Life Partners Holdings Inc., which may be the subject of a civil action by the Securities and Exchange Commission, said it posted a roughly 60% drop in fourth-quarter revenue and said it would delay filing its 10K annual report while management assesses the value of a key asset.

For the full fiscal year ended Feb. 28, Life Partners provided a preliminary estimate that its net income dropped 22%, to $22.9 million, before a potential impairment charge. It estimated revenue for the full year fell 17% to $93.6 million.

Based in Waco, Texas, Life Partners arranges to buy life-insurance policies from people who no longer need them, then sells fractional shares in those policies to its thousands of retail clients. The clients continue to pay the premiums, then collect when the insured person dies.

Life Partners has been battered by controversy over whether it has provided inaccurately short estimates for how long the insured people are likely to live, a key part of the investment equation. The longer the insured people live, the more the investors have to pay in additional annual premiums. The life-expectancy estimates were the focus of a page-one article in The Wall Street Journal in December.

Last week, the company said it had received a so-called Wells notice from the SEC, which indicated the staff planned to file civil charges against it and two top executives related to the life-expectancy estimates. Such a notice gives potential targets a chance to dissuade SEC from filing the charges.

From the preliminary figures put out by Life Partners, its business has suffered from the controversy, which came to light in the midst of its fiscal fourth quarter. The company's revenue dropped an estimated 60% in the fiscal fourth quarter from the prior year, to $10.3 million, while net income was about breakeven, versus $5.9 million in the final quarter of the prior fiscal year.

The company said it has delayed filing its annual report while management reassesses the value of life policies it holds for its own portfolio. The company estimates it will incur an impairment charge of about $8 million, which would slice almost in half the value of life policies currently carried on its books at $16.6 million. Some of the impairment charge may apply to prior quarters, the company said.

Such a large impairment charge suggests that policies owned by some of the company's clients also may be worth less than they originally paid. In total, Life Partners has said it has sold thousands of clients investments in life policies, also known as life settlements, with a face value of $2.8 billion.

In a regulatory filing Monday, the company said its business had been hurt by "a large market drop in the estimated volume for life settlements generally," the impact of news articles about its business as well as its disclosure of the SEC investigation.

A Life Partners representative said the company had no immediate additional comment. 

( Source: WSJ )