Life insurance and structured settlements provider Imperial Holdings, Inc. (NYSE:IFT) has had an interesting couple of years. After a dramatic FBI raid tied to questionable practices at its now-shuttered cash-advance division, the company’s stock price took a sharp, lasting hit. At the time, some market-watchers speculated that the potentially illegal activities of some Imperial Holdings, Inc. (NYSE:IFT) staffers would bring the entire company down. Fortunately, an FBI investigation eventually determined that the malfeasance was limited to a few culpable employees in a single division.
Partly as a result of steep losses associated with this situation, Imperial Holdings, Inc. (NYSE:IFT) also suffered from liquidity problems. With its pickup of a $300 million revolving credit facility with a term of 15 years, the company appears to have put this issue to bed as well. Meanwhile, changes to Imperial’s board have brought a fresh perspective to its decision-making team. All told, these moves have boosted the company’s stock price by 50 percent in a short period of time. Investors who believe that Imperial has more room to run would do well to take a closer look.
FBI Raid Aftermath and Settlement
The first bit of positive news for Imperial Holdings, Inc. (NYSE:IFT) concerns a recent $8 million payment that it made to settle fraud charges related to the 2011 FBI raid. This settlement absolves the company from further criminal liability on the matter and neutralizes a major point of uncertainty that had been dragging down its stock price.
Revolving Credit Facility
Imperial Holdings, Inc. (NYSE:IFT)’s decision to obtain a $300 million credit facility could be just as important. According to reports, the company is planning to use much of the facility to remain current on premium payments for about 460 life insurance policies on its books. This could have a dramatically positive effect on its balance sheet and goose its financial results for years to come. Indeed, many proponents and market-watchers have thought that the credit facility could single-handedly turn around the company’s formerly declining fortunes.
In the third quarter of 2012, Imperial’s board fended off an activist shareholder’s challenge by acquiescing to some of the demands that the shareholder had made. Chief among these was a decision to replace two of its board members and create three new “shareholder advocate” positions on the body. Although this move preceded the recent share-price run-up and did not act as a catalyst for a major surge in the company’s stock price, it has been credited with restoring long-term investors’ faith in its decision-making processes.
Imperial Holdings, Inc. (NYSE:IFT) is a relatively small life insurance company that operates in a specific industry niche. It competes with a few other public and private firms in this niche as well as with major insurance companies that offer full-service life insurance and settlement policies. For the purposes of this analysis, it would be useful to compare Imperial against the similarly structured Life Partners Holdings, Inc. (NASDAQ:LPHI) and the larger, broadly oriented Unum Group (NYSE:UNM).
In the wake of its recent run-up, Imperial Holdings boasts a market capitalization figure of nearly $150 million. This compares to just $65 million for Life Partners Holdings, Inc. (NASDAQ:LPHI) and about $7.5 billion for Unum Group (NYSE:UNM). In 2012, Imperial offered an underwhelming return on equity of minus 28 percent and a return on assets of minus 20 percent. This compares unfavorably to Life Partners Holdings, Inc. (NASDAQ:LPHI)’s minus 6.5 percent return on equity figure as well as its minus 9.3 percent return on assets figure. Unum Group (NYSE:UNM) provided respective returns of 10.7 percent and 1.4 percent.