INTERNATIONAL STRUCTURED COLLATERAL SYNDICATED FINANCE PROGRAM

Transcription

1 INTERNATIONAL STRUCTURED COLLATERAL SYNDICATED FINANCE PROGRAM The "Interest Only Structured Collateral Loan Program is an established system of structured financing that uses traditional banking mechanisms as its fundamental components. The result is a stable structure that procures a 100% monetary instrument collateral for international project financing. Using a well calculated and balanced approach, the program provides highly competitive benefits and profits to all participants. Freely transferable Senior Life Settlements (SLS) within an Irrevocable Trust, premium paid and wrapped by re-insurance, are used as the financial instrument that is backed by cash. The general structure of using a CD as a collateral instrument has existed for 50 years SLS as a new asset-class collateral instrument is a growing trend in the financial markets. Naturally, there are many firms and brokers who have used or attempted to use similar instruments as collateral in one way or another. Some professional firms have been successful, but many inexperienced intermediary brokers have failed to deliver to clients. Given the problems that can arise from these types of loans, our company has spent the last year structuring this program and identifying qualified collateral and re-insurance partners to guarantee a fixed date certain term on the maturity of the collateral instruments. We are currently seeking Institutional Grantors"/"Investors"/"Lenders to participate individually or in a Syndicated Finance structure, to complete these types of transactions. The "Program" itself is a structure, or mechanism, of using third party collateral providers who own the beneficial interest of large portfolios of Senior Life Settlement insurance (no Viaticals, only healthy older adult) policies which are wrapped with AA-rated re-insurance to guarantee a fixed date certain for the maturity (the re-insurer being the Principal take-out mechanism if the collateral should prove to not fully mature by the end of the term). Since this structure must be implemented through a series of complex legal contracts between multiple participants in the transaction, the Structured Collateral Structured Finance Program must be managed by a law firm which specializes in securities and investment banking. The Collateral Providers own or purchase the SLS collateral required to secure the Grantors/Investors/Lenders requirements for providing capital. As an example, a portfolio of SLS with an average LE (Life Expectancy, or medically and/or actuarially determined life) term of 7 years, with a re-insured wrap guaranteeing a 10-year yield, provides a doubling of the cost in that 10 year period. The Grantors/Investors/Lenders then invests in the Nominal Grantor"/"Borrower" the face value of the

2 guaranteed Yield or maturity on the SLS, and Interest Only payments are made at a negotiated rate. The Collateral providers and re-insurers are then paid a pre-negotiated amount (usually 50% of the face) upon Grantors/Investors/Lenders funding. The Grantors/Investors/Lenders are the beneficiary of the SLS and at maturity the SLS pays the Principal off in full, or the term is shorted by payment of the principal from Nominal Grantor/Borrower revenues and the collateral is then transferred to the Borrower or back to the Collateral Provider. The "Interest Only Structured Collateral Loan Program" is one of the fastest systems for structured capital loans, using re-insured collateral from a third party provider. Because the Collateral Provider issues collateral by means of a "deposit" by providing the SLS - the Collateral Provider is then called a "Depositor". The end result of the structured transaction is the equivalent of an "principal free" loan (from the point of view of the Nominal Grantor/Borrower) in most cases, where the Nominal Grantor/Borrower repays only a discounted amount of Capital, with minimal risk and maximum benefit to both the Grantors/Investors/Lenders and the Nominal Grantor/Borrower. The Grantors/Investors/Lenders have a guaranteed principal payment at maturity of the SLS (or alternatively from the payment by the re-insurer and or borrower), so the only potential risk to the Grantors/Investors/Lenders is the interest. Typically the Grantors/Investors/Lenders take a Senior Secured position on the company assets or have an Equity position in the Common Stock, mitigating this risk. For large transactions, a syndication of Grantors/Investors/Lenders, (usually institutional lenders and trusts) is required, again requiring a series of complex legal contracts between multiple participants in the transaction, the Structured Finance Program must be managed by a law firm dealing in securities and investment banking. The primary function of the structure is to procure collateral provided from a third party at a "discount", and arrange for it to be paid for by the Borrower Company from the loan funds at the time of closing. The result of the structure is that Borrower receives a net amount of capital that it needs to implement its project/venture at a cost lower than a traditional loan, the Depositor receives immediate repayment of the collateral plus profits, and the Grantors/Investors/Lenders receives full collateral backing of the total principal amount of the loan or investment with guaranteed principal re-payment. The ability of the structure to reliably generate a "win-win-win" transaction for all participants is made possible by the fact that the SLS instruments used as collateral doubles in value over a 10 year period or less (initial cost all-in being 50% of the face value of the collateral). This increase in value from maturity of the SLS makes it possible to provide real and tangible benefits for all parties to the transaction. All other expenses related to structuring the loan/investment and procuring the collateral are added to the amount of the loan/investment, to ensure that they are paid from the loan/investment at closing. Grantors/Investors/Lenders typically are multinational institutional investors such as trusts and pension funds, which have billions of dollars in liquid assets. They have contractual and legal obligations to make these funds work for maximum profits. For such capital sources, direct investment in projects is too "high risk", too "low return", and too much time to wait. Accordingly, they categorically refuse to finance actual projects or invest funds directly, as a matter of principle and policy. Instead, Borrowers accomplish their goals through purchasing collateral from Depositors for use in structured loan transactions. Simultaneous to the Grantors/Investors/Lenders, with no risk whatsoever, 2

3 the Depositor receives 100% of its principal back in "cash" at closing of the loan/investment, plus a negotiated profit for the transaction. DESCRIPTION OF PARTICIPANTS Nominal Grantor/Borrower - provides a fully prepared business plan & pro forma that qualifies for loan or investment, and applies for structured collateral financing through our Venture Funding Advisory firm, and signs the necessary contracts for the transactions. Venture Funding Advisors - manages a flow of qualified investment projects from Applicant Companies, maintains contractual relations with a group of Collateral Providers and re-insurers, and maintains working relations with a group of participating Institutional Investors and coordinates the Legal process and documents required with an international Law firm specialized in international finance. VFA also coordinates as TPA (with the Law firm as escrow agent), the arrangement of the SLS collateral instrument, or other Guaranteed Insurance Contracts (GIC). Collateral Provider(s) a corporate entity who owns the beneficial interest in a large portfolio of SLS. The SLS or GIC is used as a financial instrument for use as collateral for the Issuing Grantors/Investors/Lenders, to guarantee the loan/investment to the Company. See Appendix A for Portfolio Parameters. Re-insurer - A financial guarantee provider who has been doing this for many years provides the re-insurance. This company is highly rated by D & B and has not failed to pay a legitimate claim in their history. Our provider is an international firm and has established re-insurance treaties with eighteen of the twenty largest re-insurers in the world. These companies share the re-insurance risk, and agree that should any one or more default on a claim, the others will pick up the liability. Third-Party Administrator - receive the monetary collateral from Applicant Company, and registers the owners, trustees and beneficiaries of both components of the SLS instrument as a result of the transactions. SLS and Re-insurer must be AA rated. Grantors/Investors/Lenders - receives the "Primary" component of the re-insured SLS as a monetary collateral instrument, issues a loan/investment to the Company backed by the SLS, and distributes the loan/investment funds in accordance with instructions of the Company. This typically is an investment fund, investment bank or other qualifying institutional Grantor/Investor/Lender (In most cases, the Funding Grantor/Investor/Lender is the same entity as the Issuing Grantor/Investor/Lender). FUNDAMENTAL COMPONENTS OF THE TRANSACTION The following is an overview of the fundamental components of the funding transaction: 1. Nominal Grantor/Borrower requests the Capital Amount necessary for the venture, and submits an application to Venture Funding Advisors. VFA then verifies all financial factors and calculates the required total amount of the SLS collateral, to ensure that the "Net Capital" paid to Nominal Grantor/Borrower from the structured loan is equal to the Capital Amount needed for the venture. 2. VFA, the Law firm and Collateral Providers secure SLS from sources in an amount equal to 218% or slightly greater, of the Capital required by Borrower. 3

4 3. Funding Grantor/Investor/Lender becomes the owner of the re-insured SLS or beneficiary of the GIC as 100% Collateral on the Loan/Investment to Nominal Grantor/Borrower. 4. Funding Grantor/Investor/Lender issues to Nominal Grantor/Borrower a loan/investment in an amount equal to 218% of the necessary Net Working Capital Amount, and equal to 100% of the face value (maturity value) of the SLS. 5. VFA gives Escrow instructions to Funding Grantor/Investor/Lender. In accordance with these instructions, Funding Grantor/Investor/Lender performs the following: A. Pays 100% of the purchase price of the collateral instrument to Collateral Provider(s) and reinsurers as closing costs, which includes all expenses and fees incurred for procurement of the collateral. (Tax deductible as financing costs.) Collateral Provider has recovered all expenses plus compensation, and exits, such that Nominal Grantor/Borrower does not owe them anything, and has no remaining obligations. B. Pays up to 6 Points of the working capital side of the loan/investment to any third party Broker(s) and Legal counsel to cover any and all underwriting and commission costs. (Tax deductible as financing costs.) C. Provides the Nominal Grantor/Borrower with the Net balance (100% of working capital) D. The Interest or maturity value of the SLS instrument is transferred to the benefit of the Grantor/Investor/Lender. Grantor/Investor/Lender take possession of a Derivative Certificate of Beneficial Interest on the SLS, and has now secured 100% of its loan/investment, and the SLS at maturity pays 100% of the principal of the loan/investment, such that Nominal Grantor/Borrower does not owe them anything, and has no remaining obligations. In the alternative, the Nominal Grantor/Borrower pays off the principal of the loan and the beneficial interest in the SLS is returned to the borrower and may be sold back to the original collateral provider. 6. Nominal Grantor/Borrower has secured the re-insured SLS by payment of half of the Loan Amount and by assignment of the "Beneficial Interest" component to the Grantor/Investor/Lender, equal to 218% of the Working Capital loan/investment. 7. Nominal Grantor/Borrower receives 100% of the Working Capital Loan Amount, for the venture capitalization. 8. Nominal Grantor/Borrower has already agreed with Funding Grantor/Investor/Lender in advance that after 10 years, the collateral instrument is automatically converted to a repayment instrument, as it is the property owned by the Funding Grantor/Investor/Lender. Accordingly, until the moment of conversion Funding Grantor/Investor/Lender is the "assigned beneficiary in repayment" of the "Primary" depositary component. 9. Funding Grantor/Investor/Lender independently is the recipient of the cash value of the SLS (worst case) at the end of 10 years, (best case, if the insured expire at an earlier time, then the principal is paid short of the term) and all funds from maturing SLS are applied to fully repay the Principal of the 4

5 Loan/Investment. (Tax deductible as repayment of principal if on a loan.) The beneficiary right to the proceeds of the SLS was previously registered by the Issuing Grantor/Investor/Lender, which performed its obligations, and then both Funding Grantor/Investor/Lender and/or Issuing Grantor/Investor/Lender exit, or as one in the same. 10. In practice, Nominal Grantor/Borrower has already repaid the Principal of the Loan/Investment from the beginning, as a result of the structured transaction. Thus, Nominal Grantor/Borrower pays to Funding Grantor/Investor/Lender only annual interest on the Loan/Investment during the 10 year period. (Tax deductible as interest payments if Loan.) 11. From the Nominal Grantor/Borrower's point of view, the "interest only" payments are equivalent to fixed annual payments returning the amount of Capital received during the 10 year period. For this reason the loan is sometimes called "no interest" or in the alternative, no principal.. Everything else is taken care of as a result of the structures and mechanisms of the financing transaction. 12. All contracts between all parties for all components of the transaction are prepared in advance and signed simultaneously, and their signing constitutes the actual implementation of the transaction. Thus the transaction is instantly completed, with no risk to any of the parties or participants. 5

6 SAMPLE ILLUSTRATION OF TRANSACTION (Illustration is on a $50M investment in LV RV) STRUCTURED COLLATERAL FINANCE MODEL - LVRV Development Capital 1 $22,935,780 Working Capital Req. (Working Capital + 1-Year Int. Pmts.). $19,435,780 Net Working Capital LVRV 2 $25,688,074 Collateral Requirement to Purchase GIC Securing 10-Yr Guarantee of Prin. 3 $1,376,147 Loan Fees 6.00% Equals Broker Points & Legal 4 $50,000,000 Total Loan % of Working Capital 5 $3,500,000 Annual Interest Per Annum Paid to Investor 6 10 Term (to maturity of GIC) 7 $35,000,000 Total Interest if paid over Entire Term Year 1 Year 2 Year 3 Year 4 Year 5 Year 10 8 Total Pro forma NOI $46,265,497 $65,870,489 $69,343,919 $77,151,381 $85,383,310 $427,983,929 9 Interest Financed $3,500,000 $3,500,000 $3,500,000 $3,500,000 $17,500, Net Before Principal $46,265,497 $62,370,489 $65,843,919 $73,651,381 $81,883,310 $410,483, Principal Paid back to Lender $0 $0 $0 $0 $0 $50,000, Balance Due Lender $50,000,000 $50,000,000 $50,000,000 $50,000,000 $50,000,000 $0 13 Maturity of GIC (@100%) $50,000, Investor Equity 5% $2,313,275 $3,118,524 $3,292,196 $3,682,569 $4,094,166 $18,024, EBIT LVRV $43,952,222 $59,251,965 $62,551,723 $69,968,812 $77,789,145 $342,459, Equity Growth $28,275,188 $65,975,438 $103,675,688 $144,517,625 $188,501,250 $439,836, Investor IRR = 14.87% Cash on Cash & 25.33% IRR Cash + Cap Rate Value of Equity 1 Working Capital = Net Working Capital + First Year Interest Payment Financed (Net Working Capital + line #5) 2 Collateral Required = #1 + #3x2 (Loan fees are financed so doubled if collateral provided to secure). SLS collateral would be premium paid to medically determined life expectancy and wrapped with AA rated re-insurance guaranting a Fixed Term Certain (10 yrs) 3 Third-party Broker fees and Legal costs 4 Total Loan = sum of #1, #2 & #3 5 Annual Interest = stated interest rate x #4 6 10/Yr Term fixed, if total maturity of collateral does not occur paying off Principal, the re-insurer steps in completing the Principal payment 7 Calculates total Interest paid IF over the entire Term - however, the term could be shorted by LVRV paying principal off early 8 Pro forma Net Operating Income from Organic Finance Model sales of Shared Ownership in Villas acquired. 9 Interest calculated each year - yr 1 is financed into the loan, year two and forward is flat interest only. 10 Net Revenues prior to Principal payments 11 Principal paid at Term End by the maturity of the Collateral and/or the Re-insurance 12 Running balance of Principal due Investor 13 The GIC (SLS) Term matures and pays off the Principal balance 14 Investor has a 5% Equity Kicker and receives 5% of the annual dividend, or accrues the same. 15 Earnings Before Taxes to LVRV 16 LVRV Growth in the 10% Equity position held in each Estate Villa 17 IRR is calculated first on a Cash on Cash basis for the 10-Year period, and then on a Cash and Equity Value basis. A Cap Rate of 8X 10th year EBIT was used. 6

7 Appendix A SLS Portfolio Parameters 1. No more than two insureds on one policy. 2. The insurance company must be organized in the United States 3. Insurance company must be rated by any one of the following as follows: A- by S&P or A3 by Moody s or A- by Fitch Inc. or A- by A.M. Best Company, unless otherwise agreed to by Profilers in writing. 4. Contestability period shall have expired. 5. Net death benefit is a minimum of $1,000,000 to a maximum of $25,000, The policy does not have a provision limiting the net death benefit for any reason, including but not limited to war or terrorist acts, other than for non-payment of premiums. 7. Life expectancy is not less than 36 months and does not exceed 72 months. 8. Insured is not less than 55 years old. 9. The period, if any stated in the policy, during which the insurance carrier must pay the death benefit claim shall be no longer than six months after the date the claim is filed. 10. The insurance policy and the legal and beneficial interests in the net death benefit are capable of being sold, transferred and conveyed to Profilers. 11. No dispute, claim, action or proceeding is pending or threatened, which alleges that a person other than the purchaser will have a beneficial or ownership interest in the insurance policy, or that any other person or party has a lien on the policy. 12. All premiums required to maintain the insurance policy in full force and effect through the next premium payment date have been paid. 13. The insurance policy is in full force and effect on the closing date. 14. The policy is not regulated by any state which prohibits the purchase or transfer of ownership of such policies. 15. The original owner of the insurance policy had an insurable interest in the insured at the time the insurance policy was issued and was not a charitable or religious organization. 16. The policy is not a group policy or part of a group policy, unless such policy can immediately be converted to a separate policy. 17. The policy provides for a level net death benefit through the insured s life expectancy. 18. The policy is being sold in a jurisdiction where the transfer of such policy is not subject to the payment of sales or other taxes except where such sales or other taxes have been paid. 19. The purchase price for the policy exceeds any applicable state sanctioned minimum purchase price. 20. There are no policy loans on the insurance policy. 21. The life expectancy report shall have been completed or updated within 90 days of the purchase closing date. 22. Life expectancy underwriter reports shall be obtained from at least one of the following Life Expectancy underwriters as follows: A. 21st Services of Minneapolis, Minnesota; B. AVS Underwriting LLC of Kennesaw, Georgia; C. Examination Management Services, Inc. of Waco, Texas; D. Fasano Associates of Washington, DC; or E. Midwest Medical Review, LLC of Liberty Township, Ohio. 23. The insurance policy complied, at the time it was originated and at all times thereafter, with all requirements of all applicable national, federal, state and local laws and all regulations promulgated thereunder, and the purchase of such insurance policy complies with applicable national, federal, state and local laws, and all regulations promulgated thereunder. 7

8 24. No provision of the insurance policy has been amended, waived, altered or modified in any respect except as fully disclosed by the seller. 25. No default, breach or violation under the insurance policy exists and no continuing condition will constitute a default, breach, or violation of the policy. 26. The purchaser will have good and marketable title to the insurance policy free and clear of all liens existing prior to closing except to any contractual or statutory right of rescission of the sale transaction. 27. The insurance policy is not subject to any claims of third parties by virtue of any outstanding or unsatisfied judgments, levies, liens or claims other than policy loans for advances made for the payment of premiums. 28. No action or proceeding has been instituted or is threatened to restrain, prohibit, declare invalid or seek other relief with respect to the insurance policy. 29. For reasons other than the failure to make future premium payments, no defenses or offsets may enable the insurance company to be unable or unwilling to make death benefit payments on the insurance policy. 30. The insurance policy is not subject to laws of any jurisdiction that would make unlawful the sale, transfer and assignment of the insurance policy. 31. The portfolio must be balanced so that the face amount of insurance for a single policy, a single insured or a single insurance company will constitute no more than ten percent (10%) of the entire portfolio. For Further Information, Please Contact: JR Nash, CEO Copper Hill Drive #256 Santa Clarita, CA jrnash@vfundadvisors.com website: 8