Damage From the Nulook Capital Bankruptcy Shows Up In GWGH Earnings

In April, we reported that Nulook Capital, a boutique merchant cash advance funder on Long Island had declared Chapter 11. The move was seemingly a response to a lawsuit filed against them by a secured creditor, GWG MCA, a subsidiary of publicly traded financial services company GWG Holdings Inc. (NASDAQ: GWGH).

In that bankruptcy, a merchant cash advance marketplace known as PSC also filed a claim against Nulook Capital to the tune of $400,000 in outstanding debt. In a sudden twist, however, a court saw enough evidence to believe that Nulook and PSC had an interwined relationship that jeopardized GWG MCA’s collateral, and ordered that PSC, who was supposed to just be a creditor with a secured claim, be put into receivership.

While the battle between all of the parties is still playing out in court, GWG Holdings Inc. disclosed the damage in their latest quarterly earnings report.

The secured loan to Nulook Capital LLC had an outstanding balance of $2,060,000 and a loan loss reserve of $1,478,000 at June 30, 2017. We deem fair value to be the estimated collectible value on each loan or advance made from GWG MCA. Where we estimate the collectible amount to be less than the outstanding balance, we record a reserve for the difference. We recorded an impairment charge of $870,000 for the quarter ended June 30, 2017.

Also notable in the earnings statement is that GWG MCA funds merchants directly. The company booked $133,583 in revenues attributed to MCAs in Q2. The amount was negligible compared to their core life insurance business. Their stock is up more than 30% YTD.