L bonds are a type of private and alternative investment. It is a high-yield debt instrument related to a life insurance debtor. The private flame that you would have possessed this bond means that the bonds are sold to already selected investors and institutions, but not on the open market. It is more of an alternative to an institutional public offering. This life insurance bond has no rating and allows the purchase and payment of premiums under a life insurance contract. All this is happening on the secondary market. Compared to other offers that can be found in this market, the L bond offers a much higher yield.
People who buy life insurance policies protect their customers after their death. However, the policyholder may decide to sell the policy. He may no longer be financially able to pay insurance premiums or he simply needs an urgent cash flow. It can be sold on the secondary market and so the other person becomes its user and he is obliged to continue to pay premiums. If the original owner of the policy passed away, the buyer receives compensation from the insurer.
Now you must be wondering what’s the point and why these policies are so in demand. The reason is very simple. The buyer paid an insurance policy at a price that is higher than the redemption value, while lower than the expected benefit. This means that the buyer receives a profit from the transaction, where the relationship between the life expectancy of the original policyholder and the expected collar plays a key role.
How it all started
L bonds were created in 2012 as a creation of the financing company GWG Holding from Dallas. There was a lot of speculation about it, however, the bonds tried to stay on the secondary market and provide a high return for policyholders. On the other hand, there was a risk that the premiums would not be paid. Still, the viatical settlement was quite promising. So: investors who buy a policy from the original owner aim to make a profit. It is simple: if the seller dies before the scheduled deadline, the investor generates more income. There are no further payments. If this does not happen, much less income is generated. Institutions and companies have invested the most here in order to provide money for the implementation of various projects.
GWGH focused on the elderly, which is to be expected in this business. The data show that in September 2020, this company had 1.081 policies worth $ 1.92 billion in net profit. Out of the total number, almost the polished polis was in the hands of people older than 85. Interest rates ranged from 5.50%, 6.25% to 8.50%, and were the same for the entire duration of the bond. The Company reserves the right to redeem any L bond at any time without penalty. Bondholders, however, did not have this first except in certain situations. Certain situations refer to death, disability or insolvency. And even then he applies the prescribed punishment.
However, there was no secondary public market for these bonds, so their resale was unlikely. Thus, L bonds were not liquid. If the insured lives a life expectancy, or in the event that the company in whose hands the policy is, experiences bankruptcy, the situation is not at all favorable for GWGH. The value of the portfolio may fall. Then GWG would not be able to pay interest to the owners of the L obligation. Something similar happened. The sale of unrated bonds carries with it a certain risk.
It’s time for bankruptcy
GWGH, which was considered the leading issuer of high-yield bonds, is in crisis. However, in 2024, this company informed the Securities and Exchange Commission that it could not submit its reports on time, either quarterly or annually. Therefore, nothing from the 10-K and 10-Q forms. This called into question the correctness of the submitted report from 2019 as well. the companies later said that these reports should not be relied upon. For this reason, the sale of L bonds was suspended for a period of 8 months. However, the report for 2024 did not see the light of day either, but sanctions against the company continued.
To make matters even more complicated, in January 2024, GWGH did not make a payment of almost 10.35 million dollars, where the repayment of the principal amounted to about 3.25 million dollars, of course, for outstanding L bonds. After missing this payment to investors despite a 30-day grace period, nothing has changed. In February of the same year, the company sent official letters that it would not pay monthly interest and maturities. It remains to be seen whether the company will recoup its losses.
What about investors?
In relation to this situation, investors do not have much choice. It would be best to contact a good law firm, such as MDF Law. It is best to acquaint them with their legal rights, and then file a lawsuit for arbitration in the field of securities.
Although these bonds were known at the outset to be high risk, they were very tempting to most investors. Everyone loves high yields. Also, it was tempting for investors not to correlate with some capital markets, as well as the fact that they do not have a fixed income. However, the risk was too high, and the risk of losing the total investment in L bonds was included. Another thing that needs to be taken seriously is that these bonds did not have a status, that is, they were not assessed by any bond rating agency.
To summarize:
If you, someone close to you, or your company have invested in L bonds, it would be best to contact the best lawyer immediately to inform you of your legal rights at this time. If you have not invested in something like this, and it sounds interesting to you and you would like to try investing in L bonds, we suggest you wait another period to be completely sure that you will not waste your money.
