The following discussion of changes in net assets and net assets in liquidation and analysis should be read in conjunction with the accompanying unaudited consolidated financial statements ofWoodbridge Liquidation Trust and the related notes thereto. The Trust, the Remaining Debtors, the Wind-Down Entity and the Wind-Down Subsidiaries, as used herein, are defined in Note 1 to the consolidated financial statements and are collectively referred to herein as the Company. Forward-Looking Statements Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements. Those statements include, without limitation, financial guidance, and projections and statements with respect to expectation of future financial condition, changes in net assets in liquidation, cash flows, plans, targets, goals, objectives, performance , and termination and dissolution of the Trust. Such forward-looking statements also include statements that are preceded by, followed by, or that include the words "believes", "estimates", "plans", "expects", "intends", "is anticipated", "will continue", "project", "may", "could", "would", "should" and similar expressions, and all other statements that are not historical facts. All such forward-looking statements are based on the Trust's current expectations and involve risks and uncertainties which may cause actual results to differ materially from those set forth in such statements. Such risks and uncertainties include the amount of sales proceeds, timing of sales of real estate assets, amount of funds needed for warranty claims, punch list items and holding costs of single-family homes, amount of general and administrative costs, the number and amount of successful litigations and/or settlements and the ability to recover thereon, the amount of funding required to continue litigations, the continuing impact of the COVID-19 pandemic and other global health issues, interest rates, adverse weather conditions in the regions in which properties to be sold are located, inflation, domestic and global economic and political conditions, changes in tax and other governmental rules and regulations applicable to the Trust and its subsidiaries and other risks and uncertainties identified in Part I. Financial Information, Item 1A. Risk Factors of the Company's Annual Report on Form 10-K, or contained in any of the Trust's subsequent filings with theSEC including in Part II. Other Information, Item 1A. Risk Factors of this Form 10-Q. These risks and uncertainties are beyond the ability of the Trust to control, and in many cases, the Trust cannot predict the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements. In connection with the "safe harbor" provisions of the Securities Act of 1933 and the Exchange Act, the Trust has identified and is disclosing important factors, risks and uncertainties that could cause its actual results to differ materially from those projected in forward-looking statements made by the Trust, or on the Trust's behalf. (See "Part II. Other Information, Item 1A. Risk Factors" of this Form 10-Q.) These cautionary statements are to be used as a reference in connection with any forward-looking statements. The factors, risks and uncertainties identified in these cautionary statements are in addition to those contained in any other cautionary statements, written or oral, which may be made or otherwise addressed in connection with a forward-looking statement or contained in any of the Trust's subsequent filings with theSEC . Because of these factors, risks and uncertainties, the Trust cautions against placing undue reliance on forward-looking statements. Although the Trust believes that the assumptions underlying forward-looking statements are currently reasonable, any of the assumptions could be incorrect or incomplete, and there can be no assurance that forward-looking statements will prove to be accurate. Forward-looking statements speak only as of the date on which they are made. Except as may be required by law, the Trust does not undertake any obligations to modify, update or revise any forward-looking statement to take into account or otherwise reflect subsequent events, corrections in or revisions of underlying assumptions, or changes in circumstances arising after the date that the forward-looking statement was made.
Overview
Pursuant to the Plan, the Trust was formed onFebruary 15, 2019 to hold, either directly or indirectly through the Wind-Down Entity and the Wind-Down Subsidiaries, the assets and equity interests formerly owned by the Debtors. Each of the real properties formerly owned by the Debtors was transferred, on the effective date of the Plan to one of the Wind-Down Subsidiaries. The purpose of theWind-Down Group is to develop (as applicable), market, and sell those properties to generate cash. Assets formerly owned by the Debtors other than real estate assets and certain cash were transferred on the Plan Effective Date of the Trust. The purpose of the Trust is to receive remittances of cash from the Wind-Down Entity, to resolve disputed claims, to prosecute the Causes of Action, to pay allowed administrative and priority claims, as defined in the Plan, and, subject to the payment of Trust expenses and the retention of various reserves, to make distributions of cash to Interestholders in accordance with the Plan. 19
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PART I. FINANCIAL INFORMATION (CONTINUED) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) The Trust operates pursuant to the Plan and the Trust Agreement. The Trust was formed as aDelaware statutory trust and is administered by the Liquidation Trustee under the supervision of its Supervisory Board. The Wind-Down Entity, a wholly-owned subsidiary of the Trust, operates pursuant to the Plan and the Wind-Down Entity LLC Agreement. The Wind-Down Entity was formed as aDelaware limited liability company and is administered by itsBoard of Managers , one of which is the chief executive officer. One member of theBoard of Managers is also a member of the Supervisory Board of the Trust.The Bankruptcy Court has retained certain jurisdictions regarding the Trust, the Liquidation Trustee, the Supervisory Board, the Wind-Down Entity, theBoard of Managers , and assets of the Trust and the Wind-Down Entity, including the determination of all disputes arising out of or related to administration of the Trust and the Wind-Down Entity and its subsidiaries.
As of
Class of Interest Number Outstanding Class A Liquidation Trust Interests 11,514,190 Class B Liquidation Trust Interests 675,617 For each of the classes of Liquidation Trust Interests, the number of Liquidation Trust Interests outstanding will increase to the extent that the disputed claims become allowed claims. In addition, the number of Liquidation Trust Interests outstanding will decrease to the extent that disputed claims are settled by cancelling previously issued Liquidation Trust Interests. Since the Plan Effective Date throughSeptember 30, 2022 , the Wind-Down Subsidiaries have disposed of approximately 145 properties for aggregate net sales proceeds of approximately$551.95 million . As ofSeptember 30, 2022 , the Company owned five real estate assets (including one single-family home and one other real estate asset listed for sale) with a gross carrying value of approximately$30.97 million . Given the significantly smaller inventory of remaining real estate assets when compared to the inventory as of the Plan Effective Date, the amount of net proceeds from the sale of real estate assets in the future is likely to be less than the amount realized from the Plan Effective Date throughSeptember 30, 2022 . The Company expects to complete the liquidation of its assets during the fiscal year endingJune 30, 2024 .
Discussion of the Company's Operations
Three months ended
20
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PART I. FINANCIAL INFORMATION (CONTINUED) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) The following is a summary of the Consolidated Statement of Changes in Net Assets in Liquidation for the three months endedSeptember 30, 2022 ($ in thousands): Restricted for All Qualifying Victims Interestholders Total Net assets in liquidation as of June 30, 2022 $ 3,485 $ 30,910$ 34,395
Change in assets and liabilities: Restricted for Qualifying Victims - change in carrying value of assets and liabilities, net
(2 ) - (2 ) All Interestholders- Change in carrying value of assets and liabilities, net - 885 885 Distributions (declared) reversed, net - 2,638 2,638 Net change in assets and liabilities - 3,523 3,523 Net assets in liquidation, as of September 30, 2022 $ 3,483 $ 34,433 37,916
Net assets in liquidation - Restricted for Qualifying Victims decreased by
approximately
Net assets in liquidation - All Interestholders increased by approximately$3.52 million during the three-month period endedSeptember 30, 2022 . This increase was due to an increase in the carrying value of assets and liabilities of approximately$0.88 million , net and distributions reversed of approximately$2.64 million for disallowed claims and cancelled interests. The components of the changes in the carrying value of assets and liabilities, net are as follows ($ in thousands): Restricted for All Qualifying Victims Interestholders Total Remeasurement of assets and liabilities, net $ (2 ) $ 288$ 284 Settlement recoveries recognized, net (1) - 154 154 Other - 443 445 Change in carrying value of assets and liabilities, net $ (2 ) $ 885$ 883 (1) Net of 5% payable to the Liquidation Trustee of approximately$8 and an allowance for uncollectible settlement installment receivables of approximately$28 .
During the three months ended
• Reversed distributions of approximately
being disallowed or Class A Interests being cancelled.
• Received net proceeds from the sale of Forfeited Assets of approximately
million.
• Completed construction of two single-family homes (10733 Stradella and 1520
Carla Ridge ).
• Recorded approximately
net of 5% payable to the Liquidation Trustee and an allowance for uncollectible
installment receivables.
• Paid construction costs of approximately
single-family homes under development. 21
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PART I. FINANCIAL INFORMATION (CONTINUED) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
• Paid holding costs of approximately
• Paid general and administrative costs of approximately
approximately
$3.02 million of payroll and other general and administrative costs and approximately$1.78 million of professional fees.
For the three months ended
The following is a summary of the Consolidated Statement of Changes in Net Assets in Liquidation for the three months endedSeptember 30, 2021 ($ in thousands): Restricted for All Qualifying Victims Interestholders Total Net assets in liquidation as of June 30, 2021 $ 3,167 $ 126,373$ 129,540
Change in assets and liabilities: Restricted for Qualifying Victims - change in carrying value of assets and liabilities, net
- - - All Interestholders- Change in carrying value of assets and liabilities, net - 4,904 4,904 Distributions (declared) reversed, net - 99 99 Net change in assets and liabilities - 5,003 5,003 Net assets in liquidation, as of September 30, 2021 $ 3,167 $ 131,376 134,543
Net assets in liquidation - Restricted for Qualifying Victims did not change
during the three months ended
Net assets in liquidation - All Interestholders increased approximately$5.00 million during the three months endedSeptember 30, 2021 . This increase was due to changes in the carrying value of assets and liabilities, net of approximately$4.90 million and distributions reversed of approximately$0.10 million for disallowed claims and cancelled interests. The components of the change in the carrying value of assets and liabilities, net are as follows ($ in thousands): Restricted for All Qualifying Victims Interestholders Total Sales proceeds in excess of carrying value $ - $ 3,071$ 3,071 Settlement recoveries recognized, net (1) - 926 926 Remeasurement of assets and liabilities, net - 812 812 Other - 95 95 Change in carrying value of assets and liabilities, net $ - $ 4,904$ 4,904
(1) Net of 5% payable to the Liquidation Trustee of approximately
three months endedSeptember 30, 2021 . 22
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PART I. FINANCIAL INFORMATION (CONTINUED) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
During the three months ended
• Reversed distributions of approximately
disallowed or Class A Interests being cancelled.
• Completed construction of two single-family homes (2600 Hutton and 1484 Carla
Ridge).
• Sold two single-family homes for net proceeds of approximately
One of the single-family homes was under construction.
• Recorded approximately
net of 5% payable to the Liquidation Trustee..
• Paid construction costs of approximately
single-family homes under development.
• Paid holding costs of approximately
• Paid general and administrative costs of approximately
approximately
$1.14 million of payroll and other general and administrative costs and approximately$2.78 million of professional fees.
Liquidity and Capital Resources
Liquidity
The Company's only sources for meeting its capital requirements are its cash and cash equivalents, proceeds from the sale of its real estate assets, collection of escrow receivables, recoveries on Causes of Action and proceeds from the sale of Forfeited Assets1. The Company's primary uses of funds are and will continue to be for distributions, development costs including warranty claims, holding costs and general and administrative costs, all of which the Company expects to be able to adequately fund over the next twelve months from its primary sources of capital. Capital Resources
In addition to consolidated cash and cash equivalents as of
• Sales of Real Estate:
selling its real estate assets, all of which are held for sale. One
single-family home and one other real estate asset was listed for sale as of
real estate assets with a gross carrying value of approximately
The majority of the gross carrying value is concentrated in one single-family
home. Based on the remaining assets of the Company, future net proceeds will be
significantly less than the Company has realized in prior periods.
• Escrow Receivables: As of
receivables relating to two single-family homes that had been sold and for
which it was completing punch list items and/or awaiting the issuance of a certificate of occupancy.
• Causes of Action Recoveries: During the three months ended
the Company recognized approximately
Causes of Action. There can be no assurance that the amounts the Company
recovers from settling Causes of Action in the future will be consistent with
the amount recovered in prior periods.
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1 The Trust is required to distribute the net sale proceeds from liquidating the Forfeited Assets to the Qualifying Victims. Qualifying Victims are the former holders of Class 3 and Class 5 Claims and their permitted assigns. Former holders of Class 4 Claims are not Qualifying Victims. Because of the requirement to distribute the net sale proceeds of the Forfeited Assets to the Qualifying Victims only, the Forfeited Assets as ofSeptember 30, 2022 are presented in the consolidated statement of net assets as restricted net assets in liquidation. As ofSeptember 30, 2022 , 11,436,259 of the 11,514,190 Class A Interests were held by Qualifying Victims. Of the 13,875 Class A Interests relating to unresolved claims as ofSeptember 30, 2022 , 1,880 would be held by Qualifying Victims. 23
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PART I. FINANCIAL INFORMATION (CONTINUED) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
• Forfeited Assets: Forfeited Assets consist of cash and other assets (jewelry,
art, clothing, handbags and shoes). During the three months ended
2022, the Trust sold some of its Forfeited Assets and received net proceeds of
approximately
liquidating the Forfeited Assets are to be distributed only to Qualifying
Victims. Uses of Liquidity The primary uses of the Company's liquidity are to pay (a) distributions payable, (b) development costs including warranty claims, (c) holding costs including maintenance and repair costs, and (d) general and administrative costs. As ofSeptember 30, 2022 , the Company's total liabilities were approximately$29.00 million . The total liabilities recorded as ofSeptember 30, 2022 may not be indicative of the costs paid in future periods, which may be significantly higher. Given current cash and cash equivalent balances, projected sales of real estate assets, Causes of Action recoveries, distributions declared, and expected cash needs, the Company does not expect a deficiency in liquidity in the next twelve months. Due to the uncertain nature of future net sales proceeds, recoveries and costs to be incurred, it is not possible to be certain that the current liquidity will be adequate to cover all future financial needs of the Company. Creating contingent obligation agreements and/or seeking methods to reduce professional costs, including legal fees, and administrative costs are strategies that could be undertaken to address liquidity issues should they arise. These strategies could impact the Company's ability to maximize recoveries from the settlement of unresolved Causes of Action.
Distributions
Distributions will be made at the sole discretion of the Liquidation Trustee in accordance with the provisions of the Plan and the Trust Agreement. As ofNovember 10, 2022 , the Liquidation Trustee has declared ten distributions to the Class A Interestholders. The distributions include a cash distribution on account of the then-allowed claims and a deposit is made into a restricted cash account for amounts that are or may become payable (a) in respect of Class A Interests that may be issued in the future upon the allowance of unresolved bankruptcy claims, (b) in respect of Class A Interests on account of recently allowed claims, (c) for holders of Class A Interests who failed to cash distribution checks mailed in respect of prior distributions, (d) for distributions that were withheld due to pending avoidance actions and (e) for holders of Class A Interests for which the Trust is waiting for further beneficiary information. As claims are resolved, additional Class A Interests may be issued or cancelled (see the Company's Annual Report on Form 10-K filed onSeptember 26, 2022 , "Part 1, Item 1. Business, D. Plan Provisions Regarding the Company, 2. Treatment under the Plan of holders of claims against and equity interests in the Debtors and 3. Assets and liabilities of the Company"). Therefore, the total amount of a distribution declared may change between the date declared and the date paid. The Liquidation Trustee will continue to assess the adequacy of funds held and expects to make additional cash distributions on account of Class A Interests, but does not currently know the timing or amount of any such distribution(s). Sections 7.6 and 7.18 of the Plan provide that distributions that have not been cashed within 180 calendar days of their issuance shall be null and void and the holder of the associated Liquidation Trust Interests "shall be deemed to have forfeited its rights to any reserved and future Distributions under the Plan," with such amounts to become "Available Cash" of the Trust for all purposes.
On
February 1, 2022 , the Trust sent letters to the holders of the Class A Interests who had failed to cash distribution checks in respect of prior distributions, which checks were issued more than 180 days prior to the date of the letter. The letter informed each recipient that, unless the Trust was contacted on or beforeFebruary 28, 2022 , such recipient's reserved and future distributions would be deemed forfeited in accordance with the Plan The Trust provided this final notice simply as a one-time courtesy and reserves its rights to strictly enforce the Plan's forfeiture provisions, and any other provision of the Plan, against any person (including any recipient of the final notice) at any time in the future, without further notice. 24
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PART I. FINANCIAL INFORMATION (CONTINUED) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) The following tables summarize the distributions declared, distributions paid and the activity in the restricted cash account for the periods fromFebruary 15, 2019 (inception) throughSeptember 30, 2022 and fromFebruary 15, 2019 (inception) throughNovember 10, 2022 : During the Period from During the Period fromFebruary 15, 2019 (inception) throughFebruary 15, 2019 (inception) throughSeptember 30, 2022 ($ in Millions) November
10, 2022 ($ in Millions)
$ per Restricted Restricted Date Class A Total Cash Total Cash Declared Interest Declared Paid Account Declared Paid Account Distributions Declared First 3/15/2019 $ 3.75$ 44.70 $ 42.32 $ 2.38$ 44.70 $ 42.32 $ 2.38 Second 1/2/2020 4.50 53.43 51.19 2.24 53.43 51.19 2.24 Third 3/31/2020 2.12 25.00 24.19 0.81 25.00 24.19 0.81 Fourth 7/13/2020 2.56 29.97 29.24 0.73 29.97 29.24 0.73 Fifth 10/19/2020 2.56 29.95 29.20 0.75 29.95 29.20 0.75 Sixth 1/7/2021 4.28 50.01 48.67 1.34 50.01 48.67 1.34 Seventh (a) 5/13/2021 2.58 30.02 29.33 0.69 30.02 29.33 0.69 Eighth 10/8/2021 3.44 40.02 39.14 0.88 40.02 39.14 0.88 Ninth 2/4/2021 3.44 39.98 39.15 0.83 39.98 39.15 0.83 Tenth 6/15/2022 5.63 65.02 64.19 0.83 65.02 64.19 0.83 Subtotal$ 34.86 $ 408.10 $ 396.62$ 11.48 $ 408.10 $ 396.62$ 11.48 Distributions Returned / (Reversed) Disallowed/cancelled (b) (6.27 ) (6.27 ) Returned (c) 0.74 0.74 Forfeited (d) (1.15 ) (1.15 ) Subtotal (6.68 ) (6.68 ) Distributions Paid from Reserve Account (e) (3.57 ) (3.58 ) Distributions Payable, Net as of 9/30/2022: $ 1.23 as of 11/10/2022: $ 1.22
(a) The seventh distribution included the cash the Trust received from Fair
Funds.
(b) As a result of claims being disallowed or Class A Interests cancelled.
(c) Distribution checks returned or not cashed.
(d) Distributions forfeited as Interestholders did not cash checks that were over
180 days old.
(e) Paid as claims are allowed or resolved.
Management believes that, since its inception, the Wind-Down Entity has made substantial progress toward completion of its liquidation activities and is nearing the end of the liquidation of its real estate portfolio. Holders of Liquidation Trust Interests are advised that future distributions from the Trust will be limited. Once the Company's remaining real property assets have been liquidated and the net proceeds resulting therefrom, net of reserves, have been distributed, further distribution(s) will be materially reliant on future recoveries from litigation, which are uncertain and the amount and timing of which are difficult to determine. 25
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PART I. FINANCIAL INFORMATION (CONTINUED) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Contractual Obligations As ofSeptember 30, 2022 , the Company has contractual commitments related to construction contracts totaling approximately$0.60 million . The Company has an office lease that expires inJanuary 2023 . The Company has one six-month option to extend the lease. The Company expects that it will continue to lease office space until the liquidation process is completed.
Critical Accounting Policies and Practices
The Company's consolidated financial statements are prepared in accordance withU.S. GAAP. The accounting policies and practices that the Company believes are the most critical are discussed below. These accounting policies and practices require management to make decisions on subjective and/or complex matters that may inherently be uncertain. Estimates are required to prepare the consolidated financial statements in conformity withU.S. GAAP. Significant estimates, judgments and assumptions are required in a number of areas, including, but not limited to, the sales price of real estate assets, selling costs, development costs, holding costs, potential warranty claims, and general and administrative costs to be incurred until the completion of the liquidation of the Company and estimated reserves for contingent liabilities. In many instances, changes in the accounting estimates are likely to occur from period to period. Actual results may differ from the estimates. The Company believes the current assumptions and other considerations used in preparing the consolidated financial statements are appropriate. However, if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in the Company's consolidated financial statements, the resulting changes could have a material adverse effect on the Company's net assets in liquidation.
Liquidation Basis of Accounting
Under the Liquidation Basis of Accounting, all assets are recorded at their estimated net realizable value or liquidation value, which represents the estimated amount of net cash that may be received upon the disposition of the assets (on an undiscounted basis). Liabilities are measured in accordance withU.S. GAAP that otherwise applies to those liabilities. The Company has not recorded any amount from the future settlement of unresolved Causes of Action orFair Fund recoveries in the accompanying consolidated financial statements because they cannot be reasonably estimated.
Valuation of Real Estate
The measurement of real estate assets held for sale is based on current contracts (if any), estimates and other indications of sales value, net of estimated selling costs. To determine the value of real estate assets held for sale, the Company considered the three traditional approaches to value (cost, income and sales comparison) commonly used by the real estate appraisal community. The applicability and relevancy of each valuation approach as applied may differ by asset. In most cases, the sales comparison approach was accorded the greatest weight. This approach compares a property to other properties with similar characteristics that have recently sold. To validate management's estimate, the Company also considers opinions from qualified real estate professionals and local real estate brokers and, in some cases, has obtained third party appraisals. Accrued Liquidation Costs The estimated costs associated with implementing and completing the Company's plan of liquidation are recorded as accrued liquidation costs. The Company has also recorded the estimated development costs to be incurred to prepare the assets for sale as well as the estimated holding, maintenance and repair costs to be incurred until the projected sale date and the estimated general and administrative costs to be incurred until the completion of the liquidation of the Company and estimated reserves for contingent liabilities.
Changes in Carrying Value
On a quarterly basis, the Company reviews the estimated net realizable values, liquidation costs and the estimated date of the completion of the liquidation of the Company and records any significant changes. The Company will also evaluate an asset when it is under contract for sale and the buyer's contingencies have been removed. During the period that this occurs, the carrying value of the asset and the estimated closing and other costs will be adjusted, if necessary. If the Company has a change in its plan for the disposition of an asset, the carrying value will be adjusted to reflect this change in the period that the change is approved. The change in value may also include a change to the accrued liquidation costs related to the asset. All changes in the estimated liquidation value of the Company's assets, real estate held for sale, or other assets and liabilities are reflected as a change to the Company's net assets in liquidation. 26
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