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Commentator Calls Wentworth IPO ‘Glimpse Into The Types Of Financial Structures That Existed Prior To The Collapse Of Lehman Brothers’

The initial public offering of JGWPT Holdings, Inc. – parent company of J.G. Wentworth and Peachtree Settlement Funding – was completed last week (as described here).

But prior to the IPO, at least one commentator offered some criticism of the financial aspects of the deal.

Writer Antoine Gara wrote for that “J.G. Wentworth’s IPO provides a rare glimpse into the types of financial structures that existed prior to the collapse of firms like New Century, Lehman Brothers and Bear Stearns.”

Said Gara: “One would assume that in the wake of the crisis, investors would shun such deals. But J.G. Wentworth will give those who continue to believe in the cash-generating and seemingly low-risk mechanics of originate-to-distribute businesses another opportunity to invest.”

Gara also included the following comments:

  • J.G. Wentworth “derives its earnings from the spread between the discount rates it uses to acquire assets and those implied in its securitizations” and also “takes residual interests in the subordinated tranches of the securities it sells.”
  • Wentworth’s “asset-backed securities” have posted loss rates lower “than most mortgage-backed securities.”
  • “While few investors appear worried about the quality of payment streams that J.G. Wentworth buys and sells, the manner in which it does so creates a host of risks for the company’s prospective shareholders.  If J.G. Wentworth’s . . . credit lines or securitization markets . . . were to dry up, the company could find itself in a liquidity crisis, as its S-1 filing makes clear.  The company went bankrupt during the 2009 credit crunch when its committed credit evaporated and securitization markets stalled.”

Summing up, Gara wrote that “[f]ive years after the financial crisis, demand for J.G. Wentworth’s IPO could . . . signal that there are stock investors out there who are willing to put their money in financial services firms that contain many of the risks exposed during the mortgage meltdown.”

The full article, J.G. Wentworth IPO: Down the Pre-Crisis Rabbit Hole, from is available here.

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