Burford Managing Directors Emily Slater and Greg McPolin hosted a session at ABI’s Insolvency 2020 Virtual Summit on the legal finance deal process. The session demystified the diligence process, term sheet negotiation and transaction documentation using two legal finance case studies.
Following are webcast highlights, which you can stream below.
Legal finance products
Legal finance provides capital in exchange for a return tied to the outcome of an outstanding litigation or arbitration claim. There are two main financing structures:
- Fees & expenses: Financing of the fees and expenses associated with high-stakes commercial claims, which offloads their risk and cost and creates certainty around budgets and outcomes.
- Claim & award monetization: Advancing the value of pending claims and awards in order to accelerate the timing and flow of capital, lock in a guaranteed minimum outcome and remove downside risk.
Capital is usually provided on a non-recourse basis, with the financier assuming downside risk and earning back its investment and a return only in the event of the successful resolution of the disputes. In the insolvency context, legal finance allows stakeholders to pursue claims that may otherwise have to be abandoned or settled for below value—maximizing recoveries for debtors and creditors. Capital be used either to fund the litigation or for more general business purposes.
Unsecured creditors sought an avoidance action against secured lenders for a $1.5 billion loan that had been released prior to bankruptcy. This claim was conveyed to a litigation trust as part of the General Motors bankruptcy plan. Despite having a $15 million interest-free loan from the government to pursue litigation, this initial pool of money was nearly exhausted when they sought an additional $15 million in legal finance for fees and expenses to continue the litigation through the expensive valuation litigation and mediation process.
Burford provided $15 million in non-recourse capital to the litigation trust to finance legal fees, expert expenses and administrative expenses so that it could continue its fight in the avoidance action. The litigation trust documents explicitly allowed for legal finance, and an independent trust monitor oversaw the process to ensure competitive terms for the litigation trust.
Burford’s financing helped demonstrate that the trust was well-resourced for significant litigation and provided the necessary capital to pursue litigation over the value of thousands of assets. The trust secured a $231 million settlement after nearly 10 years of litigation.
Fortune 100 monetization
A Fortune 100 company with an opt-out antitrust claim of director purchaser price fixing approached Burford for an up-front monetization of over $50 million. The antitrust class action against the producers was already past motion to dismiss with a strong decision from the district court, but the company opted out of the class action to pursue direct claims against the defendants with its own counsel. The potential damages were huge, with billions of product purchases subject to the alleged conspiracy.
By providing $75 million in non-recourse capital to the client that could be used for general business purposes, Burford delivered an accelerated and guaranteed financial result ahead of the resolution of the case. Burford’s monetization was a complement to the client’s contingency arrangement with outside counsel in that the law firm covered litigation cost, while Burford’s financing delivered a timely and substantial cash infusion based on an anticipated value of the claim. Collectively this provided a solution for the client that simultaneously offloaded the cost of pursuing the high-value claim and generated significant capital for the company with no downside risk. Capital was provided on a non-recourse basis, offloading duration and outcome risk from the client to Burford.
Flexible deal terms reflected the client’s business priorities and Burford’s alignment with the client’s success in the litigation.
Watch the webcast on demand below: