Structured Settlements

6 Months Ended

Jun. 30, 2011

(13)

Structured Settlements

The balances of the Company's structured settlements are as follows (in thousands):


	June 30,		December 31,
	2011		2010

Structured settlements — at cost	$	1,666	$	1,090
Structured settlements — at fair value		2,478		1,446

Structured settlements receivable, net	$	4,144	$	2,536

All structured settlements that were acquired subsequent to July 1, 2010 were marked to fair value. Structured settlements that were acquired prior to July 1, 2010 were recorded at cost. During the six months ended June 30, 2011, the Company reacquired certain structured settlements that were originally acquired prior to July 1, 2010 and the Company continued to carry these structured settlements at cost upon reacquisition.

$40 million Class A Note

On April 12, 2011, Washington Square Financial, LLC ("WSF"), a wholly-owned subsidiary of Imperial entered into a purchase agreement to sell up to $40 million of structured settlement receivables to Contingent Settlements I, LLC ("CSI"), a wholly-owned special purpose entity of WSF. Pursuant to a trust agreement, dated April 12, 2011, by and among Contingent Settlements I, LLC and Wilmington Trust Company, as trustee, Contingent Settlements I, LLC will sell the life-contingent structured settlement receivables sold to it under the purchase agreement into a statutory trust (the "Trust") that will issue a Class A Note and a residual interest certificate to an affiliate of Beacon Trust Company (the "Noteholder") and Contingent Settlements I, LLC, respectively. The Noteholder has agreed, subject to certain customary funding conditions, to advance up to $40 million under its Class A Note, which will entitle the Noteholder to, among other things, the first 17 years of payments under the life-contingent structured settlement receivables, from the date such receivables are sold into the trust. Each of Contingent Settlements I, LLC and the Noteholder has committed to purchase the receivables and make advances under the Class A Note, respectively, for one year absent the occurrence of certain events of default. The receivables to be purchased under the purchase agreement and sold into the Trust are subject to customary eligibility criteria and certain concentration limits.

In addition to the Class A Note, a residual interest certificate is issued at each advance. The residual interest certificate is collateralized by the over 17 years of payments under the life-contingent structured settlement receivables, from the date such receivables are sold into the trust. The total collateral as of June 30, 2011 was approximately $196,000 and is included in investment in affiliate in the accompanying consolidated and combined balance sheet.

As of June 30, 2011 and December 31, 2010, the balance of the notes outstanding on the special purpose financing entity's books was $4.0 million and $0.0 million, respectively. During the three months ended June 30, 2011, the Company sold 58 life-contingent structured settlements under this facility generating income of $607,000, which was recorded as an unrealized change in fair value of structured settlements in the first quarter of 2011. During the second quarter of 2011, the Company originated and sold 87 life-contingent structured settlements under this facility generating income of approximately $813,000 which was recorded as a gain on sale of structured settlements during the three months ended June 30, 2011. The Company also recorded income of approximately $176,000 in the second quarter of 2011 that was recorded as unrealized change in fair value on structured settlements that are intended for sale to Contingent Settlements I, LLC.

When the transfer of the receivables occurs, the Company records the transaction as a sale and derecognizes the asset from its balance sheet. In determining whether the Company is the primary beneficiary of CSI, the Company concluded that it does not control the servicing, which is the activity which most significantly impacts CSI's performance. An independent third party is the master servicer and they can only be replaced by the control partner, which is the entity that holds the majority of the outstanding notes. The Company is a back-up servicer which is insignificant to CSI's performance.

8.39% Fixed Rate Asset Backed Variable Funding Notes

ISF 2010 was formed as an affiliate of the Company to serve as a special purpose financing entity to allow the Company to sell structured settlements and assignable annuities, which are referred to as receivables, to ISF 2010 and ISF 2010 to borrow against certain of its receivables to provide ISF 2010 liquidity. ISF 2010 is a non-consolidated special purpose financing entity. On September 24, 2010, ISF 2010 entered into an arrangement to obtain up to $50 million in financing. Under this arrangement, a subsidiary of Partner Re, Ltd. (the "noteholder") became the initial holder of ISF 2010's 8.39% Fixed Rate Asset Backed Variable Funding Note issued under a master trust indenture and related indenture supplement (collectively, the "Indenture") pursuant to which the noteholder has committed to advance ISF 2010 up to $50 million upon the terms and conditions set forth in the Indenture. The note is secured by the receivables that ISF 2010 acquires from the Company from time to time. The note is due and payable on or before January 1, 2057, but principal and interest must be repaid pursuant to a

schedule of fixed payments from the receivables that secure the notes. The arrangement generally has a concentration limit of 15% for the providers of the receivables that secure the notes. Wilmington Trust is the collateral trustee. As of June 30, 2011 and December 31, 2010, the balance of the notes outstanding on the special purpose financing entity's books was $15.2 million and $1.7 million, respectively.

Upon the occurrence of certain events of default under the Indenture, all amounts due under the note are automatically accelerated. The Company's maximum exposure related to ISF 2010 is limited to 5% of the dollar value of the ISF 2010 transactions, which is held back by ISF 2010 at the time of sale, and is designed to absorb potential losses in collecting the receivables. The obligations of ISF 2010 are non-recourse to the Company. The total funds held back by ISF 2010 as of June 30, 2011 and December 31, 2010 were approximately $681,000 and $78,000 and are included in investment in affiliate in the accompanying consolidated balance sheet.

During the six months ended June 30, 2011, the Company sold 23 guaranteed structured settlements, 12 of which were originated in 2010, generating income of approximately of $129,000 which was recorded as an unrealized change in fair value of structured settlements in 2010 and 11 of which were sold during the three months ended June 30, 2011, generating income of $96,000 which was recorded as an unrealized change in fair value of structured settlements in the first quarter of 2011. The Company also realized income of approximately $199,000 in the second quarter of 2011 that was recorded as a change in fair value on structured settlements that are intended for sale to ISF 2010.

The Company originated and sold 112 and 190 guaranteed structured settlement transactions during the three months and six months ended June 30, 2011, respectively, under this facility generating income of approximately $1.230 million and $2.1 million, respectively, which was recorded as a gain on sale of structured settlements. During the six months ended June 30, 2011 the Company also purchased and sold 131 guaranteed structured transactions under this facility generating income of $64,000 which was recorded as a realized gain on sale of structured settlements.

During the six months ended June 30 2011, the Company also had three SPV's that pledged 38 guaranteed structured settlement transactions under this facility generating income of approximately $32,000, which was recorded as a change in fair value of structured settlements. The Company received approximately $3.8 million and $13.3 million, during the three months and six months respectively, in cash from these transfers. The Company receives 95% of the purchase price in cash from ISF 2010. Of the remaining 5%, which represents the Company's interest in ISF 2010, 1% is required to be contributed to a cash reserve account held by Wilmington Trust.

When the transfer of the receivables occurs, the Company records the transaction as a sale and derecognizes the asset from its balance sheet. In determining whether the Company is the primary beneficiary of ISF 2010, the Company concluded that it does not control the servicing, which is the activity which most significantly impacts ISF 2010's performance. An independent third party is the master servicer and they can only be replaced by the control partner, which is the entity that holds the majority of the outstanding notes. The Company is a back-up servicer which is insignificant to ISF 2010 performance.

In addition to its intended sales of CSI and ISF 2010, the Company recorded income of approximately $107,000 that was recorded as an unrealized change in fair value on structured settlements that are intended for sale to other parties.

Total income recognized through accretion of interest income on structured settlement transactions for the three months ended June 30, 2011 and 2010 was approximately $0 and $210,000, respectively, and approximately $175,000, and $ $212,000 for the six months ended June 30, 2011 and 2010, respectively, recognized in interest income in the accompanying consolidated and combined statement of operations. The receivables at June 30, 2011 and December 31, 2010 were approximately $4.1 million and $2.5 million, respectively, net of a discount of approximately $6.9 million and $1.3 million, respectively.

The Company recognized a gain on sale of approximately $6,000 and $240,000 through the collection of holdback funds during the three months and six months ended June 30, 2011, respectively. The holdback is equal to the aggregate amount of payments due and payable by the annuity holder within 90 days after the date of sale. These amounts are held back in accordance with the purchase agreement and will be released upon proof of collection by the Company acting as servicer.