15
make an interest payment on certain debt and on related interest rate swap contracts. On June 4, 2009, J.G. Wentworth, LLC and
certain of its affiliates completed a reorganization under Chapter 11 of the United States Bankruptcy Code, or the Bankruptcy
Code, and emerged with a restructured balance sheet. In the future, we may not be able to continue to securitize our structured
settlement payments at favorable rates or obtain financing through borrowings or other means on acceptable terms or at all, in
which case we may be unable to satisfy our cash requirements. Our financings generate cash proceeds that allow us to repay
amounts borrowed under our committed warehouse lines, finance the purchase of additional financial assets and pay our operating
expenses. Changes in our asset-backed securities program could materially adversely affect our earnings and ability to purchase
and securitize structured settlement, annuity, or lottery payment streams on a timely basis. These changes could include:
•
a delay in the completion of a planned securitization;
•
negative market perception of us;
•
a change in rating agency criteria with regards our asset class;
•
delays from rating agencies in providing ratings on our securitizations; and
•
failure of the financial assets we intend to securitize to conform to rating agency requirements.
We plan to continue to access the securitization market frequently. If for any reason we were not able to complete a
securitization, it could negatively impact our cash flowduring that period. Ifwe are unable to consummate securitization transactions
in the future or if there is an adverse change in the asset-backed securities market for structured settlement, annuity, or lottery
payment streams generally, we may have to curtail our activities, which would have a material adverse effect on our business,
financial condition, results of operations and cash flows.
We have a substantial amount of indebtedness, which may adversely affect our cash flow and ability to operate or grow our
business.
As of December 31, 2014, we had $450 million total indebtedness (not including indebtedness related to our warehouse
facilities and asset-backed securitizations, which is recourse only to the VIE assets on our balance sheet). In addition, on the same
basis, we would have had the ability to incur $20 million of additional indebtedness under our revolving credit facility. Our
substantial indebtedness could have a number of important consequences. For example, our substantial indebtedness could:
•
make it more difficult for us to satisfy our obligations under our indebtedness or comply with the obligations
of any of our debt instruments, including restrictive covenants and borrowing conditions, which could result in
an event of default under one or more agreements governing our indebtedness;
•
make us more vulnerable to adverse changes in the general economic, competitive and regulatory environment;
•
require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness,
thereby reducing the cash available for working capital, capital expenditures, acquisitions and other general
corporate purposes;
•
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
•
place us at a competitive disadvantage compared to our competitors that are less highly leveraged, as they may
be able to take advantage of opportunities that our leverage prevents us from exploiting; and
•
limit our ability to borrow additional amounts for working capital, capital expenditures, acquisitions, debt service
requirements, execution of our business strategy or other purposes.
Any of the above listed factors could materially adversely affect our business, financial condition, results of operations
and cash flows. Further, subject to compliance with our financing agreements, we have the ability to incur additional indebtedness,
which would exacerbate the risks associated with our existing debt.
We are dependent on the opinions of certain rating agencies for the valuation of the credit quality of our assets to access the
capital markets.
Standard & Poor’s, Moody’s and A.M. Best evaluate some, but not all, of the insurance companies that are the payors
on the structured settlement, annuity and certain lottery payment streams that we purchase. Similarly, Standard & Poor’s,
Moody’s, A.M. Best and DBRS, Inc. evaluate some, but not all, of our securitizations of those assets. We may be negatively
impacted if any of these rating agencies stop covering these insurance companies or decide to downgrade their ratings or change
their methodology for rating insurance companies or our securitizations. A downgrade in the credit rating of the major insurance
companies that write structured settlements could negatively affect our ability to access the capital or securitization markets. In
addition, we may be negatively impacted if any of these rating agencies stop rating our securitizations, which would adversely
affect our ability to sell our securitizations and the price that we receive for them. These events could have a material adverse
effect on our business, financial condition, results of operations and cash flows.
