Longevity MarketsCommentary 1Yield to LE 4Purchase Parame-ters5IRS Clarifications 7Longevity MarketSpreads9
May 18, 2009
Volume I, Issue 6Inside this issue:
Since we published last month’s Trade Report there have been some impor-tant developments in the life settlement sec-tor and chief among them is the new guid-ance from the IRS regarding the tax implica-tions when conducting a life settlementtransaction. The recent ruling changed what was previously believed to be a pretty cutand dry understanding of the tax conse-quences of a life settlement. It is also of particular importance to foreign investorsand offshore based investment vehicles. Todelve further into this issue we have in-cluded a reprint of an O’Melveny & Meyersinterpretation of the ruling on pg 7. Thoseinterested in learning more about this issuecan contact us for further information andresources. The week before last was the 15
LISA life settlement conference in New York and while membership to the associa-tion was down significantly from last yearthe industry is showing that it is still strong and here to stay. Several market players thathave been relatively quiet in their purchasing over the last six months appear to now beloaded up with new capital and in the very first stages of deploying it in the month of May. These groups include Peachtree, Ma-ple Financial, and Senior Settlements. All of these providers have been participants in thelife settlement market for some time and it isnot surprising to see capital flow to firmsthat have longer histories.Following our discussion of the AIG securitization from last month we haveobserved recently that a few hedge fundsand private equity funds that have partici-pated with the Treasury’s TALF program arelooking very closely at life settlements. Thiscould prove to be an exciting developmentfor our market, albeit with longer term ramifi-cations. For those not familiar with TALFhere is an explanation below.
The Fed explained the reasoning behindthe TALF as follows:
“New issuance of ABS declinedprecipitously in September and came to a haltin October. At the same time, interest ratespreads on AAA-rated tranches of ABSsoared to levels well outside the range of his-torical experience, reflecting unusually highrisk premiums. The ABS markets historically have funded a substantial share of consumercredit and SBA-guaranteed small businessloans. Continued disruption of these marketscould significantly limit the availability of credit to households and small businesses andthereby contribute to further weakening of U.S. economic activity. The TALF is designedto increase credit availability and support eco-nomic activity by facilitating renewed issuanceof consumer and small business ABS at morenormal interest rate spreads.”If pools of life settlements can besecuritized and sold or pledged as collateral tothe government under TALF, TARP or a new program not yet available it is certain that lifesettlements will experience a boom unprece-dented even from years past.
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Longevity Markets Commentary
Editor & Publisher
Brian C. Dorr
Anne K. ZandCarline B. Gele
Managing Editor and Writer
David C. Dorr
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