Variable Interest Entities

9 Months Ended

Sep. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

In accordance with ASC 810, Consolidation, the Company assesses whether it has a variable interest in legal entities in which it has a financial relationship and, if so, whether or not those entities are variable interest entities (“VIEs”). For those entities that qualify as VIEs, ASC 810 requires the Company to determine if the Company is the primary beneficiary of the VIE, and if so, to consolidate the VIE.

VIEs for which the Company is the Primary Beneficiary

On March 20, 2020, CT Risk Management, LLC (“CT”) was created as a Delaware limited liability company to reduce the impact of a potential market downturn on the alternative assets used to collateralize receivables held by Beneficient by distributing any potential profits to the Collective Trusts thereby offsetting any reduction in the value of the alternative assets. The LLC agreement was amended and restated on April 16, 2020. There was no activity of CT until July 2020 when Beneficient made a capital contribution of $14.8 million, which was used to purchase the put options reflected in the condensed consolidated balance sheet as of September 30, 2020.

CT is considered a VIE as the at-risk equity holder, Beneficient, does not have all of the characteristics of a controlling financial interest due to Beneficient’s receipt of returns being limited to its initial investment in CT. The Company concluded that Beneficient is the primary beneficiary of CT as it has the power to direct the most significant activities and has an obligation to absorb potential losses of CT. Accordingly, the results of CT are included in the Company’s condensed consolidated financial statements.

As of September 30, 2020, the condensed consolidated balance sheets include assets of this consolidated VIE with a carrying value of $11.6 million, which is recorded in the other assets line item. Additionally, the Company recorded a $3.2 million loss on investment for the three and nine months ended September 30, 2020, which is reported in the other income (loss) line item of the condensed consolidated statements of operations.

VIEs for which the Company is Not the Primary Beneficiary

We determined that the LiquidTrust Borrowers are VIEs, but that we are not the primary beneficiary of these VIEs. We do not have the power to direct any activities of the LiquidTrust Borrowers that most significantly impact the Borrower’s economic performance. The Company’s exposure to risk of loss in the LiquidTrust Borrowers is limited to its financing receivable from the LiquidTrust Borrowers.

The Company also determined that certain other trusts included within the ExAlt PlanTM used in connection with Beneficient’s operations are VIEs, but that we are not the primary beneficiary of these VIEs. The Company does not have both the power to direct the most significant activities of the trusts and the obligation to absorb losses or right to receive benefits that could potentially be significant to the trusts. The Company’s investments in the trusts are carried in loans receivable in the condensed consolidated balance sheets. The Company’s exposure to risk of loss was determined as the amortized cost of the loans to the trusts, any earned but unpaid fees or expenses plus any remaining potential contributions for unfunded capital commitments and cash reserve commitments.

We determined that FOXO is a VIE, but that we are not the primary beneficiary of the VIE. We do not have the power to direct any activities of FOXO that most significantly impact its economic performance. The Company’s exposure to risk of loss in FOXO is limited to its equity method investment in the membership interests of FOXO and its remaining unfunded capital commitments.

The following table shows the classification, carrying value and maximum exposure to loss with respect to the Company’s unconsolidated VIEs (in thousands):


	September 30, 2020				December 31, 2019
	Carrying Value		Maximum Exposure to Loss		Carrying Value		Maximum Exposure to Loss
Loans receivable	$	227,047	$	293,847	$	232,344	$	335,255
Financing receivables from affiliates	—		—		67,153		67,153
Equity method investment	10,236		15,236		1,761		19,661
Accounts payable and accrued expenses	(2,583)		—		(2,515)		—
Total	$	234,700	$	309,083	$	298,743	$	422,069