STEPS TO A SUCCESSFUL TRANSACTION
1st Transaction Steps
Qualify the Transaction Opportunity – The line of credit bank and investment fund which will underwrite the line of credit require the asset to be, a) well-managed asset, b) A transaction based on sound underlying collateral.
Questionnaire: A series of questions will be presented to asset owner to get a fundamental understanding of the characteristics of the Life Settlement Portfolio after the initial submission has been received and reviewed.
Terms: The answers to these questions and a review of the portfolio spreadsheet will enable the bank to determine loan-to-value and other credit terms.
Transaction Structure: These answers will also influence how the transaction is structured.
The Application Process – Involves assembly of the basic information required to formally present the transaction to the credit line bank and investment fund which involves the following:
Submitting an Application: Where the authorized representative of asset owner presents a formal Letter of Request for participation in this transaction, a Client Information Sheet, and Corporate Resolution confirming his/her authority, copy of passport.
Determine Ownership of Asset: The asset owner presents documentation to answer the following questions:
Who is/are the Owner(s) of the Asset?
What is the name of legal entity?
What type of Legal Entity is this?
What state is the legal entity registered in?
Date of Registration?
Who has corporate signatory authority by board resolution to act on behalf of the Group?
Chain of Custody: The ownership interest in the asset will have to be proven to qualify for the credit line.
Confirm ownership by documentation – Account Statements, Bills of Sale, etc.
The Structure of the Transaction – Once the basic information described in Step 1 & 2 has been collected, a preliminary transaction structure will be formulated in consultation with the investment fund and bank. This process mainly expands on the procedural steps contained within this outline. The main objective is to clarify and identify the tasks necessary to satisfy the bank’s requirements and to safely position the asset to maximize the rate of return of this venture.
Memorandum of Understanding – An Agreement must be entered into between the parties to govern the roles of the parties in the transaction and determine how the financial gains will be shared among the parties.
Establish a Special Purpose Vehicle – A legal entity, separate and apart from the entity which currently owns and holds the Life Settlement Portfolios, will have to be created for the purposes of this transaction. This entity will be established in a mutually agreed upon jurisdiction.
The Due Diligence Process – Once the foundation work has been completed, namely transaction structuring, application process, and the formation of special purpose vehicle, the transaction package will then be ready for presentation to the bank and investment fund for a formal due diligence process. This involves the following steps:
Review of the principals and entities to satisfy the Know-Your-Client legal requirements
Verification of the Asset
Verification of Ownership Claims
Financial Analysis of the portfolios – This is not as detailed an analysis as would be done to underwrite a bond issue. It is a more cursory analysis intended primarily to determine the net present value for the purposes of Loan-to-Value determination.
Arrange Line of Credit – After completion of due diligence the bank will be able to offer credit line terms and conditions. This credit line will form the basis for the next steps which are private placement and trading of the credit line. The loan-to-value may be anywhere from 15% to 55% of face value depending upon the characteristics of the portfolio.
Placement of credit line into trade – At the same time the credit line is being established, the transaction will be formally introduced to a trade bank which will trade the credit line at a profit. The client’s relationship with this bank will be governed by a Private Placement Contract.
Private Placement Contract – This contract will be a bank contract from a trading bank which offers two things:
a. Guarantee that the credit line will be returned unencumbered back to the credit line
bank at end of term
b.) A bank assured rate of return from the trading of the credit line paid on a weekly, bi-
weekly or monthly basis over the term of the contract.
The contract may be as short as one-year or could extend for up to five years. At the end of the trading period the credit line is released back to the line of credit bank and the asset, the Life Settlement Portfolios, are also released free and clear back to asset owner. The value of this investment opportunity is its exceptional returns without placing the asset at risk at anytime. The amount of profits offered by this venture can only be disclosed by contract; however, these returns will be more than satisfactory!
Possible 2nd Transaction Steps
Underwrite a Bond Issue
At the same time the trading activities are occurring, the underwriting of a bond issue may be arranged to allow the asset to be sold outright to an investment fund, if so desired, or to offer a more liquid vehicle for other financial operations. The resulting corporate bonds will be credit-enhanced with an insurance policy to allow a credit rating of AAA. The underwriting process requires at least six months as each policy must be reviewed individually and LE’s recalculated and verified.