projections to actual results, which provides a
basis to forecast future performance more accurately.

When performance sufficiently deviates from these projections, the A2E
Methodology is re-examined to determine if the resultant PMM still results in
the most accurate fitting of the projections to actual results. Adjustments to
the PMM are made based on that analysis if warranted. The basis for a
re-examination is based on a performance-based trigger approach that allows the
portfolio to perform within statistical norms (+/- 1 standard deviation). We
re-examine the A2E Methodology and recalculate the resultant PMM anytime the
six-month moving average of the difference between actual portfolio performance
and projected performance deviates by more than one standard deviation from the
mean and such deviation continues as of the end of any calendar quarter after
persisting for three consecutive months.
A re-examination occurred during second quarter of 2021, which resulted in an
update to the PMM and a downward adjustment of $16.4 million to the fair value
of the investments in life insurance policies.
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 nine months ended
September 30, 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 accompanying condensed consolidated financial
statements. A reference to the corresponding note is included below:
•Effective July 15, 2021, Beneficient executed Consent and Amendment No. 3 to
the Second Amended and Restated Credit Agreement and Amendment No. 2 to the
Second Amended and Restated Subordinate Credit Agreement with its lender, which
(i) deferred the payment of all accrued and unpaid interest until December 10,
2021, and (ii) deferred the installment payment of $5.0 million due on September
10, 2021, to December 10, 2021. Beneficient agreed to pay an amendment fee to
the lender in an amount equal to 3% of the then outstanding principal and
interest on December 10, 2021 (Note 9).
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•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 9). Approximately $56.7 million of such advanced amount was used
to pay off the remaining amount due under the Third LNV Credit Facility.
•On August 13, 2021, GWG Holdings, Ben LP, and BCH entered into a Term Sheet
that contemplates a series of transactions, which, once completed, is expected
to 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
LNV Credit 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 LNV Credit
Facility (Note 9).
•Pursuant to a letter agreement, dated as of November 15, 2021 (the "Letter
Agreement"), DLP IV, as borrower, LNV Corporation, as lender, and CLMG Corp., as
the administrative agent on behalf of the lenders under the LNV Credit Facility,
the parties thereto modified the terms of the Fourth LNV Credit Facility.
Pursuant to the Letter Agreement, LNV Corporation and CLMG Corp. agreed to
release $17.0 million from the collection account, which is maintained by DLP to
collect policy benefits from pledged policies, to DLP IV in exchange for an
irrevocable beneficial interest in three percent (3.0%) of the U.S. dollar death
benefit payable under each life insurance policy pledged as collateral under the
LNV Credit Facility.
•An update on the current state of the Company and potential impact of the
COVID-19 pandemic (Note 17).
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Asset Diversification
As of September 30, 2021, we held a combined portfolio of assets consisting of
77% of fair value secondary life insurance policies and 23% 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 September 30, 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.
                    Exposure Type                           Value        Percent of Total
Near-Duration Life Insurance Policies (1)                $ 334,450                 33.7  %
Intermediate-Duration Life Insurance Policies (1)          288,996                 29.3  %
Long-Duration Life Insurance Policies (1)                  138,114                 14.0  %
Growth Stage Private (2)                                    84,039                  8.5  %
Late Stage Venture Backed (2)                               72,316                  7.3  %
Early Stage Venture Backed (2)                              30,141                  3.1  %
Other (2)                                                   24,317                  2.5  %
Corporate Buyouts (2)                                       15,325                  1.6  %
Total                                                    $ 987,698                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 accompanying 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.
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Secondary Life Insurance Assets
Our portfolio of life insurance policies, owned by GWG Holdings' subsidiaries as
of September 30, 2021, is summarized below:
                        Life Insurance Portfolio Summary

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

                                                                $                 1,801,306
Average face value per policy (in thousands)                              $                     1,831
Average face value per insured life (in thousands)                        $                     1,984
Weighted average age of insured (years)                                                          83.6
Weighted average life expectancy estimate (years)                                                 6.4
Total number of policies                                                                          984
Number of unique lives                                                                            908
Demographics                                                                     74% Male; 26% Female
Number of smokers                                                                                  36
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                                                      4.1  %


Our portfolio of life insurance policies, owned by GWG Holdings' subsidiaries as
of September 30, 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                                  23       $      22,735                       2.3  %                   1.2  %                    11.4
      70                     74                                 168             198,473                      17.1  %                  11.0  %                    10.1
      75                     79                                 197             340,040                      20.0  %                  18.9  %                     9.3
      80                     84                                 197             350,391                      20.0  %                  19.5  %                     7.5
      85                     89                                 210             489,899                      21.3  %                  27.2  %                     4.8
      90                     94                                 155             334,534                      15.8  %                  18.6  %                     3.1
      95                    101                                  34              65,234                       3.5  %                   3.6  %                     2.2
Total                                                           984       $   1,801,306                     100.0  %                 100.0  %                     6.4


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Our portfolio of life insurance policies, owned by GWG Holdings’ subsidiaries as
of September 30, 2021, organized by the insured’s estimated life expectancy
estimates and associated policy benefits, is summarized below:

        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                                     295       $     531,585                       30.1  %                   29.6  %
         48                          71                                     213             380,621                       21.6  %                   21.1  %
         72                          95                                     178             334,664                       18.1  %                   18.6  %
         96                          119                                    140             248,971                       14.2  %                   13.8  %
         120                         143                                     92             133,992                        9.3  %                    7.4  %
         144                         179                                     58             149,198                        5.9  %                    8.3  %
         180                         240                                      8              22,275                        0.8  %                    1.2  %
Total                                                                       984       $   1,801,306                      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
1.64% as of September 30, 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
September 30, 2021, 94.7% 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.
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As of September 30, 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             $     240,132                       13.3  %       John Hancock Life Insurance Company                   AA-
                                                       11.5  %       Lincoln National Life Insurance                       AA-
     2                   207,917                                     

Company

                                                       11.0  %       Equitable Financial Life Insurance                    A+
     3                   198,091                                     

Company

     4                   156,976                        8.7  %       Transamerica Life Insurance Company                   A+
     5                   150,789                        8.4  %       Brighthouse Life Insurance Company                    AA-
     6                    84,081                        4.7  %       Pacific Life Insurance Company                        AA-
                                                        4.5  %       American General Life Insurance                       A+
     7                    81,389                                     

Company

     8                    63,876                        3.5  %       ReliaStar Life Insurance Company                      A+
                                                        3.1  %       Security Life of Denver Insurance                     A-
     9                    56,732                                     

Company

     10                   53,419                        3.0  %       Protective Life Insurance Company                     AA-
                   $   1,293,402                       71.7  %


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 accompanying 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
$226.1 million and $221.9 million at September 30, 2021 and December 31, 2020,
respectively. As of September 30, 2021, the ExAlt Trusts' portfolio had exposure
to 111 professionally managed alternative investment funds, comprised of 301
underlying investments, 99 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):
                                                                    September 30, 2021                       December 31, 2020
                                                                                  Percent of                               Percent of
                   Industry Sector                              Value               Total                Value               Total
Software and Services                                       $   30,700                 13.6  %       $   23,310                 10.5  %
Semiconductors and Semiconductor Equipment                      29,656                 13.1  %           21,271                  9.6  %
Diversified Financials                                          29,051                 12.8  %           28,462                 12.8  %
Food and Staples Retailing                                      26,986                 11.9  %           24,450                 11.0  %
Telecommunication Services                                      24,859                 11.0  %           27,401                 12.3  %
Utilities                                                       23,208                 10.3  %           21,740                  9.8  %
Not Applicable (e.g., Escrow, Earnouts)(1)                      15,524                  6.9  %           18,138                  8.2  %
Health Care Equipment and Services                              12,056                  5.3  %           14,682                  6.6  %
Other(1)                                                        34,098                 15.1  %           42,440                 19.2  %
Total                                                       $  226,138                100.0  %       $  221,894                100.0  %



                                                                  September 30, 2021                       December 31, 2020
                                                                                Percent of                               Percent of
                     Geography                                Value               Total                Value               Total
North America                                             $   97,182                 43.0  %       $   96,056                 43.3  %
Asia                                                          48,421                 21.4  %           42,475                 19.1  %
Southern Europe                                               30,912                 13.7  %           36,229                 16.3  %
South America                                                 27,248                 12.0  %           24,767                 11.2  %
Western Europe                                                20,773                  9.2  %           21,064                  9.5  %
Other(2)                                                       1,602                  0.7  %            1,303                  0.6  %
Total                                                     $  226,138                100.0  %       $  221,894                100.0  %

_______________________________________________________________

Certain previously reported amounts have been reclassified to agree with current
presentation.
(1)Industries in this category each comprise less than 5 percent as of
September 30, 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 September 30, 2021 ranged from 1993 to 2021.
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 September 30,
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
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net other assets, which are a fund's cash and other current assets minus
liabilities. The underlying interests in alternative assets 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,
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 Australia, Northern
Europe, and Eastern Europe.
Principal Revenue and Expense Items
During the three and nine months ended September 30, 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 accompanying
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.
Additionally, includes $36.3 million recognized during the second quarter of
2020 by Beneficient as a result of the forfeiture of vested equity-based
compensation related to one former director of Beneficient.
During the three and nine months ended September 30, 2021 and 2020, our main
components of expense are summarized below:
•Interest Expense. Includes interest incurred under the LNV Credit Facility and
the NF 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 $13.1 million
and $96.3 million for the nine months ended September 30, 2021 and 2020,
respectively, related to Beneficient's equity incentive plans.
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•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.
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 accompanying condensed consolidated
statements of operations. We had losses from equity method investments of $4.9
million and $1.4 million during the three months ended September 30, 2021 and
2020, respectively. We had losses from equity method investments of $11.9
million and $4.3 million during the nine months ended September 30, 2021 and
2020, respectively.
Results of Operations -Three and Nine Months Ended September 30, 2021 Compared
to the Same Periods 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
accompanying condensed consolidated financial statements and related notes
(dollar values in thousands).
Net Loss Attributable to Common Shareholders
Net loss attributable to common shareholders was $50.6 million and $48.9 million
for the three months ended September 30, 2021 and 2020, respectively. Net loss
attributable to common shareholders was $169.9 million and $120.5 million for
the nine months ended September 30, 2021 and 2020, respectively. The results of
operations for the three and nine months ended September 30, 2021 reflect higher
interest expense as result of increased average debt balances and interest
rates, combined with a lower gain on life insurance policies as a result of the
adjustment to the PMM and lower revenue recognized from the change in fair value
of life insurance policies. More details regarding revenue and expenses for the
three and nine months ended September 30, 2021 and 2020 are included in the
discussion below.
Revenue from Secondary Life Insurance
                                               Three Months Ended September 30,             Nine Months Ended September 30,
                                                   2021                   2020                  2021                   2020
Revenue realized from maturities of life
insurance policies                          $        30,891           $  26,336          $        73,688           $  72,939
Revenue recognized from change in fair
value of life insurance policies                      3,860               6,021                      623              23,476
Premiums and other annual fees paid                 (19,267)            (18,235)                 (56,388)            (53,060)
Gain on life insurance policies, net        $        15,484           $  14,122          $        17,923           $  43,355
Attribution of gain on life insurance
policies, net:
Change in estimated probabilistic cash
flows, net of premium and other annual fees
paid                                        $        (6,147)          $  

(3,512) $ (16,158) $ (5,137)
Change in life expectancy evaluation

                      -                   -                    2,337                   -
Change in PMM                                             -                   -                  (16,386)                  -
Net revenue recognized at maturity                   21,631              17,634                   48,130              48,492
Gain on life insurance policies, net        $        15,484           $  14,122          $        17,923           $  43,355

Number of policies matured                               26                  21                       74                  70
Face value of matured policies              $        43,217           $  39,803          $       104,662           $ 105,194
Net revenue recognized at maturity event (%
of face value matured)                                 50.1   %            44.3  %                  46.0   %            46.1  %


Revenue from changes in estimated probabilistic cash flows, net of premiums paid
was a charge of $6.1 million compared to $3.5 million during the three months
ended September 30, 2021 and 2020, respectively. Revenue from changes in
estimated probabilistic cash flows, net of premiums paid was a charge of $16.2
million and $5.1 million for the nine months ended September 30, 2021 and 2020,
respectively. The increase of $1.4 million in gain on life insurance policies
for the three months ended September 30, 2021 compared to the same period of
2020, was driven by higher revenue realized from maturities of life
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insurance policies, partially offset by a decreases in revenue recognized from
the change in fair value of life insurance policies and higher premium costs due
to the aging of the portfolio. The decrease of $25.4 million in gain on life
insurance policies for the nine months ended September 30, 2021, respectively,
over the comparable prior year period, was driven by higher premium costs due to
the aging of the portfolio and lower amount of revenue recognized from changes
in fair value of the policies still in force at September 30, 2021, partially
offset by higher revenue realized from maturities of life insurance policies
(see more details in the following paragraph). The lower amount of revenue
recognized from changes in fair value of the policies is largely driven by the
$16.4 million downward adjustment to fair value recorded as a result of an
update to the PMM as discussed in the "Critical Accounting Policies and
Estimates" section above.
The face value of matured policies was $43.2 million and $39.8 million for the
three months ended September 30, 2021 and 2020, respectively, reflecting an
increase in face value of matured policies of $3.4 million. The resulting
revenue realized at maturity was $30.9 million and $26.3 million during the
three months ended September 30, 2021 and 2020, respectively. The increased
revenue realized at maturity during the comparable periods was primarily due to
a higher number and face value of matured policies during the third quarter of
2021 compared to the third quarter of 2020.
The face value of matured policies was $104.7 million and $105.2 million for the
nine months ended September 30, 2021 and 2020, respectively, reflecting a
decrease in face value of matured policies of $0.5 million, respectively, during
those periods. The resulting revenue recognized at maturity was $73.7 million
and $72.9 million during the nine months ended September 30, 2021 and 2020,
respectively. The revenue recognized at maturity was comparable between periods
due to the relatively comparable face value of and average carrying value of
policies that matured.
Investment Income, Interest Income, and Other Income (in thousands)
                                                Three Months Ended September 30,                             Nine Months Ended September 30,
                                            2021               2020             Variance                2021                  2020             Variance
Investment income (loss)               $    17,554          $ 56,705          $ (39,151)         $    21,417               $ 41,590          $ (20,173)
Interest income                                213               278                (65)                 835                  1,293               (458)
Other (loss) income                            535            (3,093)             3,628               (2,916)                33,504            (36,420)
Total                                  $    18,302          $ 53,890          $ (35,588)         $    19,336               $ 76,387          $ (57,051)


Investment income was $17.6 million and $21.4 million during the three and nine
months ended September 30, 2021, respectively, driven by an increase in the NAV
of the alternative assets held by certain of the ExAlt Trusts. Investment income
was $56.7 million during the three months ended September 30, 2020 primarily due
to a decrease to the repurchase option liability combined with an increase in
NAV of the alternative assets held by certain of the ExAlt Trusts. Investment
income was $41.6 million during the nine months ended September 30, 2020, due to
decrease to the repurchase option liability, partially offset by an increase in
the NAV of the alternative assets held by certain of the ExAlt Trusts.
Interest income decreased during the nine months ended September 30, 2021,
compared to the same period in 2020, primarily due to a decrease in average cash
balances and corresponding bank interest earned.
Other income (loss) during the three and nine months ended September 30, 2021,
includes a $0.2 million increase and a $4.0 million decrease, respectively, to
the fair value of Beneficient's investment in put options, compared to a $3.2
million decrease for both of the comparable periods of 2020. Other income for
the nine months ended September 30, 2020, includes $36.3 million of income
recognized during the second quarter of 2020 by Beneficient as a result of the
forfeiture of vested equity-based compensation related to one former director of
Beneficient. A substantial majority of the former director's equity-based
compensation units were fully vested, and the related expense was recorded in
prior periods. The three and nine months ended September 30, 2021 also includes
higher L Bond early redemption fees and other miscellaneous income items
recorded than in the comparable periods of 2020.
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Interest and Operating Expenses (in thousands)

                                                 Three Months Ended September 30,                             Nine Months Ended September 30,
                                             2021               2020             Variance                2021                  2020             Variance
Interest expense (including
amortization of deferred
financing costs)                        $    45,096          $ 40,792          $   4,304          $    128,605             $ 113,805          $  14,800
Employee compensation and                                                        (18,906)               43,977               123,321            (79,344)
benefits                                     14,871            33,777
Legal and professional fees                   6,650             7,830             (1,180)               20,832                21,636               (804)
Other expenses                                9,652             4,712              4,940                23,050                13,387              9,663
Total expenses                          $    76,269          $ 87,111          $ (10,842)         $    216,464             $ 272,149          $ (55,685)


Interest expense, including amortization of deferred financing costs, increased
$4.3 million and $14.8 million during the three and nine months ended
September 30, 2021, respectively, compared to the same periods in 2020,
primarily due to the increase in the average balance of outstanding L Bonds and
increased deferred financing cost amortization as a result of the LNV credit
facility amendments. The increase in interest expense was partially offset by
the elimination of a portion of the interest expense on the Seller Trust L Bonds
as a result of the Collateral Swap transaction that occurred on September 30,
2020. Additionally, interest expense on debt due to related parties for the
three months ended September 30, 2021 compared to the same period in 2020 was
lower due to a decrease in the average balance outstanding. Interest expense on
debt due to related parties for the nine months ended September 30, 2021
compared to the same period in 2020 increased slightly due to an increase in in
the interest rate and additional deferred financing cost amortization as a
result of the amendments of Beneficient's credit agreements partially offset by
a decrease in interest expense attributable to a lower average balance
outstanding was offset by an increase
The decrease in employee compensation and benefits in the three and nine months
ended September 30, 2021, compared to the same periods of 2020, was primarily
related to Beneficient's equity incentive plans. Specifically, the Company
recognized $4.1 million and $13.1 million during the three and nine months ended
September 30, 2021, respectively, compared to $23.2 million and $96.3 million
during the comparable periods of 2020, respectively, of equity-based
compensation expense related to Beneficient's equity incentive plans. 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 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 decreases in legal and professional fees in the three and nine months ended
September 30, 2021, compared to the same period of 2020, is primarily the result
of lower consulting fees during 2021 combined with higher costs of life
expectancy reports and higher legal costs during 2020 related to debt amendments
and other transactions that occurred during that time.
The increase in other expenses during the three months ended September 30, 2021,
compared to the same period of 2020, is primarily due to a $3.7 million
prepayment premium related to the repayment of the Third LNV Credit Facility. In
addition to the prepayment premium, the increase in other expenses during the
nine months ended September 30, 2021, compared to the same period of 2020, is
primarily due to: the $1.0 million TEFFI application fee incurred by Beneficient
during the second quarter of 2021; the $2.0 million write-off of an investment
related to legacy business initiatives of GWG Holdings during the first quarter
of 2021; and a $1.3 million partial expense reversal of a service provider
accrual by Beneficient during the first quarter of 2020.
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 (0.09)% for the nine months ended
September 30, 2021. The income tax expense for the three and nine months ended
September 30, 2021 was $0.7 million and $0.2 million, respectively, compared to
income tax expense of $3.6 million and income tax benefit of $14.5 million for
the three and nine months ended September 30, 2020, respectively. 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 expense for the three and
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nine months ended September 30, 2021 reflects current state tax expense of GWG
Holdings and adjustments to deferred federal income taxes related to
Beneficient's losses, partially offset by adjustments to the deferred tax
liability of GWG Holdings 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
September 30, 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 and Nine Months
Ended September 30, 2021 Compared to the Same Periods 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 September 30,                             Nine Months Ended September 30,
Revenue:                                      2021               2020             Variance                2021                  2020             Variance
Secondary Life Insurance                 $    15,856          $ 14,422          $   1,434               18,955              $  44,800          $ (25,845)
Beneficient                                   17,867            53,589            (35,722)              18,235                 74,925            (56,690)
Corporate & Other                                 63                 1                 62                   69                     17                 52
Total                                    $    33,786          $ 68,012          $ (34,226)         $    37,259              $ 119,742          $ (82,483)


The primary components of the changes in revenue during the three and nine
months ended September 30, 2021 compared to the same periods in 2020 were as
follows:
•Secondary Life Insurance revenue increased by $1.4 million during the three
months ended September 30, 2021 compared to the same period in 2020, primarily
due to higher revenue realized from maturities of life insurance policies,
partially offset by a decreases in revenue recognized from the change in fair
value of life insurance policies and higher premium costs due to the aging of
the portfolio. Secondary Life Insurance revenue decreased by $25.8 million
during the nine months ended September 30, 2021, compared to the comparable
periods in 2020, primarily as a result of an adjustment to the PMM during the
second quarter of 2021 that resulted in a $16.4 million downward adjustment to
the fair value of the portfolio, combined with higher premiums and lower revenue
recognized from changes in fair value of the policies still in force at
September 30, 2021, notwithstanding the PMM adjustment.
•Beneficient segment revenue decreased for the three and nine months ended
September 30, 2021, compared to the same periods in 2020, primarily due income
recognized from the decrease to fair value of the repurchase option liability in
both periods of 2020 combined with $36.3 million of non-recurring income
recognized in the year to date period of 2020 by Beneficient as a result of the
forfeiture of vested equity-based compensation related to one former director of
Beneficient. A substantial majority of the former director's equity-based
compensation units
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were fully vested, and the related expense was recorded in prior periods. This
decrease was partially offset by an increase in investment income driven by
changes in the NAV of the alternative assets held by certain of the ExAlt Trusts
during the three and nine months ended September 30, 2021, compared to the same
periods in 2020.

Comparison of loss before tax by reportable segment for the periods indicated
(in thousands):
                                                Three Months Ended September 30,                               Nine Months Ended September 30,
Segment Loss Before Tax                    2021                   2020             Variance              2021                 2020              Variance
Secondary Life Insurance            $    (28,142)             $ (12,147)         $ (15,995)         $    (86,730)         $  (39,314)         $ (47,416)
Beneficient                               (6,576)                   532             (7,108)              (67,450)            (94,880)            27,430
Corporate & Other(1)                     (12,714)                (8,915)            (3,799)              (36,923)            (22,492)           (14,431)
Total                               $    (47,432)             $ (20,530)         $ (26,902)         $   (191,103)         $ (156,686)         $ (34,417)

_______________________________________________

(1)Includes loss from equity method investments as presented in our accompanying
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 and nine
months ended September 30, 2021, compared to the same periods in 2020 were as
follows:
•Secondary Life Insurance loss before tax increased by $16.0 million and $47.4
million, respectively, for the three and nine months ended September 30, 2021,
compared to the same periods in 2020, primarily as a result of the following:
•$1.4 million increase and $25.4 million decrease, respectively, in gain on life
insurance policies, net for the comparative periods as described above in the
revenue comparison discussion;
•$12.7 million and $23.7 million respective increases in interest expense during
the comparative periods as a result of higher average debt outstanding; and
•$4.8 million increase and $2.1 million decrease, respectively, in operating
expenses during the comparative periods, primarily resulting from the $3.8
million prepayment premium as described above for the third quarter of 2021,
partially offset by a lower percentage of employee compensation and benefits
allocated to the Secondary Life Insurance segment for the current year periods.
•Beneficient segment recognized a loss before tax of $6.6 million for the three
months ended September 30, 2021 compared to earnings before tax of $0.5 million
during same period in 2020, primarily due to:
•a decrease of $20.6 million in non-cash charges for equity incentive
compensation;
•an decrease in investment income of $39.2 million as described above in the
revenue comparison discussion; and
•net decreases in interest and other operating expenses of approximately $8.0
million.
•Beneficient segment loss before tax decreased by $27.4 million for the nine
months ended September 30, 2021, primarily due to:
•a decrease of $81.2 million in non-cash charges for equity compensation;
•a decrease in investment income of $20.2 million combined with $36.3 million of
non-recurring income in second quarter of 2020 as described above in the revenue
comparison discussion; and
•net decreases in interest and other operating expenses of approximately $2.9
million.
•Corporate & Other operating loss was higher during the three and nine months
ended September 30, 2021 compared to the same periods in 2020, primarily due:
•$3.5 million and $7.6 million respective increases in loss from equity method
investments due to higher costs incurred by FOXO as it continues to strive to
bring its products to market;
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•$0.3 million and $4.8 million respective increases in operating expenses due to
a higher percentage of salaries and benefits, legal fees and other operating
expenses allocated to Corporate & Other; and
•the write-off of a $2.0 million investment related to legacy business
initiatives of GWG Holdings during the nine months ended September 30, 2021.
Liquidity and Capital Resources
As of September 30, 2021 and December 31, 2020, we had approximately $67.7
million and $124.2 million, respectively, in combined available cash, cash
equivalents, and restricted cash. We generated net losses attributable to common
shareholders of $169.9 million and $120.5 million for the nine months ended
September 30, 2021 and 2020, respectively. As of November 10, 2021, we had cash,
cash equivalents, and restricted cash of approximately $29.8 million. Besides
funding operating expenditures, we are obligated to pay other items such as
interest payments and 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 discussed in Note 17, the Company expects that Ben LP would reduce
its reliance on GWG Holdings to fund its 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 the 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, 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, we pledged additional life insurance policies as collateral and received
an additional advance of $51.2 million under the Third LNV Credit Facility.
Subsequently, on August 11, 2021, we received a one-time advance of
$107.6 million under the NF Credit Facility as described above. Approximately
$56.7 million of such advanced amount was used to pay off the remaining amount
due, including interest and penalties, under the Third LNV Credit Facility and
the pledged life insurance policies used as collateral for the Third LNV Credit
Facility were released and pledged under the NF Credit Facility. Further, on
September 7, 2021, DLP IV entered into the Fourth LNV Credit Facility, that
replaced the aforementioned Third LNV Credit Facility. The Fourth LNV Credit
Facility resulted in an additional advance of $30.3 million from LNV
Corporation, with no additional pledged collateral. All of the aforementioned
transactions are described in more detail in Note 9.

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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 $70.1 million of borrowing base capacity, excluding any potential
capacity for premiums and servicing costs, under the LNV Credit Facility as of
September 30, 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
September 30, 2021 and continue to be so as of the filing date of this report.
Beneficient is obligated to make debt payments totaling $77.1 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 in more
detail in Note 9. 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 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. We expect Beneficient 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 $3.8 million in cash
to FOXO during the nine months ended
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September 30, 2021, and has fully contributed its commitment to FOXO in
accordance with the related subscription agreement. GWG has no other outstanding
capital commitments to FOXO.
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 September 30, 2021 and
December 31, 2020, with the following weighted average interest rates as
calculated for the nine months ended September 30, 2021, and the year ended
December 31, 2020 (dollars in thousands):
                                                                September 30, 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                                            $      229,862                                   $      202,611
GWG DLP Funding VI, LLC - NF senior credit                                             5.61  %                                             -  %
facility                                                   107,604                                                -
GWG Holdings, Inc. - L Bonds                             1,311,104                     7.25  %            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                   79,803                     7.91  %               77,176                     6.50  %
Total                                               $    2,000,477                     7.42  %       $    1,829,772                     7.43  %

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

                                                              September 30, 2021           December 31, 2020
Senior credit facility with LNV Corporation:
Face amount outstanding                                     $           229,862          $          202,611
Unamortized deferred financing costs                                     (7,894)                     (8,881)
Carrying amount                                             $           221,968          $          193,730
Senior credit facility with National Founders LP:
Face amount outstanding                                     $           107,604          $                -
Unamortized deferred financing costs                                     (1,870)                          -
Carrying amount                                             $           105,734          $                -
L Bonds and Seller Trust L Bonds:
Face amount outstanding                                     $         1,583,208          $        1,549,985
Redemptions and subscriptions in process(1)                              12,726                      17,978
Unamortized selling costs                                               (44,022)                    (48,957)
Carrying amount                                             $         1,551,912          $        1,519,006
Debt due to related parties:
Face amount outstanding                                     $            79,803          $           77,176
Unamortized discount                                                     (2,441)                       (916)
Carrying amount                                             $            77,362          $           76,260

__________________________________________

(1)Amount as of September 30, 2021 only includes redemptions in process.

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Amendments of Senior Credit Facility with LNV Corporation
Effective September 7, 2021, DLP IV entered into the Fourth LNV Credit Facility,
which replaced the Third LNV Credit Facility, dated June 28, 2021. The Fourth
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 Fourth 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. Under the Fourth LNV Credit Facility, all advances bear
interest at a rate of the Benchmark Rate plus the Applicable Margin, or the
Default Rate if an event of default has occurred and is continuing. For purposes
of the Fourth LNV Credit Facility, (i) the "Benchmark Rate" is the greater of
(a) the sum of (i) the Federal Funds Rate plus (ii) one-half of one percent
(0.50%) and (b) one and one half of one percent (1.50%); (ii) the "Applicable
Margin" is seven and one half percent (7.50%); and (iii) the "Default Rate" is
the Benchmark Rate plus nine and one half percent (9.50%). The effective rate at
September 30, 2021 was 9.00%. Interest payments are made on a quarterly basis.
As of September 30, 2021, we had approximately $229.9 million outstanding under
the LNV Credit facility. The Fourth LNV Credit Facility resulted in an
additional advance of $30.3 million from LNV Corporation.
Under the Fourth 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 Fourth
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. In addition, the Fourth LNV Credit Facility
has certain reporting obligations that require DLP IV to deliver unaudited
quarterly financial statements no later than forty-five days after the end of
each of the first three fiscal quarters, and audited annual financial statements
no later than ninety days after the end of each fiscal year. As of September 30,
2021, we were in compliance with all financial and non-financial covenants.
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 LNV
Credit 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. The principal amount outstanding
under this facility was $107.6 million as of September 30, 2021.
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 September 30, 2021, we were in
compliance with all financial and non-financial covenants in the NF Credit
Facility.
L Bonds (including Liquidity Bonds) and Seller Trust L Bonds
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
September 30, 2021, we have raised $453.2 million under this offering, including
renewals, since it was declared effective.
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Through September 30, 2021, the total amount of L Bonds sold under all
offerings, including renewals, was $2.3 billion. As of both September 30, 2021
and December 31, 2020, respectively, we had approximately $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 accompanying 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 accompanying 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 September 30, 2021 and
December 31, 2020 was 7.25%, and the weighted-average maturity at those dates
was 2.89 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 $873.1 million in
maturities, of which $429.5 million has renewed through September 30, 2021, for
an additional term. This renewal activity has provided us with an aggregate
renewal rate of approximately 49.2% for investments in these securities.
Future contractual maturities of L Bonds (including the Seller Trust L Bonds and
Liquidity Bonds) at September 30, 2021 are as follows (in thousands):
Years Ending December 31,
Three months ending 2021(1)      $   320,919
2022                                 288,968
2023                                 248,168
2024                                 171,306
2025                                 164,645
Thereafter                           389,202
                                 $ 1,583,208


(1)As of September 30, 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.
Debt Due to Related Parties
Beneficient had borrowings with an aggregate carrying value of $77.4 million and
$76.3 million as of September 30, 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 $2.4 million and $74.7 million as of September 30, 2021 and $2.3
million and $72.3 million as of December 31, 2020, respectively. These amounts
exclude an unamortized
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discount of $2.4 million and $0.9 million as of September 30, 2021 and
December 31, 2020, respectively. In accordance with the terms of the Ben Credit
Agreements, 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 Ben Credit
Agreements, 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 accompanying condensed consolidated financial statements.
These loans are not currently guaranteed by GWG Holdings as of September 30,
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 September 30,
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 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 September 30, 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 September 30, 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 accompanying 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 September 30, 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.
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Life Insurance Portfolio Discount Rate                         8.25%(1)                              8.49%
Value of life insurance portfolio                          $       761,560                        $  753,160
Common Units                                                       437,573                           437,573
Preferred Series A Subclass 1 Unit Account of BCH                  319,030                           319,030
Preferred Series C Unit Account of BCH                             210,624                           210,624
Commercial Loan Agreement                                          189,957                           189,957
Cash, cash equivalents and policy benefits receivable               91,080                            91,080
Other assets                                                        14,037                            14,037
Total assets                                                     2,023,861                         2,015,461
Less: Senior credit facilities(2)                                  337,466                           337,466
Net after senior credit facilities                               1,686,395                         1,677,995
Less: L Bonds(3)                                                 1,677,996                         1,677,996
Net remaining                                              $         8,399                        $       (1)
Impairment to L Bonds                                          No impairment                       Impairment


(1)The discount rate used to calculate the fair value of our life insurance
portfolio as of September 30, 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 September 30, 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 8.49% or higher at September 30, 2021. At
December 31, 2020, the likely impairment occurred at a discount rate of
approximately 16.12% 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 lenders' right to priority payments under the LNV
Credit Facility and the NF Credit Facility.
The table also assumes GWG Holdings will realize the full amounts of 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 accompanying 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 accompanying condensed consolidated financial
statements in this Form 10-Q and our 2020 Form 10-K.
As a result of the Letter Agreement dated November 15, 2021, by and among DLP
IV, LNV Corporation, and CLMG Corp., discussed in detail in Note 17 to these
accompanying condensed consolidated financial statements, three percent (3.0%)
of any amount received by DLP IV with respect to any death benefit under any
policies pledged under the LNV Credit Facility will be payable directly to CLMG
Corp. for the benefit of the lenders. The Company expects that the three percent
(3.0%) beneficial interest obtained by LNV Corporation will result in a
significant downward adjustment to the fair value of the policies pledged under
the LNV Credit Facility and will likely have an unfavorable impact on the above
sensitivity analysis as of December 31, 2021, absent any other changes to the
values of other assets and liabilities reported at that date.
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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 accompanying
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. 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 $45.1 million and $40.8 million for the three
months ended September 30, 2021 and 2020, respectively, and $128.6 million and
$113.8 million for the nine months ended September 30, 2021 and 2020,
respectively, represents the largest cash expense item in each period. Preferred
stock cash dividends were $2.4 million and $3.6 million for the three months
ended September 30, 2021 and 2020, respectively. and $8.4 million and $11.2
million for the nine months ended September 30, 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.
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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
Three months ending 2021         $  13,847      $      457      $  14,304
2022                                81,839           1,828         83,667
2023                                93,037           1,828         94,865
2024                               101,998           1,828        103,826
2025                               113,722           1,828        115,550
2026                               125,911           1,828        127,739
                                 $ 530,354      $    9,597      $ 539,951


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 nine months of 2021 compared to six in the first nine 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.
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
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  %
June 30, 2021                                   1,844,466                      121,163                       61,301                                    197.7  %
September 30, 2021                              1,801,306                      124,577                       72,846                                    171.0  %


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
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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 accompanying 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 September 30, 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.
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 September 30, 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 contributed $3.8 million in cash to FOXO during the nine months
ended September 30, 2021, and has fully contributed its commitment to FOXO in
accordance with the related subscription agreement. GWG has no other outstanding
capital commitments to FOXO.
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
September 30, 2021, 94.7% 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
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denominated in the U.S. dollar, Euro, and Canadian dollar. The underlying
portfolio companies primarily operate in the United States and Asia, with the
largest percentage, based on NAV, operating in software and services,
semiconductors and semiconductor equipment, diversified financials, food and
staples retailing, telecommunications services, and utilities 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 September 30, 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
accompanying 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 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 September 30, 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
accompanying 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 September 30, 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 September 30,
2021 and December 31, 2020, with respect to the financial position, and for the
nine months ended September 30, 2021, with respect to results of operations. The
tables
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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):

                                                           September 30, 2021           December 31, 2020

Assets(1)

Cash, cash equivalents and restricted cash               $            36,720          $           65,556
Other assets                                                           4,130                       6,366
Total assets                                             $            40,850          $           71,922
Liabilities
L Bonds                                                  $         1,279,808          $        1,246,902
Seller Trust L Bonds                                                 366,892                     366,892
Interest and dividends payable                                        11,402                      12,086
Accounts payable and accrued expenses                                  7,067                       7,347
Deferred tax liabilities                                              51,328                      51,469
Total liabilities                                        $         1,716,497          $        1,684,696
Equity
Redeemable preferred stock and Series 2 redeemable
preferred stock                                          $            

98,478 $ 156,833

______________________________________

(1) Assets exclude: i) GWG Holdings' investment in GWG Life of $1.0 billion and
$1.2 billion as of September 30, 2021 and December 31, 2020, respectively; ii)
GWG Holdings' aggregate investments in non-obligor subsidiaries of $654.0
million and $643.1 million as of September 30, 2021 and December 31, 2020,
respectively; and iii) GWG Life's aggregate investments in and loans to
non-obligor subsidiaries of $1.0 billion and $1.2 billion as of September 30,
2021 and December 31, 2020, respectively.
Summarized Statement of Operations Information (in thousands):
                                                              Nine Months Ended
                                                             September 30, 2021
      Total revenues                                        $            19,928

      Interest expense                                                  109,535
      Other expenses                                                     27,020
      Total expenses                                                    136,555
      Loss before income taxes and preferred dividends                 (116,627)
      Income tax benefit                                                    173
      Preferred dividends                                                 8,371
      Net loss                                              $          (125,171)


Debt Coverage Ratio
The L Bond borrowing covenants of GWG Holdings require it to maintain a Debt
Coverage Ratio not to exceed 90%. The Debt Coverage Ratio is calculated by
dividing the sum of our total interest-bearing indebtedness (other than Excluded
Indebtedness defined and described in note 2 to the table below) by the sum of
our cash, cash equivalents, restricted cash, life insurance policy benefits
receivable, the net present value of the life insurance portfolio, and, without
duplication, the value of all of our other assets as reflected on our most
recently available balance sheet prepared in accordance with GAAP.
GWG Holdings' and GWG Life's investments in Beneficient and GWG Life's ownership
interests in the holding companies that own DLP IV and DLP VI, which own
substantially all of the life insurance portfolio, secure our obligations under
the L Bonds, and are illiquid assets. Although GWG Holdings and GWG Life own
debt and equity securities of Beneficient, a substantial majority of the net
assets of Beneficient are currently represented by goodwill, an intangible
asset. The calculation
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of Beneficient's goodwill required the utilization of significant estimates and
management judgment, as discussed elsewhere in this Quarterly Report on Form
10-Q. As a result, the carrying value of those assets as reflected in our
accompanying condensed consolidated financial statements may not necessarily
reflect the current market price for those assets, especially in the event of a
bulk or distressed sale. Proceeds from L Bond sales will be primarily used for
the repayment of L Bond maturities, interest payments and other operating
expenses of GWG Holdings, and as otherwise specified in the prospectus for the L
Bonds. GWG Holdings may also continue to use a portion of the proceeds from L
Bond sales to make investments in Beneficient. Because advances may be used by
Beneficient for working capital purposes, such investments may not increase the
tangible assets securing the L Bonds. If the trustee for the L Bonds were forced
to sell all or a portion of the collateral securing them, there can be no
assurance that the trustee would be able to sell them for the prices at which we
have recorded them in our accompanying condensed consolidated financial
statements, and the trustee might be forced to sell them at significantly lower
prices.
The discount rate we use for the net present value of our life insurance
portfolio for this calculation may not be the same discount rate we use for our
GAAP valuation and is not necessarily reflective of the amount we could realize
upon a sale of the portfolio (dollars in thousands):
                                                                       September 30, 2021         December 31, 2020
Life insurance portfolio policy benefits                              $       1,801,306          $       1,900,715
Discount rate of future cash flows(1)                                              7.39  %                    7.46  %

Net present value of life insurance portfolio policy benefits $

     792,575          $         822,859
All cash and cash equivalents (including restricted cash)                        57,975                    106,282
Life insurance policy benefits receivable, net                                   33,105                     14,334
Financing receivables from affiliates                                           189,957                    180,080
Investments in Common Units(3)                                                  437,573                    438,194
Investments in Preferred Series A Subclass 1 Unit Account(3)                    319,030                    319,030
Investments in Preferred Series C Unit Account(3)                               210,624                    195,578
Other Assets                                                                     14,037                     20,082
Total Coverage(2)                                                     $       2,054,876          $       2,096,439

Total Indebtedness(2)                                                 $       1,684,698          $       1,519,107

Debt Coverage Ratio                                                               81.99  %                   72.46  %


(1)Weighted-average interest rate paid on indebtedness, excluding that of Seller
Trust L-Bonds, as required under the indenture governing the L Bonds.
(2)Total Coverage excludes the assets of Beneficient. Total Indebtedness is
equal to the total liabilities balance of GWG Holdings (excluding the
liabilities of Beneficient) as of September 30, 2021, other than Excluded
Indebtedness. "Excluded Indebtedness" means indebtedness that is payable at GWG
Holdings' option in capital stock of GWG Holdings or securities mandatorily
convertible into or exchangeable for capital stock of GWG Holdings, or any
Indebtedness that is reasonably expected to be converted or exchanged, directly
or indirectly, into capital stock of GWG Holdings. This change in the definition
of the Debt Coverage Ratio was defined in Amendment No. 2 to the Amended and
Restated Indenture entered into as of December 31, 2019 (see Note 9 to the
accompanying condensed consolidated financial statements).
(3)Generally represents the value of the investment in Beneficient as of
December 31, 2019, for investments that existed at the time of the
change-in-control transaction, or the value at the time of purchase for
investments that were made subsequent to December 31, 2019. As noted above,
these are illiquid investments that are carried at book basis and not market
value. In the future, the book basis of these investments is subject to change
pending the finalization of the accounting impact and conclusions of the
Decoupling Transactions discussed in Note 17 to the accompanying condensed
consolidated financial statements.
As of September 30, 2021 and December 31, 2020, we were in compliance with the
Debt Coverage Ratio. As a result of the Letter Agreement dated November 15,
2021, by and among DLP IV, LNV Corporation, and CLMG Corp., discussed in detail
in Note 17 to these accompanying condensed consolidated financial statements,
three percent (3.0%) of any amount received by DLP IV with respect to any death
benefit under any policies pledged under the LNV Credit Facility will be payable
directly to CLMG Corp. for the benefit of the lenders. The Company expects that
the three percent (3.0%) beneficial interest obtained by LNV Corporation will
result in a significant downward adjustment to the fair value of the policies
pledged under the LNV Credit Facility and will likely have an unfavorable impact
on the debt coverage ratio as of December 31, 2021, absent any other changes to
the values of other assets and liabilities reported at that date.
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