• Filing Date: 2020-07-09
  • Form Type: 10-Q
  • Description: Quarterly report
v3.20.2
Cover Page - shares
6 Months Ended
May 31, 2020
Jul. 08, 2020
Cover [Abstract]    
Entity Registrant Name Emergent Capital, Inc.  
Entity Central Index Key 0001494448  
Current Fiscal Year End Date --11-30  
Entity Filer Category Non-accelerated Filer  
Document Type 10-Q  
Document Period End Date May 31, 2020  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q2  
Amendment Flag false  
Trading Symbol EMGC  
Entity Current Reporting Status Yes  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Interactive Data Current Yes  
Entity Common Stock, Shares Outstanding   158,655,140
v3.20.2
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
May 31, 2020
Nov. 30, 2019
[1]
ASSETS    
Cash and cash equivalents $ 21,284 $ 24,283
Certificates of deposit 515 511
Prepaid expenses and other assets 1,674 377
Operating lease asset (Note 18) 72  
Deposits - other 1,377 1,377
Life settlements, at estimated fair value 0 1,297
Fixed assets, net 0 18
Investment in limited partnership, at estimated fair value (Note 11) 150,200 137,849
Total assets 175,122 165,712
Liabilities    
Accounts payable and accrued expenses 951 1,651
Other liabilities 40 86
Operating lease liability (Note 18) 66  
Current tax liability 2,623 3,195
Total liabilities 115,856 123,599
Commitments and Contingencies (Note 18)
Stockholders’ Equity    
Common stock (par value $0.01 per share, 415,000,000 authorized at May 31,2020 and November 30, 2019; 159,263,140 issued and 158,655,140 outstanding as of May 31, 2020; 158,365,275 issued and 157,757,275 outstanding as of November 30, 2019) 1,593 1,584
Preferred stock (par value $0.01 per share, 40,000,000 authorized; 0 issued and outstanding as of May 31, 2020 and November 30, 2019) 0 0
Treasury Stock, net of issuance cost (608,000 shares as of May 31, 2020 and November 30, 2019) (2,534) (2,534)
Additional paid-in-capital 334,620 334,576
Accumulated deficit (274,413) (291,513)
Total stockholders’ equity 59,266 42,113
Total liabilities and stockholders’ equity 175,122 165,712
5.0% Convertible Notes    
Liabilities    
Interest payable 1,007 1,116
5.0% Convertible Notes, net of discount and deferred debt costs (Note 14) 64,097 71,022
8.5% Senior Secured Notes    
Liabilities    
Interest payable 865 854
8.5% Senior Secured Notes, net of deferred debt costs (Note 15) $ 46,207 $ 45,675
[1] Derived from audited consolidated financial statements.
v3.20.2
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
May 31, 2020
Nov. 30, 2019
[1]
Statement of Financial Position [Abstract]    
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 415,000,000 415,000,000
Common stock, shares issued (in shares) 159,263,140 158,365,275
Common stock, shares outstanding (in shares) 158,655,140 157,757,275
Preferred stock, par value (in dollars per share) $ 0.01 $ 0.01
Preferred stock, shares authorized (in shares) 40,000,000 40,000,000
Preferred stock, shares issued (in shares) 0 0
Preferred stock, shares outstanding (in shares) 0 0
Treasury stock (in shares) 608,000 608,000
[1] Derived from audited consolidated financial statements.
v3.20.2
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
May 31, 2020
May 31, 2019
May 31, 2020
May 31, 2019
Income        
Change in fair value of life settlements (Notes 10 & 16) $ 0 $ 4 $ 0 $ 6
Change in fair value of investment in limited partnership, net of distributions (Notes 11 and 16) 9,000 0 16,351 0
Change in fair value of investment in deconsolidated subsidiaries (Notes 4 & 16) 0 (18,804) 0 (52,769)
Gain on life settlements, net (Note 10) 0 0 743 0
Other income 101 46 10,817 93
Total income 9,101 (18,754) 27,911 (52,670)
Expenses        
Interest expense 2,473 2,775 4,867 5,538
Extinguishment of debt 0 0 (2,815) 0
Personnel costs 435 138 2,389 307
Legal fees 203 725 1,112 720
Professional fees 559 (57) 1,416 278
Insurance 524 217 841 396
Other selling, general and administrative expenses 255 98 520 200
Total expenses 4,449 3,896 8,330 7,439
Income (loss) from continuing operations before income taxes 4,652 (22,650) 19,581 (60,109)
Provision (benefit) provision for income taxes 0 3,218 2,428 3,218
Net income (loss) from continuing operations 4,652 (25,868) 17,153 (63,327)
Discontinued Operations:        
Income (loss) from discontinued operations before income taxes 10 (16) (53) (33)
Provision (benefit) provision for income taxes 0 0 0 0
Net income (loss) from discontinued operations 10 (16) (53) (33)
Net income (loss) $ 4,662 $ (25,884) $ 17,100 $ (63,360)
Basic income (loss) per common share:        
Continuing operations (in dollars per share) $ 0.03 $ (0.16) $ 0.11 $ (0.40)
Discontinued operations (in dollars per share) 0.00 0.00 0.00 0.00
Net income (loss) - basic (in dollars per share) 0.03 (0.16) 0.11 (0.40)
Diluted income (loss) per share:        
Continuing operations (in dollars per share) 0.02 (0.16) 0.09 (0.40)
Discontinued operations (in dollars per share) 0.00 0.00 0.00 0.00
Net income (loss) - diluted (in dollars per share) $ 0.02 $ (0.16) $ 0.09 $ (0.40)
Weighted average shares outstanding:        
Basic (in shares) 157,648,168 156,960,046 157,608,707 156,939,797
Diluted (in shares) 175,581,286 156,960,046 204,522,043 156,939,797
v3.20.2
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT/EQUITY (UNAUDITED) - USD ($)
$ in Thousands
Total
Common Stock
Treasury Stock
Additional Paid-in Capital
Accumulated Deficit
Beginning Balance (in shares) at Nov. 30, 2018   158,733,928 608,000    
Beginning Balance at Nov. 30, 2018 $ 27,242 $ 1,587 $ (2,534) $ 334,198 $ (306,009)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income/(loss) (37,476)       (37,476)
Stock-based compensation 98     98  
Ending Balance (in shares) at Feb. 28, 2019   158,733,928 608,000    
Ending Balance at Feb. 28, 2019 (10,136) $ 1,587 $ (2,534) 334,296 (343,485)
Beginning Balance (in shares) at Nov. 30, 2018   158,733,928 608,000    
Beginning Balance at Nov. 30, 2018 27,242 $ 1,587 $ (2,534) 334,198 (306,009)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income/(loss) (63,360)        
Ending Balance (in shares) at May. 31, 2019   158,659,803 608,000    
Ending Balance at May. 31, 2019 (35,923) $ 1,587 $ (2,534) 334,393 (369,369)
Beginning Balance (in shares) at Feb. 28, 2019   158,733,928 608,000    
Beginning Balance at Feb. 28, 2019 (10,136) $ 1,587 $ (2,534) 334,296 (343,485)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income/(loss) (25,884)       (25,884)
Stock-based compensation 97     97  
Retirement of common stock (in shares)   (74,125)      
Retirement of common stock 0        
Ending Balance (in shares) at May. 31, 2019   158,659,803 608,000    
Ending Balance at May. 31, 2019 (35,923) $ 1,587 $ (2,534) 334,393 (369,369)
Beginning Balance (in shares) at Nov. 30, 2019   158,365,275 (608,000)    
Beginning Balance at Nov. 30, 2019 42,113 [1] $ 1,584 $ (2,534) 334,576 (291,513)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income/(loss) 12,438       12,438
Stock-based compensation (in shares)   1,000,000      
Stock-based compensation 32 $ 10   22  
Retirement of common stock (in shares)   (87,309)      
Retirement of common stock (1) $ (1)      
Ending Balance (in shares) at Feb. 29, 2020   159,277,966 (608,000)    
Ending Balance at Feb. 29, 2020 54,582 $ 1,593 $ (2,534) 334,598 (279,075)
Beginning Balance (in shares) at Nov. 30, 2019   158,365,275 (608,000)    
Beginning Balance at Nov. 30, 2019 42,113 [1] $ 1,584 $ (2,534) 334,576 (291,513)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income/(loss) 17,100        
Ending Balance (in shares) at May. 31, 2020   159,263,140 (608,000)    
Ending Balance at May. 31, 2020 59,266 $ 1,593 $ (2,534) 334,620 (274,413)
Beginning Balance (in shares) at Feb. 29, 2020   159,277,966 (608,000)    
Beginning Balance at Feb. 29, 2020 54,582 $ 1,593 $ (2,534) 334,598 (279,075)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income/(loss) 4,662       4,662
Stock-based compensation 22     22  
Retirement of common stock (in shares)   (14,826)      
Retirement of common stock 0        
Ending Balance (in shares) at May. 31, 2020   159,263,140 (608,000)    
Ending Balance at May. 31, 2020 $ 59,266 $ 1,593 $ (2,534) $ 334,620 $ (274,413)
[1] Derived from audited consolidated financial statements.
v3.20.2
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED) - USD ($)
$ in Thousands
6 Months Ended
May 31, 2020
May 31, 2019
Cash flows from operating activities    
Net income/(loss) $ 17,100 $ (63,360)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:    
Depreciation and amortization 18 39
Change in fair value of investment in deconsolidated subsidiaries 0 52,769
Extinguishment of debt (2,815) 0
Stock-based compensation expense 53 195
Interest paid in kind on 8.5% Senior Secured Notes 0 1,749
Change in fair value of life settlements 0 (6)
Change in fair value of investment in limited partnership, net of distributions (16,351) 0
Gain on sale of life settlement (743) 0
Interest income (311) (197)
Deferred tax asset 0 576
Change in assets and liabilities:    
Prepaid expenses and other assets (991) 92
Accounts payable and accrued expenses (697) (500)
Operating lease assets, net of liabilities (7)  
Other liabilities (48) (1,634)
Current tax liability (572) 2,642
Net cash (used in) provided by operating activities (4,363) (6,179)
Cash flows from investing activities    
Purchase of fixed assets, net of disposals 0 (5)
Premiums paid on life settlements 0 (77)
Proceeds from sale of life settlements, net 2,041 0
Distributions from investment in limited partnership 4,000 0
Net cash (used in) provided by investing activities 6,041 (82)
Cash flows from financing activities    
Proceeds from issue of 8.5% Senior Secured Notes 0 6,476
Repayment of 8.5% Convertible Notes (4,677) 0
Net cash provided by financing activities (4,677) 6,476
Net increase (decrease) in cash and cash equivalents (2,999) 215
Cash and cash equivalents, at beginning of the period 24,283 1,209
Cash and cash equivalents, at end of the period 21,284 1,424
Supplemental disclosures of cash flow information:    
Cash paid for interest during the period 3,864 2,246
8.5% Convertible Notes    
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:    
Amortization of discount and deferred costs 0 21
Change in assets and liabilities:    
Interest payable 0 51
5.0% Convertible Notes    
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:    
Amortization of discount and deferred costs 567 622
Change in assets and liabilities:    
Interest payable (109) 0
8.5% Senior Secured Notes    
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:    
Amortization of discount and deferred costs 532 326
Change in assets and liabilities:    
Interest payable $ 11 $ 436
v3.20.2
Description of Business
6 Months Ended
May 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Description of Business
Description of Business

Emergent Capital, Inc. was founded in December 2006 as a Florida limited liability company, Imperial Holdings, LLC, and converted into Imperial Holdings, Inc. on February 3, 2011, in connection with our initial public offering. Effective September 1, 2015, the name was changed to Emergent Capital, Inc. (with its subsidiary companies, the "Company" or "Emergent Capital").

Risks and Uncertainties

The outbreak of COVID-19, which is a rapidly evolving situation, has adversely impacted global commercial activities. The Company does not believe that there is any significant impact to the Financial Statements as of May 31, 2020 as a result of the COVID-19 pandemic. The Company is monitoring the developments relating to COVID-19 and is coordinating its operational response based on existing business continuity plans and ongoing guidance from global health organizations, relevant governments, and general pandemic response best practices.

Equity Investment in White Eagle Asset Portfolio

Emergent Capital indirectly owns a 27.5% equity investment, having an estimated fair value of approximately $150.2 million at May 31, 2020, in White Eagle Asset Portfolio, LP ("White Eagle"), which was previously a wholly-owned subsidiary of the Company that holds a portfolio of life settlements. The Company primarily earns income through change in fair value and distributions from its equity investment in White Eagle.

On August 16, 2019, the Company entered into a subscription agreement (the "Subscription Agreement") with Lamington Road Designated Activity Company (formerly known as Lamington Road Limited) ("Lamington" or "Class B Limited Partner"), White Eagle, White Eagle General Partner, LLP ( "WEGP" or "Withdrawing General Partner"), and Palomino JV, L.P. ("Palomino" or "Class A Limited Partner"), pursuant to which White Eagle sold to Palomino 72.5% of its limited partnership interests, consisting of all of the newly issued and outstanding Class A and Class D interests, and WEGP sold to an affiliate (the "Manager") of Jade Mountain Partners, LLC ("Jade Mountain"), all of its general partnership interests (collectively, the "WE Investment") for a purchase price of approximately $366.2 million and $8.0 million for the Class A and Class D interests, respectively. Pursuant to the Subscription Agreement, Lamington retained 27.5% of the limited partnership interests of White Eagle, consisting of all of the newly issued and outstanding Class B interests in exchange for all of its previously owned White Eagle limited partnership interests with a value of approximately $138.9 million on the closing date. The consummation of the transaction under the Subscription Agreement resulted in the Company being a minority owner in White Eagle, as a result the entity is treated as an equity investment. Activities for our investment in White Eagle are included in Note 11 "Investment in Limited Partnership" of the accompanying consolidated financial statements for further information.

Litigation Settlement and Disposal of Life Settlement

On December 4, 2019, the Company and certain of its subsidiaries entered into a Settlement Agreement and Mutual Release (the "Settlement Agreement") with Sun Life Assurance Company of Canada ("Sun Life") and Wilmington Trust, N.A. as securities intermediary ("Wilmington Trust").

Pursuant to the Settlement Agreement, 31 life insurance policies with face totaling $163.5 million issued by Sun Life were canceled in exchange for a lump sum payment of $36.1 million. The settlement included two policies held by the Company outside of White Eagle with an aggregate face value of $12.0 million, 28 policies held by White Eagle with an aggregate face value of $141.5 million and one policy with a face value of $10.0 million in receivable for maturity for White Eagle. Of this amount, approximately $12.7 million was received by the Company, $13.4 million was paid to White Eagle and $10.0 million was paid to Wilmington Trust for the maturity receivable. With this settlement, the Company no longer directly owns any life insurance policies.
v3.20.2
Principles of Consolidation and Basis of Presentation
6 Months Ended
May 31, 2020
Accounting Policies [Abstract]  
Principles of Consolidation and Basis of Presentation
Principles of Consolidation and Basis of Presentation

The accompanying consolidated financial statements include the accounts of the Company, all of its wholly-owned subsidiary companies and its special purpose entities, with the exception of the Deconsolidated Entities (as defined below),
White Eagle , an unconsolidated equity investment effective August 17, 2019, which is accounted for using fair value and Imperial Settlements Financing 2010, LLC ("ISF 2010"), an unconsolidated special purpose entity which is accounted for using the measurement alternative, which is measured at cost less impairment. The special purpose entity was to fulfill specific objectives. All significant intercompany balances and transactions, except those related to Lamington after November 13, 2018 to August 16, 2019 (see Note 4) have been eliminated in consolidation, including income from services performed by subsidiary companies in connection with the White Eagle Revolving Credit Facility, as detailed herein.

The unaudited consolidated financial statements have been prepared in conformity with the rules and regulations of the SEC for Form 10-Q and therefore do not include certain information, accounting policies, and footnote disclosure information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. However, all adjustments (consisting of normal recurring accruals), which, in the opinion of management, are necessary for a fair presentation of the financial statements, have been included. Operating results for the three months ended May 31, 2020 and six months ended May 31, 2020 are not necessarily indicative of the results that may be expected for future periods or for the year ending November 30, 2020. These interim financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in Emergent Capital's Report on Form 10-K for the fiscal year ended November 30, 2019.

Liquidity

Historically, the Company has incurred substantial losses, which has resulted in an accumulated deficit of approximately $274.4 million as of May 31, 2020. Cash flows used in operating activities were $4.4 million for the six months ended May 31, 2020 and $6.2 million for the six months ended May 31, 2019. As of May 31, 2020, the Company had approximately $21.3 million of cash and cash equivalents and certificates of deposit of $515,000.

The Company’s ability to continue as a going concern is dependent on its ability to meet its liquidity needs through a combination of factors including but not limited to, the receipt of distributions from its investment in its equity investment in White Eagle and cash on hand.

As of the filing date of this Form 10-Q, we had approximately $20.9 million of cash and cash equivalents inclusive of certificates of deposit of $517,000. The Company's 8.5% Senior Secured Notes with outstanding principal of approximately $47.6 million becomes due on July 15, 2021. In considering our forecast for the next twelve months and the expected repayment of this debt, these facts, aggregated with the current cash balance as of the filing for this Form 10-Q, create a substantial doubt of the Company’s ability to meet its financial needs. In considering the factors above, management plans to continue to operate our business while it pursues its restructuring plan. Management expects that, in connection with its proposed restructuring, the 8.5% Senior Secured Notes may be converted into a security with a later maturity date or otherwise refinanced.

The accompanying consolidated financial statements are prepared on a going concern basis and do not include any adjustments that might result from uncertainty about the Company’s ability to continue as a going concern.

Reorganization and Consolidation

On November 14, 2018 (the "Petition Date"), Lamington and WEGP filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). Lamington was the limited partner and owned 99.99%, and WEGP was the general partner and owned 0.01%, of White Eagle. In its capacity as general partner, WEGP managed the affairs of White Eagle.

Lamington and its subsidiaries' (White Eagle and WEGP) filing of the Chapter 11 Cases was a reconsideration event for Emergent Capital to reevaluate whether consolidation of Lamington and its subsidiaries (White Eagle, WEGP and Lamington Road Bermuda Limited) (collectively, and with Lamington, the "Deconsolidated Entities") continued to be appropriate. Under ASC 810, Consolidation, specifically ASC 810-10-15, consolidation of a majority-owned subsidiary is precluded where control does not rest with the majority owners, for instance, where the subsidiary is in legal reorganization or bankruptcy. Accordingly, when a subsidiary files for bankruptcy, it is appropriate for the parent to deconsolidate the subsidiary. Under ASC 810, this loss of control would likely trigger a gain or loss for the parent as the parent would remeasure its retained noncontrolling investment at fair value. We assessed the inherent uncertainties associated with the outcome of the Chapter 11 reorganization process and the anticipated duration thereof, and concluded that it was appropriate to deconsolidate Lamington and its subsidiaries effective on the Petition Date.

On June 19, 2019, the Bankruptcy Court entered an order confirming the Plan of Reorganization for the Chapter 11 Cases. The Plan of Reorganization implemented the Settlement Agreement and the DIP Financing. In addition, the Plan of Reorganization provided for the payment of all other allowed third party creditor claims in full, including allowed professional fees and taxes. The effective date of the Plan of Reorganization was June 19, 2019.

On August 16, 2019, the White Eagle Revolving Credit Facility was paid in full and terminated, and additionally, payment was made to all White Eagle vendors and intercompany liabilities were contributed by Emergent. Lamington and WEGP had pledged their respective interests in White Eagle to secure its obligations under the White Eagle Revolving Credit Facility. With the termination of the facility, this pledge was released. There were no outstanding third party liabilities for either Lamington or WEGP at August 16, 2019 besides intercompany obligations to Emergent. Pursuant to ASC 810, Consolidation, management took the position that given that all third party claims had been satisfied in the case, consolidation of Lamington and WEGP as of August 17, 2019 was appropriate. However, the consummation of the transaction pursuant to the Subscription Agreement resulted in the Company being a minority owner in White Eagle. Accordingly, White Eagle was not reconsolidated but rather treated as an equity investment.

On September 16, 2019, the Bankruptcy Court entered an order and a final decree closing the White Eagle Chapter 11 Case and the Lamington WEGP cases were closed on November 25, 2019.

Related Party Relationship

Upon filing for Chapter 11 and the subsequent deconsolidation, transactions with Lamington were no longer eliminated in consolidation and are treated as related party transactions for Emergent Capital. On August 17, 2019 Lamington was reconsolidated and its transactions are eliminated in consolidation. See Note 5 "Condensed and Consolidated Financial Statements For Entities in Bankruptcy" for all transactions between Emergent Capital and Lamington while Lamington was deconsolidated.

Discontinued Operations

On October 25, 2013, the Company sold substantially all of the assets comprising its structured settlement business. As a result, the Company has discontinued segment reporting and classified its operating results of the structured settlement business, net of income taxes, as discontinued operations. The accompanying consolidated statements of operations for the three months and six months ended May 31, 2020 and May 31, 2019, and the related notes to the consolidated financial statements, reflect the classification of its structured settlement business operating results, net of tax, as discontinued operations. See Note 9, "Discontinued Operations," of the accompanying consolidated financial statements for further information. Unless otherwise noted, the following notes refer to the Company’s continuing operations.

Foreign Currency

The Company owns certain foreign subsidiary companies formed under the laws of Ireland, the Bahamas and Bermuda. These foreign subsidiary companies utilize the U.S. dollar as their functional currency. The foreign subsidiary companies' financial statements are denominated in U.S. dollars and therefore, there are no translation gains and losses resulting from translating the financial statements at exchange rates other than the functional currency. Any gains and losses resulting from foreign currency transactions (transactions denominated in a currency other than the subsidiary companies' functional currency) are included in income. These gains and losses are immaterial to the Company’s financial statements.

Use of Estimates

The preparation of consolidated financial statements, in conformity with accounting principles generally accepted in the United States of America ("GAAP"), requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from these estimates and such differences could be material. Significant estimates made by management include income taxes, the valuation of life settlements, the valuation of equity awards and the valuation of our investment in limited partnership.

Reclassifications

Certain reclassifications of the prior period amounts and presentation have been made to conform to the presentation for the current period. These reclassifications relate primarily to change in fair value of investment in deconsolidated subsidiaries and sublease income.
v3.20.2
Recent Accounting Pronouncements
6 Months Ended
May 31, 2020
Accounting Changes and Error Corrections [Abstract]  
Recent Accounting Pronouncements
Recent Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13, "Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement" which modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The following disclosure requirements were removed from Topic 820 among others: 1) The amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy 2) The policy for timing of transfers between levels. The following disclosure requirements were part of the modifications in Topic 820:1) For investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the entity or announced the timing publicly. The amendments also clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. Lastly, the following disclosure requirements were added to Topic 820: 1) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period; 2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. We are currently evaluating the methods and impact of adopting this new standard on our consolidated financial statements.

In October 2018, the FASB issued ASU No. 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities ("ASU 2018-17"). ASU 2018-17 provides that indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. ASU 2018-17 is effective for public companies for annual and interim periods beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the methods and impact of adopting this new standard on our consolidated financial statements.

In May 2019, the FASB issued ASU No. 2019- 05 which amends ASU 2016-13 to allow companies to irrevocably elect, upon adoption of ASU 2016-13, the fair value option on financial instruments that (1) were previously recorded at amortized cost and (2) are within the scope of ASC 326-203 if the instruments are eligible for the fair value option under ASC 825-10.4 The fair value option election does not apply to held-to-maturity debt securities. Entities are required to make this election on an instrument-by-instrument basis. ASU 2019-05’s amendments should be applied "on a modified-retrospective basis by means of a cumulative-effect adjustment to the opening balance of retained earnings balance in the statement of financial position as of the date that an entity adopted the amendments in ASU 2016-13." Certain disclosures are required. For entities that have adopted ASU 2016-13, the amendments in ASU 2019-05 are effective for fiscal years beginning after December 15, 2019, including interim periods therein. An entity may early adopt the ASU in any interim period after its issuance if the entity has adopted ASU 2016-13. For all other entities, the effective date will be the same as the effective date in ASU 2016-13.We are currently evaluating the methods and impact of adopting this new standard on our consolidated financial statements.

In May 2019, the FASB issued ASU No 2019-04 which clarifies certain aspects of accounting for credit losses, hedging activities, and financial instruments. The ASU’s amendments apply to all entities within the scope of the affected guidance. Accrued interest - Amortized cost basis is defined in ASU 2016-13 as "the amount at which a financing receivable or investment is originated or acquired, adjusted for applicable accrued interest, accretion or amortization of premium, discount, and net deferred fees or costs, collection of cash, write offs, foreign exchange, and fair value hedge accounting adjustments". To address stakeholders’ concerns that the inclusion of accrued interest in the definition of amortized cost basis could make application of the credit loss guidance operationally burdensome, ASU 2019-04 provides certain alternatives for the measurement of the allowance for credit losses (ALL) on accrued interest receivable (AIR). These measurement alternatives include (1) measuring an ALL on AIR separately, (2) electing to provide separate disclosure of the AIR component of amortized cost as a practical expedient, and (3) making accounting policy elections to simplify certain aspects of the presentation and measurement of such AIR. For entities that have adopted ASU 2016-13, the amendments in ASU 2019-04 related to ASU 2016-13 are effective for fiscal years beginning after December 15, 2019, and interim periods therein. ASU 2019-04’s amendments should be applied "on a modified-retrospective basis by means of a cumulative-effect adjustment to the opening retained earnings balance in the statement of financial position as of the date an entity adopted the amendments in ASU 2016-13." Certain disclosures are also required. For all other entities, the effective date will be the same as the effective date in ASU 2016-13. We are currently evaluating the methods and impact of adopting this new standard on our consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes.  The ASU enhances and simplifies various aspects of the income tax accounting guidance in ASC 740, including requirements related to the following: (1) hybrid tax regimes; (2) tax basis step-up in goodwill obtained in a transaction that is not a business combination; (3) separate financial statements of entities not subject to tax; (4) intra-period tax allocation exception to the incremental approach; (5) ownership changes in investments; (6) interim-period accounting for enacted changes in tax law; (7) year-to-date loss limitation in interim-period tax accounting. The amendments in ASU 2019-12 are effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. We are currently evaluating the methods and impact of adopting this new standard on our consolidated financial statements.

In January 2020, the FASB issued ASU 2020-01, Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The amendments in this Update clarify certain interactions between the guidance to account for certain equity securities under Topic 321, the guidance to account for investments under the equity method of accounting in Topic 323, and the guidance in Topic 815, which could change how an entity accounts for an equity security under the measurement alternative or a forward contract or purchased option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting or the fair value option in accordance with Topic 825, Financial Instruments. These amendments improve current GAAP by reducing diversity in practice and increasing comparability of the accounting for these interactions. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted, including early adoption in an interim period, (1) for public business entities for periods for which financial statements have not yet been issued and (2) for all other entities for periods for which financial statements have not yet been made available for issuance. The amendments in this Update should be applied prospectively. Under a prospective transition, an entity should apply the amendments at the beginning of the interim period that includes the adoption date. We are currently evaluating the methods and impact of adopting this new standard on our consolidated financial statements.

Adopted Accounting Pronouncements

Change in Accounting Principle and Accounting for Lease

The Company adopted ASU No. 2016-02, Leases (Topic 842) which now requires recognition of right-of-use (ROU) asset and lease liability on the balance sheet. As part of the transition to the new standard, the Company measured its operating lease commitment at December 1, 2019 and recognized a right-of-use asset and operating lease liability on its balance sheet. The adoption of this ASU did not result in any significant changes to the consolidated statements of operations, stockholders' equity, or statement of cash flows. In transitioning the application of this guidance, retrospective application to all periods presented in the consolidated financial statements has been performed as follows (in thousands):

 
 
As reported under previous accounting guidance
 
As reported under ASU 2016-02
 
Effect of change
Balance Sheet - November 30, 2019
 
 
 
 
 
 
Assets
 
 
 
 
 
 
Prepaid and other assets
 
$
377

 
353

 
24

Operating lease assets
 

 
132

 
132

Total assets
 
$
165,712

 
$
165,868

 
$
156

 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
Other liabilities
 
$
86

 
39

 
(47
)
Operating lease liability
 

 
203

 
203

Total liabilities
 
123,599

 
123,755

 
156

 
 
 
 
 
 
 
Total stockholders' equity
 
42,113

 
42,113

 

 
 
 
 
 
 
 
Total liabilities and stockholders' equity
 
$
165,712

 
$
165,868

 
$
156

 
 
 
 
 
 
 
Net effect
 
$

 
$

 
$



In February 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" to address stakeholder concerns about the guidance in current generally accepted accounting principles (GAAP) that requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws or rates with the effect included in income from continuing operations in the reporting period that includes the enactment date. The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings is for stranded tax effects resulting from the Tax Cuts and Jobs Act. This standard was adopted during the six months ended May 31, 2020 and did not result in any significant changes to the consolidated statements of operations, stockholders' equity, or statement of cash flows.
v3.20.2
Deconsolidation of Subsidiaries
6 Months Ended
May 31, 2020
Reorganizations [Abstract]  
Deconsolidation of Subsidiaries
Deconsolidation of Subsidiaries

On the Petition Date, Lamington and WEGP filed the November Chapter 11 Cases in the Bankruptcy Court. As of such date, Lamington was the limited partner and owned 99.99%, and WEGP was the general partner and owned 0.01%, of White Eagle. In its capacity as general partner, WEGP managed the affairs of White Eagle. Lamington and WEGP continued to operate their businesses as "debtors-in-possession" under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. Emergent Capital (exclusive of its subsidiaries) is a separate entity, and did not file for bankruptcy relief and continues to operate in the ordinary course.

The Deconsolidated Entities' financial results are included in the Company’s consolidated results through November 13, 2018, the day prior the Petition Date. However, under ASC 810, Consolidation, specifically ASC 810-10-15, consolidation of a majority-owned subsidiary is precluded where control does not rest with the majority owners, for instance, where the subsidiary is in legal reorganization or bankruptcy. Accordingly, when a subsidiary files for bankruptcy, it is appropriate for the parent to deconsolidate the subsidiary. Under ASC 810, this loss of control would likely trigger a gain or loss for the parent as the parent would remeasure its retained noncontrolling investment at fair value. We assessed the inherent uncertainties associated with the outcome of the Chapter 11 reorganization process and the anticipated duration thereof, and concluded that it was appropriate to deconsolidate Lamington and its subsidiaries effective on the Petition Date.

ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities was effective for calendar year-end public business entities in 2018. Under the new guidance, a reporting entity should account for its equity investments that are not consolidated or accounted for under the equity method at fair value, with changes to fair value recorded in current earnings. Lamington's main subsidiary, White Eagle, carries its life settlements policies and debt under the White Eagle Revolving Credit Facility at fair value, these valuations are based on inputs that are both significant to the fair value measurement and unobservable. As a result, the Company adopted ASU 2016-01 to value its investment in Lamington. The calculation was performed consistent with ASC 820 with changes in fair value recorded in current earnings.

On August 16, 2019, the White Eagle Revolving Credit Facility was paid in full and terminated. In addition, payment was made to all White Eagle vendors and intercompany liabilities were contributed by Emergent. Lamington and WEGP had pledged their respective interests in White Eagle to secure its obligations under the White Eagle Revolving Credit Facility. With the termination of the facility, this pledge was released. There were no outstanding third party liabilities for either Lamington or WEGP at August 16, 2019 besides intercompany obligations.

On September 16, 2019, the Bankruptcy Court entered an order and a final decree closing the White Eagle Chapter 11 Case and the Lamington and WEGP cases were closed on November 25, 2019. However pursuant to ASC 810, Consolidation, management took the position that given that all third party claims had been satisfied in the case, consolidation of Lamington and WEGP as of August 17, 2019 was appropriate. Effective August 17, 2019, Lamington and WEGP are no longer deconsolidated.

The fair value of the investment in Lamington at May 31, 2019 was calculated as follows:
Investment in Lamington at December 1, 2018
$
128,795

Increase in basis investment (see below)
1,151

Less: Change in fair value
(52,769
)
Investment in Lamington at May 31, 2019
$
77,177



The table below summarizes the composition of the Company's investment in the deconsolidated entities at May 31, 2019:
 
 
 
Increase/Decrease in Basis
 
Change in Fair Value
 
 
 
November 30, 2018
 
Six Months Ended May 31, 2019
 
May 31, 2019
Equity investment
$
66,251

 
$

 
$
(66,251
)
 
$

Promissory notes
56,596

 

 
13,482

 
70,078

Other liabilities
5,948

 
1,151

 

 
7,099

Total investment
$
128,795

 
$
1,151

 
$
(52,769
)
 
$
77,177

v3.20.2
Condensed and Consolidated Financial Statements for Entities in Bankruptcy
6 Months Ended
May 31, 2020
Condensed Financial Information of Debtor-in-Possession Disclosure [Abstract]  
Condensed and Consolidated Financial Statements for Entities in Bankruptcy
Condensed and Consolidated Financial Statements for Entities in Bankruptcy

Condensed consolidated financial information for Lamington Road DAC is set forth below, presented at historical cost basis.

Lamington Road DAC
(Debtor-in-Possession)
Condensed and Consolidated Statements
Balance Sheet

 
May 31,
2020
 
May 31,
2019
 
(Unaudited)
 
 
 
(In thousands except share data)
ASSETS
 
 
 
Assets
 
 
 
     Cash and cash equivalents
$

 
$
8,703

     Prepaid expenses and other assets

 
606

     Investment in life settlements, at estimated fair value

 
475,551

     Receivable for maturity of life settlements

 
46,190

          Total assets
$

 
$
531,050

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Liabilities
 
 
 
     Accounts payable and accrued expenses
$

 
$
8,501

     Other liabilities (subject to compromise)*

 
7,588

     Revolving Credit Facility debt, at estimated fair value

 
394,570

     Promissory notes payable (subject to compromise)*

 
146,393

          Total liabilities

 
557,052

 
 
 
 
Share Capital (1 share of $1 authorized and issued)

 

Additional paid in capital

 
60,602

     Accumulated deficit/retained earnings

 
(86,604
)
          Total stockholders' deficit/equity

 
(26,002
)
          Total liabilities and stockholders' equity
$

 
$
531,050


*Liabilities subject to compromise include pre-petition unsecured claims, which may be settled at amounts different from those recorded in the condensed consolidated balance sheet.
Lamington Road DAC
(Debtor-in-Possession)
Condensed and Consolidated Statements of Operations

 
Three Months Ended
May 31,
 
Six Months Ended May 31,
 
2020
 
2019
 
2020
 
2019
Change in fair value of life settlements (Notes 11 & 16)
$

 
$
(17,075
)
 
$

 
$
(29,825
)
Other income

 
131

 

 
365

      Total income

 
(16,944
)
 

 
(29,460
)
 
 
 
 
 
 
 
 
Interest expense

 
2,600

 

 
5,000

Change in fair value of White Eagle Revolving Credit Facility (Notes 12 & 16)

 
29,071

 

 
43,679

Reorganization cost

 
6,742

 

 
8,644

Legal fees

 
627

 

 
1,214

Professional fees

 
523

 

 
950

Administrative service fees - affiliate

 
1,338

 

 
2,765

Other general and administrative expenses

 
442

 

 
540

Total expenses

 
41,343

 

 
62,792

Income taxes

 

 

 

(Loss) income
$

 
$
(58,287
)
 
$

 
$
(92,252
)


Lamington Road DAC
(Debtor-in-Possession)
Condensed and Consolidated Statements of Cash Flows


 
Six Months Ended May 31,
 
Six Months Ended May 31,
 
2020
 
2019
 
 
 
 
Net cash used in operating activities
$

 
$
(10,632
)
Cash flows from investing activities
 
 
 
Premiums paid on life settlements

 
(50,947
)
Proceeds from maturity of life settlements

 
32,342

Net cash provided by/(used in) investing activities
$

 
$
(18,605
)
Cash flows from financing activities
 
 
 
Borrowings from White Eagle Revolving Credit Facility

 
4,221

Net cash provided by financing activities
$

 
$
4,221

Net increase (decrease) in cash and cash equivalents

 
(25,016
)
Cash and cash equivalents, at beginning of the period

 
33,719

Cash and cash equivalents, at end of the period
$

 
$
8,703

Supplemental disclosures of cash flow information:
 
 
 
Cash paid for interest during the period
$

 
$
5,000



Related Party Transactions

Certain related party transactions had been eliminated in consolidation. Due to the deconsolidation of Lamington, transactions after November 13, 2018 were no longer eliminated until the discharge of the Chapter 11 Cases, effective August 17, 2019 after which related party transactions are again eliminated in consolidation. The below is a description of related party transactions for the period.

Administrative Services Fees

In 2014, White Eagle entered into an Administrative Service Agreement with Imperial Finance and Trading ("IFT"). Under the agreement, IFT will perform certain non-discretionary, administrative or ministerial services to assist with certain reporting, compliance and document retention duties and obligations arising under or in connection with the Amended and Restated Loan and Securities Agreement. IFT shall recover all cost incurred in performing these services, with billings quarterly or annually. Bills will be based on actual cost or an appropriate allocation methodology. White Eagle incurred post-petition administrative service expenses of approximately $0 and $1.3 million during the three months ended May 31, 2020 and 2019, respectively, with $0 million and $2.8 million during the six months ended May 31, 2020 and 2019, respectively. Amounts due from White Eagle resulting from the administrative services during six months ended May 31, 2019 are included in investment in deconsolidated subsidiaries and amounts payable to IFT are included in other liabilities on the Lamington Road DAC consolidated balance sheet totaling $7.6 million, net of repayments.

Promissory Notes Receivables

Effective May 16, 2014, Lamington entered into a 10 year, $59.3 million unsecured Promissory Note ("the 8.5% Promissory Note") in favor of its parent company, Markley Asset Portfolio, LLC ("Markley"). The amount was used by Lamington as the partial purchase price of Markley’s interest in White Eagle. The annual interest rate on the Promissory Note is 8.5% and is due to be paid at the end of each calendar year; provided that any interest accrued at the end of a calendar year which is not paid within seven business days thereafter shall be capitalized and increased to the outstanding principal balance. As of May 31, 2019, the outstanding principal balance was $86.5 million, which includes $27.2 million in capitalized interest. The entire remaining principal balance of the 8.5% Promissory Note shall be due and payable, together with all accrued but unpaid interest, on May 16, 2024. No principal payments are due prior to the maturity date.

Effective July 28, 2017, Lamington issued an unsecured Promissory Note to Markley, in a principal amount of $57.0 million. The amount represents distributions of earnings from Lamington's share of profits of White Eagle, to satisfy Profit Participating Notes issued by Markley to Lamington (the "Special Dividend Note").The Special Dividend Note matures on July 28, 2027 and bears interest at an annual rate of 5.0% provided that any interest accrued at the end of a calendar year which is not paid within seven business days thereafter shall be capitalized and increased to the outstanding principal balance. As of May 31, 2019, the outstanding principal balance was $59.9 million, which includes $2.9 million in capitalized interest. The entire remaining principal balance of the Special Dividend Note shall be due and payable, together with all accrued but unpaid interest, on July 28, 2027. No principal payments are due prior to the maturity date.

The Company stopped accruing interest on both notes during the Chapter 11 cases, effective August 17, 2019 the notes are consolidated, and interest expense has been eliminated on consolidation.

At May 31, 2019, the notes were fair valued in accordance with ASC 820, with a fair value of approximately $70.1 million and was included in investment in deconsolidated subsidiaries and not separately presented on the face of the consolidated balance sheet. At May 31, 2019, the combined face value of the notes was $146.4 million.
v3.20.2
Consolidation of Variable Interest Entities
6 Months Ended
May 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Consolidation of Variable Interest Entities
Consolidation of Variable Interest Entities

The Company evaluates its interests in variable interest entities ("VIEs") on an ongoing basis and consolidates those VIEs in which it has a controlling financial interest and is thus deemed to be the primary beneficiary. A controlling financial interest has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact its economic performance; and (ii) the obligation to absorb losses of the VIE that could potentially be significant to it or the right to receive benefits from the VIE that could be potentially significant to the VIE.

The following table presents the consolidated assets and consolidated liabilities of VIEs for which the Company has concluded that it is the primary beneficiary and which are consolidated in the Company’s financial statements as of May 31, 2020 and November 30, 2019, as well as non-consolidated VIEs for which the Company has determined it is not the primary beneficiary (in thousands):
 
 
Not Primary
Beneficiary
 
Not Primary
Beneficiary
 
 
Non-consolidated VIE
 
Non-consolidated VIE- White Eagle
 
 
Total
Assets
 
Maximum
Exposure
To Loss
 
Total
Assets
 
Maximum
Exposure
To Loss
May 31, 2020
 
$

 
$

 
$
150,200

 
$
150,200

November 30, 2019
 
$

 
$

 
$
137,849

 
$
137,849



Imperial Settlements Financing 2010, LLC ("ISF 2010"), which was formed as an affiliate of the Company to serve as a special purpose financing entity to allow the Company to sell structured settlements and assignable annuities, it is a non-consolidated special purpose financing entity, as well as a non-consolidated VIE for which the Company has determined it is not the primary beneficiary. During the twelve months ended November 30, 2019, the investment was fully written off and the Company incurred change in fair value loss on its investment in affiliates of approximately $2.4 million, the amount is included in loss from discounted operations. This investment was held by our structured settlement subsidiary whose activities were discontinued in 2013 with the sale of the structured settlement assets and the amount was written off as part of the restructuring transactions of the Company.

See Note 9, "Discontinued Operations," of the accompanying consolidated financial statements for further information.

In connection with the WE Investment, the Limited Partnership Agreement of White Eagle was amended and restated (the "A&R LPA") to provide for the issuance of the Class A, B and D limited partnership interests, and for funding of an "Advance Facility" evidenced by the Class D limited partnership interests, to maintain reserves sufficient to fund premiums, certain operating expenses of White Eagle and certain minimum payments to Lamington as the holder of the Class B interests. The A&R LPA provides generally that the Class A and Class B Interests receive distributions of proceeds of the assets of White Eagle based on their 72.5% and 27.5% ownership. The limited partnership is a non-consolidated VIE for which the Company has determined it is not the primary beneficiary. The Company accounts for its equity investment at fair value with changes in fair included in current earnings.

Approximately $150.2 million is included as investment in limited partnership in the accompanying balance sheet as of May 31, 2020.
v3.20.2
Earnings Per Share
6 Months Ended
May 31, 2020
Earnings Per Share [Abstract]  
Earnings Per Share
Earnings Per Share

As of May 31, 2020 and 2019, there were 159,263,140 and 158,659,803 shares of common stock issued, respectively, and 158,655,140 and 158,051,803 shares of common stock outstanding, respectively. Outstanding shares as of May 31, 2020 and 2019 have been adjusted to reflect 608,000 treasury shares.

Basic net income per share is computed by dividing the net earnings attributable to common shareholders by the weighted average number of common shares outstanding during the period.

Diluted earnings per share is computed by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding, increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. Conversion or exercise of the potential common shares is not reflected in diluted earnings per share unless the effect is dilutive. The dilutive effect, if any, of outstanding common share equivalents is reflected in diluted earnings per share by application of the treasury stock method, and if-converted method as applicable.

The following table reconciles actual basic and diluted earnings per share for the three months and six months ended May 31, 2020 and 2019 (in thousands except per share data).
 
Three Months Ended May 31,
 
Six Months Ended May 31,
 
2020(1)
 
2019(2)
 
2020(3)
 
2019(2)
Income (loss) per share:
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
Net income (loss) from continuing operations
$
4,652

 
$
(25,868
)
 
$
17,153

 
$
(63,327
)
Net income (loss) from discontinued operations
10

 
(16
)
 
(53
)
 
(33
)
Numerator for basic EPS - net income (loss) attributable to common stockholders
$
4,662

 
$
(25,884
)
 
$
17,100

 
$
(63,360
)
       Add back convertible notes interest

 

 
1,993

 

Numerator for diluted earnings per share - net income (loss) attributable to common stockholders
$
4,652

 
$
(25,868
)
 
$
19,146

 
$
(63,327
)
Basic income (loss) per common share:
 
 
 
 
 
 
 
Basic income (loss) from continuing operations
$
0.03

 
$
(0.16
)
 
$
0.11

 
$
(0.40
)
Basic income (loss) from discontinued operations

 

 

 

Basic income (loss) per share available to common shareholders
$
0.03

 
$
(0.16
)
 
$
0.11

 
$
(0.40
)
Diluted income (loss) per common share:
 
 
 
 
 
 
 
Diluted income (loss) from continuing operations
$
0.02

 
$
(0.16
)
 
$
0.09

 
$
(0.40
)
Diluted income (loss) from discontinued operations

 

 

 

Diluted income (loss) per share available to common shareholders
$
0.02

 
$
(0.16
)
 
$
0.09

 
$
(0.40
)
Denominator:
 
 
 
 
 
 
 
Basic
157,648,168

 
156,960,046

 
157,608,707

 
156,939,797

Diluted
175,581,286

 
156,960,046

 
204,522,043

 
156,939,797



(1)
The computation of diluted EPS does not include 85,000 shares of common stock underlying options, 100,000 shares underlying stock appreciation rights and 33,918,483 shares of common stock issuable upon conversion of the 5% Convertible Notes as the effect of their inclusion would have been anti-dilutive.

(2)
The computation of diluted EPS does not include 85,000 shares of common stock underlying options, 100,000 shares of stock appreciation rights, 1,083,333 shares of restricted stock, 44,500,000 shares of common stock underlying warrants, and up to 37,918,483 shares of common stock issuable upon conversion of the 5% Convertible Notes (as defined below) and up to 181,249 shares of common stock issuable upon the conversion of the 8.5% Convertible Notes (as defined below), as the effect of their inclusion would have been anti-dilutive.

(3)
The computation of diluted EPS does not include 85,000 shares of common stock underlying options and 100,000 shares underlying stock appreciation rights as the effect of their inclusion would have been anti-dilutive.
v3.20.2
Stock-based Compensation
6 Months Ended
May 31, 2020
Share-based Payment Arrangement [Abstract]  
Stock-based Compensation
Stock-based Compensation

On June 27, 2017, the shareholders of the Company voted to amend, and the Company amended, the Amended and Restated 2010 Omnibus Incentive Plan (as amended, the "Omnibus Plan") to increase the number of shares authorized for issuance thereunder by 9,900,000 shares. Awards under the Omnibus Plan may consist of incentive awards, stock options, stock appreciation rights, performance shares, performance units, and shares of common stock, restricted stock, restricted stock units or other stock-based awards as determined by the compensation committee of the Company's board of directors. The Omnibus Plan has an aggregate of 12,600,000 shares of common stock authorized for issuance thereunder, subject to adjustment as provided therein.

Options

As of November 30, 2019, all options to purchase shares of common stock issued by the Company were fully vested with 85,000 exercisable. There was no stock-based compensation expense relating to stock options granted under the Omnibus Plan during the three months and six months ended May 31, 2020 and May 31, 2019, respectively.

As of May 31, 2020, options to purchase 85,000 shares of common stock were outstanding under the Omnibus Plan at a weighted average exercise price of $6.94 per share. The options were issued on June 6, 2013 and expire seven years after the date of grant which will be June 6, 2020. The following table presents the activity of the Company’s outstanding stock options to purchase common stock for the six months ended May 31, 2020:

Common Stock Options
 
Number of
Shares
 
Weighted
Average Exercise Price
per Share
 
Weighted
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value
Outstanding Balance, December 1, 2019
 
85,000

 
$
6.94

 
0.55

 
$

Options granted
 

 

 

 


Options exercised
 

 

 

 


Options forfeited
 

 
$

 

 


Options expired
 

 

 

 


Options outstanding, May 31, 2020
 
85,000

 
$
6.94

 
0.02

 
$

Exercisable at May 31, 2020
 
85,000

 
$
6.94

 
0.02

 


Unvested at May 31, 2020
 

 

 

 
$


As of May 31, 2020, all outstanding stock options had an exercise price above the fair market value of the common stock on that date. There are no remaining unamortized amounts to be recognized on these options.

Restricted Stock

The Company incurred stock-based compensation expense of approximately $22,000 and $97,000 relating to restricted stock granted to certain employees during the three months ended May 31, 2020 and 2019 respectively, and $53,000 and $195,000 during the six months ended May 31, 2020 and 2019, respectively.

During the year ended December 31, 2017, the Company granted 2,000,000 shares of restricted stock units to certain employees under the Omnibus Plan, which are subject to a two year vesting period that commenced on the date of grant. The fair value of the unvested restricted stock was valued at approximately $745,000 based on the closing price of the Company's shares on the day prior to the grant date. Approximately 750,000 shares of restricted stock vested during the eleven months ended November 30, 2018, 1,000,000 during the during the twelve months ended November 30, 2019 and 250,000 during the six months ended May 31, 2020 with 0 unvested at May 31, 2020. The Company incurred stock-based compensation expense of approximately $0 and $89,000 during the three months ended May 31, 2020 and 2019, respectively, with $10,000 and $181,000 during the six months ended May 31, 2020 and 2019, respectively, related to these 2,000,000 shares of restricted stock.
During the eleven months ended November 30, 2018, the Company granted 150,000 shares of restricted stock units to certain employees under the Omnibus Plan, with 100,000 shares and 50,000 subject to a two and three year vesting period, respectively, that commenced on the date of grant. The fair value of the unvested restricted stock was valued at approximately $58,000 based on the closing price of the Company's shares on the day prior to the grant date. Approximately 66,667 shares of restricted stock vested during the twelve months ended November 30, 2019, with 50,000 and 83,333 vested during the three months and six months ended May 31, 2020 with 0 unvested at May 31, 2020. The Company incurred stock-based compensation expense of approximately $1,000 and $7,000 during the three months ended May 31, 2020 and 2019, respectively, with $14,000 and $13,000 during the six months ended May 31, 2020 and 2019, related to these 150,000 shares of restricted stock.

During the six months ended May 31, 2020, the Company, granted 1,000,000 shares of restricted common stock to its Chief Executive Officer, vesting in thirds upon the first three anniversaries of the grant date. The fair value of the unvested restricted stock was valued at approximately $250,000 based on the closing price of the Company's shares on the day prior to the grant date. The Company incurred stock-based compensation expense of approximately $21,000 and $29,000 related to these 1,000,000 shares of restricted stock during the six months ended May 31, 2020. All 1,000,000 shares remained unvested at May 31, 2020.


The following table presents the activity of the Company’s unvested shares of restricted stock for the three months ended May 31, 2020:
Common Unvested Shares
Number of
Shares
Outstanding Balance, December 1, 2019
333,333

Granted
1,000,000

Vested
(333,333
)
Forfeited

Outstanding May 31, 2020
1,000,000



The aggregate intrinsic value of the award of these 1,000,000 shares is $340,000 and the remaining weighted average life of these awards is 2.66 years as of May 31, 2020. As of May 31, 2020, a total of $221,000 in stock based compensation remained unrecognized.

Stock Appreciation Rights (SARs)

During the twelve months November 30, 2019, the Company issued 100,000 SARs to the sole non-employee member of the ad hoc Capital Structure Committee of the Board, which will expire 10 years after the date the SARs were granted. The SARs will vest on the later of (i) September 30, 2018 and (ii) termination of the director's service on the Committee and had a fair value of $9,000 on the grant date. Each SAR entitles the holder to receive, upon exercise, an amount equal to the excess of (a) the fair market value per share of stock on the exercise date, over (b) the exercise price, which is $1.00, being not less than the fair market value per share of stock on the grant date. Upon exercise of the SARs, the stock appreciation amount shall be paid, as determined solely at the discretion of the Company, in (a) whole shares, (b) cash, or (c) a combination of both cash and shares. The 100,000 SARs vested during the eleven months November 30, 2018 and remain unexercised at May 31, 2020.
v3.20.2
Discontinued Operations
6 Months Ended
May 31, 2020
Discontinued Operations and Disposal Groups [Abstract]  
Discontinued Operations
Discontinued Operations

On October 25, 2013, the Company sold substantially all of the operating assets comprising its structured settlement business to Majestic Opco LLC pursuant to an Asset Purchase Agreement. No structured settlement receivables were sold and no on-balance sheet liabilities were transferred in connection with the sale. On August 18, 2015, the Company sold its remaining structured settlement receivables asset to the buyer of its operating assets.

As a result of the sale of its structured settlements business, the Company reclassified its structured settlement business operating results as discontinued operations in the accompanying Consolidated Statements of Operations for all periods presented.

Operating results related to the Company’s discontinued structured settlement business are as follows:
 
Three Months Ended
May 31,
 
Six Months Ended
May 31,
 
2020
 
2019
 
2020
 
2019
 
(in thousands)
 
 
Total income
$

 
$

 

 

Total expenses
(10
)
 
16

 
53

 
33

Income (loss) before income taxes
10

 
(16
)
 
(53
)
 
(33
)
(Benefit) provision for income taxes


 

 

 

Net income (loss) from discontinued operations, net of income taxes
$
10

 
$
(16
)
 
$
(53
)
 
$
(33
)
v3.20.2
Life Settlements (Life Insurance Policies)
6 Months Ended
May 31, 2020
Investments, All Other Investments [Abstract]  
Life Settlements (Life Insurance Policies)
Life Settlements (Life Insurance Policies)

The Company accounts for policies it acquires using the fair value method in accordance with ASC 325-30-50 Investments-Other-Investment in Insurance Contracts. Under the fair value method, the Company recognizes the initial investment at the purchase price. For policies that were relinquished in satisfaction of premium finance loans at maturity, the initial investment is the loan carrying value. For policies purchased in the secondary or tertiary markets, the initial investment is the amount of cash outlay at the time of purchase. At each reporting period, the Company re-measures the investment at fair value in its entirety and recognizes changes in the Statements of Operations in the periods in which the changes occur.

At May 31, 2020 and November 30, 2019, the Company, through its subsidiaries, owns zero and two life insurance policies, also referred to as life settlements, with a fair value of $0 and $1.3 million, respectively and an aggregate death benefit of approximately $0 and $12.0 million, respectively.

On December 4, 2019 the Company and certain of its subsidiaries entered into a Settlement Agreement and Mutual Release (the "Settlement Agreement") with Sun Life Assurance Company of Canada ("Sun Life") and Wilmington Trust, N.A. as securities intermediary ("Wilmington Trust").

Pursuant to the Settlement Agreement, 31 life insurance policies with face totaling $163.5 million issued by Sun Life were canceled in exchange for a lump sum payment of $36.1 million. The settlement included two policies held by the Company outside of White Eagle with an aggregate face value of $12.0 million, 28 policies held by White Eagle with an aggregate face value of $141.5 million and one policy with a face value of $10.0 million in receivable for maturity for White Eagle. Of this amount, approximately $12.7 million was received by the Company, $13.4 million was paid to White Eagle and $10.0 million was paid to Wilmington Trust for the maturity receivable. With this settlement, the Company no longer owns any life insurance policies.

Of the $12.7 million received by the Company, approximately $2.0 million was allocated to the two policies that were owned by the Company outside of White Eagle, which resulted in a gain on disposal of approximately $743,000, with approximately $10.6 million allocated to other income as settlement of legal fees previously incurred.
The weighted average life expectancy calculated based on death benefit of insureds in the policies owned by the Company at November 30, 2019 was 11.4 years.

Remaining Life Expectancy (In Years)*
Number of Life Settlement Contracts
 
Fair Value
 
Face Value
0-1

 
$

 
$

1-2

 

 

2-3

 

 

3-4

 

 

4-5

 

 

Thereafter
2

 
1,297

 
12,000

Total
2

 
$
1,297

 
$
12,000

v3.20.2
Investment in Limited Partnership
6 Months Ended
May 31, 2020
Investments in and Advances to Affiliates [Abstract]  
Investment in Limited Partnership
Investment in Limited Partnership

Subscription Agreement

On August 16, 2019 (the "Effective Date"), the Company entered into a subscription agreement (the "Subscription Agreement") with Lamington ("Class B Limited Partner"), White Eagle, WEGP ("Withdrawing General Partner"), and Palomino JV, L.P. ("Palomino" or "Class A Limited Partner") pursuant to which White Eagle sold to Palomino 72.5% of its limited partnership interests, consisting of all of the newly issued and outstanding Class A and Class D interests, and WEGP sold to an affiliate (the "Manager") of Jade Mountain Partners, LLC ("Jade Mountain") all of its general partnership interests (collectively, the "WE Investment"). Pursuant to the Subscription Agreement, Lamington retained 27.5% of the limited partnership interests of White Eagle, consisting of all of the newly issued and outstanding Class B interests in exchange for all of its previously owned White Eagle limited partnership interests.

The proceeds of the WE Investment and certain funds then held in accounts of White Eagle were used to satisfy in full (i) the White Eagle Revolving Credit Facility and (ii) the DIP Financing, each in connection with the termination of the White Eagle Revolving Credit Facility and the release of the related liens on the collateral thereunder pursuant to the Master Termination Agreement. The repayment and termination of the White Eagle Revolving Credit Facility and the termination of the DIP Financing, which had not been drawn against, were in accordance with the Plan of Reorganization.

The WE Investment was consummated, and the White Eagle Revolving Credit Facility was paid off in full and terminated, on August 16, 2019. The payoff totaled $402.5 million, which included payment directly to CLMG by Palomino of $374.2 million and payment to CLMG by White Eagle of $28.3 million, collectively sufficient to repay, under the White Eagle Revolving Credit Facility, the outstanding principal of $368.0 million, accrued and unpaid interest of $21.3 million plus, under the Plan of Reorganization, an early payment amount due to LNV of $7.4 million and lender allowed claims of $5.8 million. Of the $374.2 million purchase price, $8.0 million was allocated to the Class D interests which amount is to be repaid in accordance with the distribution terms of the A&R LPA.

On August 16, 2019, Lamington also entered into (i) the Pledge Agreement pursuant to which it pledged the 27.5% limited partnership interests of White Eagle owned by it to Palomino and certain other secured parties in support of the payment and indemnification obligations described above, and (ii) the Assumption Agreement pursuant to which Lamington assumed all liabilities and obligations of White Eagle and WEGP as of the closing date of the Transactions, and Lamington, the Company and WEGP agreed to terminate, waive and release any intercompany debt, obligations and liabilities of White Eagle to Lamington, the Company and WEGP. On August 16, 2019, Emergent entered into the Indemnification Agreement pursuant to which it indemnified Wilmington Trust, National Association against claims and liabilities that may arise in relation to policies that have matured prior to the Closing Date but as to which Wilmington Trust, National Association has historically held title as securities intermediary.
 
Amended and Restated Limited Partnership Agreement of White Eagle

In connection with the WE Investment, the Limited Partnership Agreement of White Eagle was amended and restated (the "A&R LPA") to provide for the issuance of the Class A, B and D limited partnership interests, for funding of an "Advance Facility" evidenced by the Class D limited partnership interests and to maintain reserves sufficient to fund premiums, certain operating expenses of White Eagle and certain minimum payments to Lamington as the holder of the Class B interests. The A&R LPA provides generally that holders of the Class A and Class B Interests receive distributions of proceeds of the assets of White Eagle based on their 72.5% and 27.5% ownership, respectively, after certain expenses and reserves are funded (including such minimum payments to Lamington totaling approximately $8.0 million per year for the first three (3) years and $4.0 million for the subsequent seven (7) years, provided that commencing after year three (3), such minimum payments will be utilized to repay the Class D Return of $8.0 million, which was advanced at closing, plus the greater of $2.0 million or 11% per annum on such $8.0 million to the extent necessary to fully repay such Class D Return. The minimum payments to the Company will occur regardless of maturities with payments through the premium/expense reserve account when there are no maturity proceeds available for distribution as described below). However, the A&R LPA also provides that all payments to holders of the Class B interests (other than such minimum payments to Lamington during the first eight (8) years following the Closing Date) are fully subordinated to payments in respect of the minimum returns to holders of the Class A and Class D interests (including repayment of all amounts advanced in respect of the Advance Facility) and to any indemnification payments, if any, due to such holders and related indemnified persons pursuant to the indemnities afforded them in and in relation to the A&R LPA, Subscription Agreement, Master Termination Agreement and related documents. As of the closing of the WE Investment, Lamington Road Bermuda, LTD resigned as manager of the portfolio and was replaced by an affiliate of Jade Mountain.

On August 16, 2019, White Eagle , Palomino JV GP Limited, ("the General Partner") and the Manager entered into the Management Agreement, setting forth the terms and conditions pursuant to which the General Partner has delegated certain of its management rights and obligations under the A&R LPA to the Manager.

Advance Facility. The facility under which the Class A Limited Partner or its Affiliates from time to time advance to the Class B Limited Partner (or, as a matter of convenience only, provides the proceeds of any such advance directly to the Partnership on behalf of the Class B Limited Partner, provided that, for the avoidance of doubt, any such advance distributed directly to the Partnership shall not be deemed to be an incurrence of an obligation of the Partnership for the repayment thereof) the portion of the premium/expense reserve account owed by the Class B Limited Partner under the Agreement. Essentially, this is the aggregate amount owed by the Class B Limited Partner to the Class A Limited Partner thereunder as a result of such advances.

Class A Minimum Return Cumulative Amount. An amount equal to 11% per annum, compounded quarterly and accruing from the Effective Date, on the sum of (i) 100% of the initial contribution by the Class A Limited Partner on its own behalf to the premium/expense reserve account, accruing from the Effective Date until repaid (as reduced by any repayment thereof) (but for the avoidance of doubt excluding any advances made by the Class A Limited Partner under the Advance Facility), (ii) 100% of the amounts funded into the premium/expense reserve account by the Class A Limited Partner on its own behalf after the Effective Date (as reduced by any repayment thereof), accruing from the date of funding until repaid (but for the avoidance of doubt excluding any advances made by the Class A Limited Partner under the Advance Facility), and (iii) the Purchase Price of $374.2 million (as reduced by any portion thereof repaid by the Class B Interest Monthly Distribution, as defined below, (v) that reflects amortization of principal, all sale proceeds received by the Class A Limited Partner and any reductions thereof as contemplated by the permitted disposition of policies, (plus (x) the amount necessary to reduce the principal balance to the targeted principal balance hereto for such Distribution Date, plus (y) later contributions by the Class A Limited Partner (excluding any advances made by the Class A Limited Partner under the Advance Facility but, for the avoidance of doubt, including amounts funded into the premium/expense reserve account by the Class A Limited Partner on its own behalf), plus (z) the Class D Return. At August 16, 2019, the target principal balance was $406.0 million, including, $366.2 million for the asset purchase price, $21.8 million for Class A premium reserve funding, $8.3 million Class B Advance Facility, $8.0 million for Class D interests and $1.8 million for facility expenses.

On December 4, 2019 the Company and certain of its subsidiaries entered into a Settlement Agreement and Mutual Release (the "Settlement Agreement") with Sun Life Assurance Company of Canada ("Sun Life") and Wilmington Trust, N.A. as securities intermediary ("Wilmington Trust").

Pursuant to the Settlement Agreement, 31 life insurance policies with face value totaling $163.5 million issued by Sun Life were canceled in exchange for a lump sum payment of $36.1 million. The settlement included two policies held by the Company outside of White Eagle with an aggregate face value of $12.0 million, 28 policies held by White Eagle with an aggregate face value of $141.5 million and one policy with a face value of $10.0 million in receivable for maturity for White Eagle. Of this amount, approximately $12.7 million was received by the Company, $13.4 million was paid to White Eagle and $10.0 million was paid to Wilmington Trust for the maturity receivable. With this settlement, the Company no longer owns any life insurance policies directly. With this settlement, the target principal balance for the Class A Partner was reduced by the proceeds from the Sun Life settlement of $13.4 million with $392.6 million outstanding at May 31, 2020.

During the three and six months ended May 31, 2020, approximately $10.0 million was distributed to the Class A Partner to satisfy the Class A minimum return.

Class A True Up Payment. As of the applicable Distribution Date, (i) the excess (if positive) of (x) 72.5% of the total return distributions over (y) the sum of cumulative amounts actually received by the Class A Limited Partner prior to such Distribution Date on account of clauses (w), (x) and (y) of the Class A Minimum Return Cumulative Amount, any Class A true up payments and amounts paid to the Class A Limited Partner pursuant plus (ii) the amount necessary such that the Class A Limited Partner shall have received 72.5% of total return distributions after giving effect to the amounts to be paid to the Class A Limited Partner on such Distribution Date.

Class B True Up Payment. As of the applicable Distribution Date, (i) the excess (if positive) of (x) 27.5% of the Total Return Distributions over (y) the sum of cumulative amounts actually received by the Class B Limited Partners prior to such Distribution Date on account of the Minimum Class B Interest Monthly Distributions, the Class B True Up Payments and amounts paid to the Class B Limited Partners pursuant to Section 3.2(b)(v) (plus the cumulative amounts that were paid to the Class A Limited Partner in repayment of the Advance Facility, to the Class D Limited Partner on account of the Class D Return, or to the Purchaser Indemnified Parties to satisfy (in whole or in part) the indemnity obligations of Parent, Lamington or the Class B Limited Partner) plus (ii) the amount necessary such that the Class B Limited Partners shall have received 27.5% of Total Return Distributions after giving effect to the amounts to be paid to the Class B Limited Partner on account of the Minimum Class B Interest Monthly Distributions and amounts paid to the Class B Limited Partners on such Distribution Date in the priority of payments after payment of any Class A True Up Payments and Class B True Up Payments (plus the cumulative amounts that would have been distributed to the Class B Limited Partners but that were paid to the Class A Limited Partner in repayment of the Advance Facility, to the Class D Limited Partner on account of the Class D Return, or to the Purchaser Indemnified Parties to satisfy (in whole or in part) the indemnity obligations of Parent, Lamington or the Class B Limited Partner).

At May 31, 2020 there was no Class B true up payment outstanding.

Class D Return. The aggregate repayment amount of approximately $8.0 million ( as described above) owed by the Class B Limited Partner to the Class D Limited Partner, payable in accordance with the terms herein, which shall equal the greater of (x) 125% of the Class D Payment Amount (which is $10.0 million), and (y) the Class D Payment Amount plus the total amount of unpaid interest accruing on the Class D Payment Amount at a rate equal to 11% per annum compounded quarterly from the Effective Date through the date on which the Class D payment amount and all accrued and unpaid interest is repaid in full.

At May 31, 2020, accrued and unpaid interest on the Class D Return was approximately $709,000 with outstanding principal of $8.0 million. The amount is to be repaid through the waterfall distribution as stated above. There was no payment made during the six months ended May 31, 2020.

Distribution Date. The 5th Business Day of each month.

Minimum Class B Interest Monthly Distribution. The monthly amount equal to (i) for each month commencing prior to the third anniversary of the Effective Date, the greater of $667,000 and 1/12th of 1.50% of the Net Asset Value as determined by the most recent valuation report obtained on or prior to such Distribution Date and (ii) for each month commencing on or after the third anniversary of the Effective Date and prior to the tenth anniversary of the Effective Date, the greater of $333,000 and 1/12th of 0.75% of the net asset value as determined by the most recent valuation report obtained on or prior to such Distribution Date.

During the three months and six months ended May 31, 2020, approximately $2.0 million and $4.0 million, respectively, were received by the Company for the minimum Class B interest monthly distribution. These amounts are included in change in fair value of investment in limited partnership, net of distributions on the consolidated statements of operations.

Expense. On August 16, 2019, the Class A Limited Partner contributed $21.8 million to the premium/expense reserve account in satisfaction of its obligations to fund the premium/expense reserve account as of the Effective Date, and (ii) advanced under the Advance Facility $8.3 million by deposit into the premium/expense reserve account on behalf of the Class B Limited Partner, in satisfaction of the Class B Limited Partner’s obligations to fund the premium/reserve fund as of the Effective Date. This $8.3 million is to be repaid through the waterfall distribution from amounts to be distributed to the Company. Total initial premium/expense reserve was approximately $30.0 million on August 16, 2019. The Class A Limited Partner also contributed $1.8 million towards expenses on August 16, 2019.

At May 31, 2020, approximately $751,000 in accrued and unpaid interest was outstanding on the $8.3 million advanced on behalf of the Class B Limited Partner, the amount is to be repaid through the waterfall distribution as stated above. There was no payment during the three months ended May 31, 2020.

If at any time prior to a Distribution Date, the amount in the premium/expense reserve account is less than an amount sufficient to cover the next month of premiums and expenses, as set forth in the budget or as otherwise determined by the General Partner based upon advice of the Manager, the Class A Limited Partner will (i) contribute its percentage interest of 72.5%, and (ii) make advances under the Advance Facility of the Class B Limited Partner’s percentage interest of 27.5%, for the aggregate amount of additional capital needed to increase the balance of the premium/expense reserve account to an amount sufficient to cover the next three months of premiums and expenses, as set forth in the budget.

All advances made by the Class A Limited Partner under the Advance Facility, whether prior to, on or after the Effective Date, shall accrue interest at the rate of 11% per annum, compounded quarterly, until repaid, and all such amounts (including any accrued but unpaid interest) shall be secured by the Class B Partnership Units pursuant to the Pledge Agreement. After the Effective Date, the General Partner will use commercially reasonable efforts to obtain financing proposals for premiums and expenses on terms more favorable to the Class B Limited Partner than the Advance Facility, if and to the extent available, and in the event such financing is obtained, the Class A Limited Partner shall no longer have any obligation to fund advances under the Advance Facility.

Funds in the premium/expense reserve account shall be used or otherwise distributed in the following order of priority (in
thousands):

Premium/Expense Reserve Account
 
Three Months Ended May 31, 2020
 
Six Months Ended May 31, 2020
 
 
 
 
Amount
 
Amount
 
Use of Proceeds
First
 
$
26,726

 
$
50,952

 
Premiums, Expenses and Manager Fees
Second
 
2,000

 
4,000

 
Minimum Class B Interest Monthly Distribution - after three years, Class D Returns takes priority until paid in full
Third
 

 

 
Minimum Class B Interest Monthly Distribution
Fourth
 

 

 
Retained for Premium/Expense to Cover Three Months of Transactions, excess to be sent to the Collection Account
 
 
$
28,726

 
$
54,952

 
 


During the three months ended May 31, 2020, approximately $28.7 million was distributed from the premium/expense reserve inclusive of approximately $25.0 million utilized to pay premiums, approximately $1.8 million in facility related expenses and approximately $2.0 million utilized for distribution to the Company to satisfy the requirements of the Class B monthly distribution.

During the six months ended May 31, 2020, approximately $55.0 million was distributed from the premium/expense reserve inclusive of approximately $47.4 million utilized to pay premiums, approximately $3.5 million in facility related expenses and approximately $4.0 million utilized for distribution to the Company to satisfy the requirements of the Class B monthly distribution

During the three months and six months ended May 31, 2020, the premium/expense reserve account received approximately $46.1 million and $73.0 million, respectively from the collection account through maturity proceeds collected. The account balance was approximately $22.2 million at May 31, 2020. Approximately $5.6 million was in the collection account pending distributions to the premium/expense account at May 31, 2020. The below is a reconciliation of the premium/expense reserve account for the three months and six months ended May 31, 2020 (in thousands).

 
 
Three Months Ended May 31, 2020
 
Six Months Ended May 31, 2020
Beginning balance
 
$
4,836

 
$
4,195

 
 
 
 
 
Distributions received
 
 
 
 
Collections account
 
46,114

 
72,981

Total distribution received
 
$
46,114

 
$
72,981

 
 
 
 
 
Less Payments:
 
 
 
 
Premiums and expenses
 
26,726

 
50,952

Class B monthly distribution
 
2,000

 
4,000

Total payments
 
$
28,726

 
$
54,952

 
 
 
 
 
Balance at May 31, 2020
 
$
22,224

 
$
22,224

 
 
 
 
 

Approximately $667,000 was due for distribution to the Company to cover the period ended May 31, 2020 and the amount was received subsequent to the quarter end.

Distribution. The General Partner has established a separate bank account on behalf of, and in the name of, the Partnership to hold, and shall direct all death benefits and other cash received by the Partnership (other than capital contributions, proceeds of the Advance Facility, and death benefits from matured policies which shall be distributed in accordance with Section 2.02(b) of the Subscription Agreement) into such account (the "Collections Account").

On each Distribution Date, funds on deposit in the Collections Account shall be distributed by the Paying Agent ("Wilmington Trust, N.A") pursuant to the Waterfall Notice in the following order of priority:

Collection Account
 
Three Months Ended May 31, 2020
 
Six Months Ended May 31, 2020
 
 
Priority
 
Amount
 
 
 
Use of Proceeds
First
 
$
46,114

 
$
72,981

 
Premium/Expense Reserve Account - to cover next three months of premiums and expense
Second
 
9,969

 
9,969

 
Class A Minimum Return Cumulative Amount*
Third
 

 

 
Minimum Class B Interest Monthly Distribution
Fourth
 

 

 
Re-balancing the Total Return Distributions with 72.5% to the Class A Limited Partner and 27.5% to Class B Limited Partner
Fifth
 

 

 
72.5% to the Class A Limited Partner and 27.5% to the Class B Limited Partner
 
 
$
56,083

 
$
82,950

 
 

*Second - To pay the Class A Limited Partner the amount necessary such that the Class A Limited Partner shall have received the Class A Minimum Return Cumulative Amount (applied first which is 11%), second to the amounts necessary to reduce the principal balance from $406.0 million on the Effective Date to April 2039 when it is expected to be paid in full (the A&R LPA stipulate the expected monthly reduction in target principal commencing in April 2021), third to later contributions by the Class A Limited Partner, excluding Advance Facility but includes funded into premium/expense account on its own behalf and fourth the Class D Return, in each case of the definition of Class A Minimum Return Cumulative Amount as of the last day of the month immediately prior to such Distribution Date.

The below is a reconciliation of funds received in and distributed from the collection account for the three months ended May 31, 2020 and six months ended May 31, 2020 (in thousands).
 
 
Three Months Ended May 31, 2020
 
Six Months Ended May 31, 2020
Beginning balance
 
$
19,411

 
$
13,007

Maturity proceeds received - face
 
42,100

 
75,226

Proceeds received - other*
 
215

 
360

Total receipts
 
61,726

 
88,593

 
 
 
 
 
Less distribution
 
 
 
 
Premium/expense account
 
46,114

 
72,981

Class A
 
9,969

 
9,969

Total distributions
 
56,083

 
82,950

 
 
 
 
 
Balance at May 31, 2020
 
$
5,643

 
$
5,643

 
 
 
 
 

*Includes refund of premiums and interest earned on maturity proceeds

During the three months ended May 31, 2020, the portfolio experienced maturities of 11 policies with face value of approximately $43.2 million, gain on maturity of $24.7 million, weighted average age of 88.6 years and weighted average remaining life expectancy of 4.2 years. The ratio of realized gain to face value was approximately 57.2%. Approximately $42.1 million was collected during the three months ended May 31, 2020.

During the six months ended May 31, 2020, the portfolio experienced maturities of 20 policies with face value of approximately $90.1 million, gain on maturity of $48.4 million, weighted average age of 88.5 years and weighted average remaining life expectancy of 3.9 years. The ratio of realized gain to face value was approximately 53.8%. Approximately $75.2 million was collected during the six months ended May 31, 2020 with $28.6 million pending collection at May 31, 2020.

The below is a reconciliation of receivable for maturity of life settlement held by the limited partnership for the three months and six months ended May 31, 2020 (in thousands).

 
 
Three Months Ended May 31, 2020
 
Six Months Ended May 31, 2020
Balance at start
 
$
27,500

 
$
13,726

Maturities
 
43,150

 
90,050

Less: proceeds received
 
42,100

 
75,226

Receivable at May 31, 2020
 
$
28,550

 
$