UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013

or

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to           

Commission File Number: 001-36170

JGWPT HOLDINGS INC.

(Exact name of registrant as specified in its charter)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  o Yes  x  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  o Yes  o  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).  o  Yes  x  No

At December 18, 2013, there were 11,220,358 shares of Class A common stock, par value $0.00001 per share, outstanding.

TABLE OF CONTENTS

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EXPLANATORY NOTE

On November 14, 2013, JGWPT Holdings Inc. consummated an initial public offering whereby 11,212,500 shares of its Class A common stock were sold to the public (inclusive of 1,462,500  Class A Shares sold pursuant to the full exercise of an overallotment option granted to the underwriters which was consummated on December 11, 2013).  The aggregate net proceeds received from the offering were $141.4 million and were used to purchase 11,212,500 common interests of JGWPT Holdings, LLC, representing 37.9% of the then outstanding membership interests of JGWPT Holdings, LLC.  Concurrently with the consummation of this initial public offering, (i) the operating agreement of JGWPT Holdings, LLC was amended and restated such that, among other things, JGWPT Holdings Inc. became the sole managing member of JGWPT Holdings, LLC and (ii) related reorganization transactions were consummated. Accordingly, as of and subsequent to November 14, 2013, JGWPT Holdings Inc. will consolidate the financial results of JGWPT Holdings, LLC with its own and reflect the remaining 62.1% interest in JGWPT Holdings, LLC as a non-controlling interest in its consolidated financial statements. Therefore, this Quarterly Report on Form 10-Q presents the following financial statements:

(1) the condensed consolidated financial statements of J.G. Wentworth, LLC and subsidiaries as of December 31, 2012 and September 30, 2013 (unaudited)  and for the three and nine months ended September 30, 2012 and 2013 (unaudited).  J.G. Wentworth, LLC is the predecessor of JGWPT Holdings Inc. for financial reporting purposes; and

(2) the unaudited balance sheet of JGWPT Holdings Inc. as of September 30, 2013. Separate statements of operations, comprehensive income, changes in stockholder’s equity, and cash flows for JGWPT Holding Inc. have not been presented because there were no activities in this entity in the period presented.

Unless otherwise stated or the context otherwise requires, references to “we,” “us,” “our,” the “Company” and similar references refer: (i) following the consummation of the above-referenced initial public offering and related concurrent transactions on November 14, 2013, collectively, to JGWPT Holdings Inc. and, unless otherwise stated, all of its subsidiaries, and (ii) prior to the completion of the above-referenced initial public offering and related concurrent transactions on November 14, 2013, collectively, to J.G. Wentworth, LLC and, unless otherwise stated, all of its subsidiaries.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements which reflect management’s expectations regarding our future growth, results of operations, operational and financial performance and business prospects and opportunities. All statements, other than statements of historical fact, are forward-looking statements. You can identify such statements because they contain words such as ‘‘plans,’’ ‘‘expects’’ or ‘‘does expect,’’ ‘‘budget,’’ ‘‘forecasts,’’ ‘‘anticipates’’ or ‘‘does not anticipate,’’ ‘‘believes,’’ ‘‘intends’’ and similar expressions or statements that certain actions, events or results ‘‘may,’’ ‘‘could,’’ ‘‘would,’’ ‘‘might’’ or ‘‘will’’ be taken, occur or be achieved. Although the forward-looking statements contained in this Quarterly Report on Form 10-Q reflect management’s current beliefs based upon information currently available to management and upon assumptions which management believes to be reasonable, actual results may differ materially from those stated in or implied by these forward-looking statements.

A number of factors could cause actual results, performance or achievements to differ materially from the results expressed or implied in the forward-looking statements. These factors should be considered carefully and readers should not place undue reliance on the forward-looking statements. Forward-looking statements necessarily involve significant known and unknown risks, assumptions and uncertainties that may cause our actual results, performance and opportunities in future periods to differ materially from those expressed or implied by such forward-looking statements. As set forth more fully under “Risk Factors” in our Post-Effective Amendment No. 1 to Form S-1  Registration Statement filed on November 8, 2013, these risks and uncertainties include, among other things:

·                  our ability to continue to purchase structured settlement payments and other assets;

·                  our ability to complete future securitizations on beneficial terms;

·                 availability of or increases in the cost of our financing sources relative to our purchase discount rate;

·                  our dependence on the opinions of certain rating agencies;

·                 our dependence on the effectiveness of our direct response marketing;

·                 the compression of the yield spread between the price we pay for and the price at which we sell assets;

·                 changes in tax or accounting policies applicable to our business;

·                 the lack of an established market for the subordinated interest in the receivables that we retain after a securitization is executed;

·                 our exposure to underwriting risk;

·                 our ability to remain in compliance with the terms of our substantial indebtedness;

·                 changes in existing state laws governing the transfer of structured settlement payments or the interpretation thereof;

·                 the insolvency of a material number of structured settlement holders;

·                 any change in current tax law relating to the tax treatment of structured settlements;

·                 changes to statutory, licensing and regulatory regimes;

·                 the impact of the Consumer Financial Protection Bureau and any regulations it issues;

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·                 adverse judicial developments;

·                 potential litigation and regulatory proceedings;

·                 unfavorable press reports about our business model;

·                 our access to personally identifiable confidential information of current and prospective customers and the improper use or failure to protect that information;

·                 the public disclosure of the identities of structured settlement holders;

·                 our business model being susceptible to litigation;

·                 our dependence on a small number of key personnel;

·                 our ability to successfully enter new lines of business and broaden the scope of our business;

·                 changes in our expectations regarding the likelihood, timing or terms of any potential acquisitions described herein;

·                 our computer systems being subject to security and privacy breaches; and

·                 infringement of our trademarks or service marks.

Although we have attempted to identify important risks and factors that could cause actual actions, events or results to differ materially from those described in or implied by our forward-looking statements, other factors and risks may cause actions, events or results to differ materially from those anticipated, estimated or intended. We cannot assure you that forward-looking statements will prove to be accurate, as actual actions, results and future events could differ materially from those anticipated or implied by such statements. Accordingly, as noted above, readers should not place undue reliance on forward-looking statements. These forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q and, except as required by law, we assume no obligation to update or revise them to reflect new events or circumstances.

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PART 1.   FINANCIAL INFORMATION

Item 1.    Financial Statements

JGWPT Holdings Inc.

Balance Sheet

As of September 30, 2013

Notes to Balance Sheet

1. ORGANIZATION

JGWPT Holdings Inc., formerly known as Wentworth Financial Holdings Inc. (the “Corporation”), was incorporated as a Delaware corporation on June 21, 2013.   The Corporation was formed for the purpose of completing a public offering and related transactions in order to carry on the business of JGWPT Holdings, LLC, a Delaware limited liability company, as a publicly-traded company. Wentworth Financial Holdings Inc. changed its name to JGWPT Holdings Inc. on October 3, 2013.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting — The Balance Sheet is presented in accordance with accounting principles generally accepted in the United States of America. Separate statements of operations, comprehensive income, changes in stockholder’s equity, and cash flows have not been presented in the financial statements because there have been no activities in this entity.

3. STOCKHOLDER’S EQUITY

The Corporation is authorized to issue 1,000 shares of Common Stock, par value $0.00001 per share, none of which have been issued or are outstanding.

4. SUBSEQUENT EVENTS

On November 14, 2013, the Corporation consummated an initial public offering whereby 11,212,500 shares of its Class A common stock, par value $0.00001 per share (the “Class A Shares”), were sold to the public for net proceeds of $141.4 million, after payment of underwriting discounts and estimated offering expenses. The 11,212,500 shares sold were inclusive of 1,462,500 Class A Shares sold pursuant to the full exercise of an overallotment option granted to the underwriters which was consummated on December 11, 2013.  The net proceeds from the initial public offering were used purchase 11,212,500 newly issued JGWPT Holdings, LLC common interests directly from JGWPT Holdings, LLC representing 37.9% of the then outstanding membership interests of JGWPT Holdings, LLC.  Concurrently with the consummation of the Corporation’s initial public offering, the Corporation amended and restated its certificate of incorporation to provide for, among other things, the issuance of Class A Shares, shares of Class B common stock, par value $0.00001 per share (the “Class B Shares”), and shares of Class C common stock, par value $0.00001 per share (the “Class C Shares”).  Also concurrently with the consummation of the Corporation’s initial public offering, JGWPT Holdings, LLC merged with and into a newly formed subsidiary of the Corporation and the surviving, newly formed subsidiary changed its name to JGWPT Holdings, LLC.

4

Pursuant to this merger, the operating agreement of JGWPT Holdings, LLC was amended and restated such that, among other things, (i) the Corporation became the sole managing member of JGWPT Holdings, LLC, (ii) JGWPT Holdings, LLC common interests became exchangeable for one Class A Share, or in the case of Peach Group Holdings, Inc. (“PGHI Corp.”), one share of the Corporation’s Class C Shares. Additionally, in connection with merger, each holder of JGWPT Holdings, LLC common interests, other than PGHI Corp., was issued an equivalent number of shares of the Corporation’s “vote-only” Class B Shares.  As a result of these transactions, as of and subsequent to November 14, 2013, the Corporation will consolidate the financial results of JGWPT Holdings, LLC with its own and reflect the 62.1% membership interest in JGWPT Holdings, LLC it does not own as a non-controlling interest in its consolidated financial statements.

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J.G. Wentworth, LLC and Subsidiaries

Condensed Consolidated Balance Sheets

(1) Pledged as collateral to credit and long-term debt facilities

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

J.G. Wentworth, LLC and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

J.G. Wentworth, LLC and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

8

J.G. Wentworth, LLC and Subsidiaries

Condensed Consolidated Statement of Changes in Member’s Capital (Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

9

J.G. Wentworth, LLC and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

10

J.G. Wentworth, LLC and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(continued)

The accompanying notes are an integral part of these condensed consolidated financial statements

11

J.G. Wentworth, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars In Thousands, Unless Otherwise Noted)

1. Background and Basis of Presentation

Organization and Description of Business Activities

J.G. Wentworth, LLC was formed on July 1, 2005 as a wholly-owned subsidiary of JGW Holdco, LLC (“Holdco”). Holdco is currently owned by its members, JLL JGW Distribution, LLC, a Delaware limited liability company, and J.G. Wentworth, Inc.

In July 2011, the Company, Orchard Acquisition Company, LLC (“OAC”) and its subsidiaries and PGHI Corp., formed JGWPT Holdings, LLC, a Delaware limited liability company.   JGWPT Holdings, LLC then formed JGW Holdings Merger Sub, LLC (“Merger Sub”), a Delaware limited liability company, as its wholly-owned subsidiary. Merger Sub was merged with and into the Company, with the Company continuing as the surviving entity in the merger, and as a result of this merger (i) all of the outstanding equity interests of the Company were converted into identical corresponding equity interests in JGWPT Holdings, LLC, (ii) all of the outstanding equity interests in JGWPT Holdings, LLC held by the Company were cancelled, and (iii) each outstanding equity interest in Merger Sub was converted into one common interest in the Company. As a result, the Company became a wholly-owned subsidiary of JGWPT Holdings, LLC, with all outstanding equity interests formerly held in the Company held in JGWPT Holdings, LLC. Subsequently, as part of the merger, OAC became a wholly-owned subsidiary of the Company (the “OAC Merger”).

The Company, operating through its subsidiaries and affiliates, has its principal office in Radnor, Pennsylvania. The Company provides liquidity to individuals with financial assets such as structured settlements, annuities, lottery winnings, and others by either purchasing these financial assets for a lump-sum payment, issuing installment obligations payable over time, or serving as a broker to other purchasers of financial assets.  The Company also provides pre-settlement funding to people with pending personal injury claims. The Company engages in warehousing and subsequent resale or securitization of these various financial assets.

The Corporation was incorporated as a Delaware corporation on June 21, 2013.   The Corporation was formed for the purpose of completing an initial public offering and related transactions in order to carry on the business of JGWPT Holdings, LLC as a publicly-traded company.

Concurrently with the initial public offering of the Corporation on November 14, 2013, JGWPT Holdings, LLC’s operating agreement was amended and restated such that, among other things, JGWPT Holdings Inc. became the sole managing member of JGWPT Holdings, LLC as of that date. These transactions are described in Note 17.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and Article 10 of Regulation S-X and do not include all of the information required by GAAP for complete financial statements.  In the opinion of management, the unaudited financial statements reflect all adjustments which are necessary for a fair presentation of financial position, results of operations, and cash flows for the interim periods presented. All such adjustments are of a normal, recurring nature.  The results of operations for interim periods are not necessarily indicative of the results for the entire year.

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts reported in the unaudited consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.  The most significant balance sheet accounts that could be affected by such estimates are variable interest entity (“VIE”) and other finance receivables, at fair market value, VIE derivative liabilities at fair market value, VIE long-term debt issued by securitization and permanent financing trusts at fair market value, intangible assets and goodwill. Actual results could differ from those estimates and such differences could be material. These interim financial statements should be read in conjunction with the Company’s 2012 audited consolidated financial statements that are included in our Post-Effective Amendment No. 1 to Form S-1 Registration Statement filed on November 8, 2013.

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J.G. Wentworth, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)

(Dollars in Thousands, Unless Otherwise Noted)

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, including those entities that are considered VIEs, and where the Company has been determined to be the primary beneficiary in accordance with Accounting Standards Codification (“ASC”) 810, Consolidation (“ASC 810”).  Excluded from the consolidated financial statements of the Company are those entities that are considered VIEs and where the Company has been deemed not to be the primary beneficiary according to ASC 810.  The December 31, 2012 consolidated financial statements also included the accounts of American Insurance Strategies Fund II, LP (“AIS Fund II”) for which the Company was the general partner.  The limited partners’ interests are reflected as non-controlling interests in the Company’s consolidated financial statements.  In 2012, the assets of the AIS Fund II were liquidated and distributed to the partners.

All material inter-company balances and transactions are eliminated in consolidation.

2. Recently Issued Accounting Statements

Effective January 1, 2013, the Company adopted ASU 2011-11, Disclosures about Offsetting Assets and Liabilities. The ASU requires disclosures that affect all entities with financial instruments and derivatives that are either offset on the balance sheet in accordance with ASC 210-20-45 or ASC 815-10-45, or subject to a master netting arrangement, irrespective of whether they are offset on the balance sheet.  Entities should provide the disclosures required by ASU No. 2011-11 retrospectively for all comparative periods presented.   Adoption of ASU 2011-11 did not impact the Company’s financial statements.

Effective January 1, 2013, the Company early adopted ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The ASU requires entities to report, either on the face of the income statement or in the notes, the effect of significant reclassifications out of accumulated other comprehensive income (“AOCI”) on the respective line items in net income if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income. For other amounts that are not required under GAAP to be reclassified in their entirety from AOCI to net income in the same reporting period, an entity is required to cross-reference other disclosures required under GAAP that provide additional detail about those amounts.  The Company did not record any reclassifications out of accumulated other comprehensive income during the three-months ended September 30, 2013.  The Company did record the following reclassifications out of accumulated other comprehensive income during the nine-months ended September 30, 2013 as a result of the associated notes maturing during the period:

As discussed more fully in Note 3 of the Company’s 2012 audited consolidated financial statements, the notes receivable are treated as debt securities, classified as available-for-sale, and carried at fair value.  The remaining $6,238 of notes receivable, at fair market value at September 30, 2013, are expected to mature in 2018.

In July 2013, the FASB issued ASU No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“ASU 2013-11”). ASU 2013-11 requires, unless certain conditions exists, an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, similar tax loss, or a tax credit carryforward. ASU 2013-11 is effective prospectively for reporting periods beginning after December 15, 2013, with early adoption permitted. Retrospective application is permitted. The Company does not anticipate the adoption of this amendment will have a material impact on its financial statements.

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J.G. Wentworth, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)

(Dollars In Thousands, Unless Otherwise Noted)

3. Variable Interest Entities

In the normal course of business, the Company is involved with various entities that are considered to be VIEs.  A VIE is an entity that has either a total investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support or whose equity investors lack the characteristics of a controlling financial interest under the voting interest model of consolidation.  The Company is required to consolidate any VIE for which it is determined to be the primary beneficiary.  The primary beneficiary is the entity that has the power to direct those activities of the VIE that most significantly impact the VIEs’ economic performance and has the obligation to absorb losses from or the right to receive benefits from the VIE that could potentially be significant to the VIE.  The Company reviews all significant interests in the VIEs it is involved with including consideration of the activities of the VIEs that most significantly impact the VIEs’ economic performance and whether the Company has control over those activities.  On an ongoing basis, the Company assesses whether or not it is the primary beneficiary of a VIE.

As a result of adopting ASC 810, the Company was deemed to be the primary beneficiary of the VIEs used to securitize its finance receivables (“VIE finance receivables”).  The Company elected the fair value option with respect to assets and liabilities in its securitization VIEs as part of their initial consolidation on January 1, 2010.

The debt issued by the Company’s securitization VIEs is reported on the Company’s consolidated balance sheets as long-term debt issued by securitization and permanent financing trusts, at fair market value (“VIE securitization debt”).  The VIE securitization debt is recourse solely to the VIE finance receivables held by such special purpose entities (Note 5 and 6) and thus is non-recourse to the other consolidated subsidiaries. The VIEs will continue in operation until all securitization debt is paid and all residual cash flows are collected. As a result of the long lives of many finance receivables purchased and securitized by the Company, most consolidated VIEs have expected lives in excess of twenty years.

4. Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), establishes a three-level valuation hierarchy for disclosure of fair value measurements.  The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  The three levels are defined as follows:

·                  Level 1 — inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that are accessible at the measurement date.

·                  Level 2 — inputs to the valuation methodology include quoted prices in markets that are not active or quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

·                  Level 3 — inputs to the valuation methodology are unobservable, reflecting the entity’s own assumptions about assumptions market participants would use in pricing the asset or liability.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.  Fair value is a market based measure considered from the perspective of a market participant who holds the asset or owes the liabilities rather than an entity specific measure. Therefore, even when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that market participants would use in pricing the assets or liabilities at the measurement date.  The Company uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The Company also evaluates various factors to determine whether certain transactions are orderly and may make adjustments to transactions or quoted prices when the volume and level of activity for an asset or liability have decreased significantly.

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J.G. Wentworth, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)

(Dollars in Thousands, Unless Otherwise Noted)

The above conditions could cause certain assets and liabilities to be reclassified from Level 1 to Level 2/Level 3 or Level 2 to Level 3.  The inputs or methodology used for valuing the assets or liabilities are not necessarily an indication of the risk associated with the assets and liabilities.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Marketable securities — The estimated fair value of investments in marketable securities is based on quoted market prices.

VIE and other finance receivables and VIE long-term debt issued by securitization and permanent financing trusts, at fair market value — The estimated fair value of VIE and other finance receivables and VIE long-term debt issued by securitization and permanent financing trusts, at fair value is determined based on a discounted cash flow model using expected future collections discounted at a calculated rate.

For guaranteed structured settlements and annuities, the Company allocates the projected cash flows based on the waterfall of the securitization and permanent financing trusts (collectivity the “Trusts”).  The waterfall includes fees to operate the Trusts (servicing fees, administrative fees, etc.), note holder principal and note holder interest.  Many of the Trusts have various tranches of debt that have varying subordinations in the waterfall calculation. The remaining cash flows, net of those obligations, are considered a residual interest which is projected to be paid to the Company’s retained interest holders.

The projected finance receivable cash flows used to pay the obligations of the Trusts are discounted using a calculated rate derived from the fair value interest rates of the debt in the Trusts.  The fair value interest rate of the debt is derived using a swap curve and applying a calculated spread using the Company’s most recent securitization as a benchmark.  The calculated spread is adjusted for the specific attributes of the debt in the Trusts, such as years to maturity and credit grade.   The debt’s fair value interest rates are applied to the projected future cash payments paid on the principal and interest to derive the debt’s fair value.   The debt’s fair value interest rates are blended using the debt’s principal balance to obtain a weighted average fair value interest rate; this rate is used to determine the value of the finance receivables’ asset cash flows.  In addition, the Company considers transformation cost and profit margin associated with its securitizations to derive the fair value of its finance receivables’ asset cash flows.  The finance receivables’ residual cash flows remaining after the projected obligations of the Trusts are satisfied are discounted using a separate yield based on an assumed rating of the residual tranche.  The finance receivables’ residual cash flows remaining after the projected obligations of the Trusts are satisfied are discounted using a separate yield based on an assumed rating of the residual tranche (9.34% and 7.71% as of December 31, 2012 and September 30, 2013, respectively, with a weighted average life of 20 years as of both dates).

The residual cash flows are adjusted for a loss assumption of 0.25% over the life of the finance receivables in its fair value calculation.  Finance receivable cash flows, including the residual asset cash flows, are included in finance receivables, at fair market value in the Company’s consolidated balance sheets.  The associated debt’s projected future cash payments for principal and interest are included in VIE long-term debt issued by securitization and permanent financing trusts, at fair market value.

For finance receivables not yet securitized, the Company uses the calculated spreads, as well as considering transformation costs and profit margin, from its most recent securitization to determine the fair value yield adjusting for expected losses and applying the residual yield for the cash flows the Company projects would make up the retained interest in a securitization.

For the Company’s life contingent structured settlement (“LCSS”) receivables and long-term debt issued by its related permanent financing trusts, the blended weighted average discount rate of the LCSS receivables at the time of borrowing (which occurs frequently throughout the year) is used to determine the fair value of the receivables’ cash flows.  The residual cash flows relating to the LCSS receivables are discounted using a separate yield based on the assumed rating to the residual tranche reflecting the life contingent feature of these receivables.

VIE and other finance receivables, net of allowance for losses — The fair value of structured settlement, annuity, and lottery receivables was estimated based on the present value of future expected cash flows using discount rates

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J.G. Wentworth, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)

(Dollars in Thousands, Unless Otherwise Noted)

commensurate with the risks involved.  The fair value of pre-settlement funding transactions and attorney cost financing was based on expected losses and historical loss experience associated with the respective receivables using management’s best estimates of the key assumptions regarding credit losses.

Life settlement contracts, at fair market value — The fair values of life settlement contracts are determined by reference to the transfer price of similar life settlement contracts under a discounted cash flow calculation that takes into account the net death benefit under the policy, estimated future premium payments and the life expectancy of the insured, as well as other qualitative factors regarding market participants assumptions.  Life expectancy is determined on a policy-by-policy basis using the results of medical underwriting performed by independent agencies.

Notes receivable, at fair market value — The fair values of notes receivables are determined based on the discounted present value of future expected cash flows using management’s best estimates of the key assumptions regarding credit losses and discount rates determined to be commensurate with the risks involved. The Company does not expect prepayment on the finance receivables underlying the notes receivable and accordingly, no significant change in the fair value is expected as a result of prepayment.  The fair value and amortized costs of these notes receivable are as follows:

Note receivable due from affiliate — The estimated fair value of note receivable due from affiliate is assumed to equal its carrying amount.  The note receivable was repaid in full in February 2013.

Other receivables, net of allowance for losses — The estimated fair value of advances receivable and certain other receivables, which are generally recovered in less than three months, is assumed to equal to the carrying amount.  The carrying value of other receivables which have expected recoverability of greater than three months, which consist primarily of a note receivable, have been estimated based on the present value of future expected cash flows using management’s best estimate of the key assumptions, including discount rates commensurate with the risks involved.

VIE derivative liabilities, at fair value — The fair value of interest rate swaps is based on dealer quotes that are corroborated with pricing models that utilize current interest rates and the timing and amount of cash flows.

Installment obligations payable — Installment obligations payable are reported at contract value determined based on changes in the measuring indices selected by the obligees under the terms of the obligations over the lives of the obligations.  The fair value of installment obligations payable is estimated to be equal to carrying value.

Term loan payable — The carrying value of the term loan approximates its fair value.  In February 2013, the term loan was refinanced with a new senior secured credit facility and subsequently, in May 2013, the new credit facility was amended to provide an additional term loan with the same terms as the new credit facility.

VIE borrowings under revolving credit facilities and other similar borrowings — The estimated fair value of borrowings under revolving credit facilities and other similar borrowings is based on the borrowing rates currently available to the Company for debt with similar terms and remaining maturities.  The Company estimates that the carrying value of its lines of credit, which bear interest at a variable rate, approximates fair value.

VIE long-term debt — The estimated fair value of VIE long-term debt is based on fair value borrowing rates available to the Company based on recently executed transactions with similar underlying collateral characteristics, reflecting the specific terms and conditions of the debt.

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J.G. Wentworth, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)

(Dollars in Thousands, Unless Otherwise Noted)

The following table sets forth the Company’s assets and liabilities that are carried at fair value on the Company’s condensed consolidated balance sheets as of December 31, 2012 and September 30, 2013:

(1) Included in other assets on the Company’s condensed consolidated balance sheets.

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J.G. Wentworth, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)

(Dollars in Thousands, Unless Otherwise Noted)

The following table sets forth the Company’s quantitative information about its Level 3 fair value measurements as of December 31, 2012 and September 30, 2013, respectively: