If you’re a fan of awful but memorable commercials, life is looking pretty good right now. That’s because the filing is in for a J.G. Wentworth IPO, which will bring public the buyer of settlements, annuities and lottery payments.
J.G. Wentworth is not a lender; rather, the company uses its own capital to purchase the cash-flow rights to investment contracts. To do this, the company spends heavy amounts on direct marketing, especially commercials.
For the most part, J.G. Wentworth focuses on financial contracts from high-quality counterparties. How high-quality? About 90% of them have ratings of “A3” or better from Moody’s, according to the filing, and as a result, JGW has a fairly low default risk.
A key part of the business is to create a detailed database of current and potential customers, with which it can better target its marketing efforts. According to J.G. Wentworth, the average customer completes two separate transactions.
All in all, the name behind “It’s my money, and I want it now!” and singing vikings has built a powerful business. From 2011 to 2012, revenues jumped from $253.3 million to $467.4 million, while net income swung from a loss of $3.3 million to a profit of $119.5 million.
Despite all this, J.G. Wentworth still has its risks.
The main concern is the business model, which relies on securitization. The company sells its cash-flow interests as securities on Wall Street, which allows it to raise more money to buy settlements, annuities and lotto winnings from consumers. However, back in 2009, J.G. Wentworth went bust as the securitization market imploded.
Another financial crisis might be a long shot, but it’s still a possibility worth considering. If anything, the recent budget fight — which could result in a default of government debt — could in turn lead to another disaster for the securitization market.
Sure, most stocks would suffer from another economic punch, but J.G. Wentworth is among several companies whose sheer existence would be called into question.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.