Before joining Burford, I was the Assistant GC at Time Warner. In the nearly 10 years since, in-house legal departments have undergone an evolution: What was once an overly siloed business function has become increasingly integrated and strategic, with responsibilities not only for risk management but also for value generation.
Given the need to pursue significant value for their businesses—often achieved through affirmative recovery programs—while managing risk and controlling costs, legal finance is fast becoming an ever-more critical tool for in-house leaders.
To illustrate the myriad benefits and applications of legal finance for in-house leaders, we’ve “done the math” on some hypothetical examples of the types of matters we routinely encounter and finance. These case studies demonstrate different use scenarios for our capital and the associated quantitative benefits. These examples by no means provide an exhaustive list of all of the ways in which Burford can help solve business challenges, but they help illustrate how legal finance works in the most basic scenarios and why it is a financial game-changer for the modern legal department.
Case study #1
Legal department adds certainty to its legal spend while demonstrating value
Peerless Inc. is a mid-sized publicly traded company that is facing significant margin pressure and has asked its corporate departments to manage costs accordingly. The company’s GC has identified a number of commercial litigation and arbitration matters which could result in aggregate proceeds over $200 million, but the CFO has pushed back: It’s unclear when the matters will resolve, and the GC’s counsel of choice are not willing to share risk or reduce their hourly fees beyond a token discount for good clients—creating undesirable uncertainty in Peerless’s litigation spend.
Burford provides $20 million of portfolio financing to offset Peerless’s legal fees across the pool of matters, enabling Peerless to pursue its recovery program without significant out-of-pocket spend. Under the terms of the agreement, Burford’s investment is returned on a first-dollar basis, plus a multiple of the invested amount. Because the investment is non-recourse, Peerless bears no risk of loss in an unsuccessful outcome. The portfolio financing arrangement allows Peerless to pursue its recovery program without adding significant cost or risk to the corporate balance sheet.
Over the following years, Peerless recovers $200 million across its pool of matters, remitting a portion to Burford according to the negotiated investment terms. By the end of the investment, Burford has earned $60 million—meaning that the portfolio has generated $140 million in proceeds to Peerless, with minimal downside risk and without adding materially to Peerless’s legal budget.
Case study #2
Financing affirmative and defense matters
The legal department at Apex Corporation has expanded rapidly to handle a growing slate of offensive and defensive litigation matters. Its increase has drawn the scrutiny of the CFO, who is anxious to keep expenses in check. Apex’s law firm of choice will consider a discount to fees with a corresponding uplift but will not take material contingency risk. The GC has now identified an additional slate of affirmative litigation to pursue, but despite the realistic expectation of significant recoveries, the company’s CFO lacks the risk tolerance to support the plan, preferring to allocate resources solely to defense matters, which are viewed as necessary expenses.
Burford diligences the portfolio and confirms a path to $100 million in recoveries—a number that dwarfs projected settlements from Apex’s defense matters. Burford offers a $15 million blended portfolio to cover the $5 million budget for defensive litigation costs and an additional $10 million of affirmative litigation costs, in exchange for its investment back plus a percentage return of the eventual recovery net of its investment. This return structure resembles the contingency arrangement with which Apex is familiar: Burford receives a defined entitlement from affirmative recoveries only, and Apex will owe nothing if the affirmative matters are unsuccessful.
With financing in hand, the GC secures the CFO’s approval to pursue the meritorious cases. Over the next several years, the portfolio generates $100 million of recoveries. Meanwhile, the defense matters financed through Burford settle for $20 million. When the investment concludes, Burford has earned $50 million. Ultimately, Apex nets $30 million in proceeds, transforming the legal department from a cost center to a revenue generator.
Case study #3
Helping a company assess and pursue claims
Innovation Inc. has identified numerous affirmative claims that it would like to pursue, and the company’s external law firms have done sufficient initial diligence to support bringing the claims, though all of the lawyers are on hourly fee arrangements and have not expressed a strong opinion that any of the claims will be successful. The combined cost of pursuing all the claims is significantly more than the legal department’s budget, and the GC is faced with the choice of which (if any) cases to pursue to maximize return on litigation cost. As an alternative, the GC approaches Burford for potential financing of all its claims.
Burford performs preliminary diligence on the claims and determines that one of the potential cases meets its investment criteria though it presents significant risk. Burford agrees to finance the $5 million legal budget for that case in exchange for its investment back, plus a multiple on the investment with Innovation responsible for expenses anticipated at $1 million. The arrangement is similar to the contingency fee arrangements with which Innovation is familiar. The capital is provided on a non-recourse basis, meaning that Innovation must repay Burford only if the underlying matter is successful. The availability of financing makes the GC’s decision clear: Pursue the financed case and abandon the rest, which an independent third party has declined to fund.
The case financed by Burford results in a $40 million settlement in just under two years, offering the company a speedy path to a $19 million recovery, after it returns Burford’s initial investment and pre-defined multiple.
Case study #4
A company in restructuring finds hidden value
Rocky Waters Rafting is undergoing voluntary Chapter 11 reorganization. It is also in the middle of a preexisting legal proceeding that likely will return $80 million in damages to the business—but that will take at least two years to resolve, as it is unlikely to settle before appeals. The company recognizes that litigation will be critical to its reorganization plan, but it has been unable to obtain debtor-in-possession (DIP) financing to fund the continued prosecution of the claim. The company’s attorneys are unwilling to go on contingency and switching attorneys at this late stage will be costly.
Burford agrees to monetize 25 percent of the claim, or $20 million, enabling Rocky Waters to immediately free up liquidity to satisfy its creditors and to pay legal expenses. The capital is provided on a non-recourse basis in exchange for its investment back and a pre-defined percentage of the recovery net of the return of investment. Given the dire need for liquidity, management presents Burford’s financing to the bankruptcy court as part of the reorganization plan, and the monetization is approved.
With financing from Burford, Rocky Waters gains immediate access to $20 million, some of which it uses to repay creditors as part of a court-approved reorganization plan. Its legal matter concludes in three years for $65 million. The company repays Burford its investment back plus a return, leaving a $15 million recovery for the once-imperiled company.