Trends in legal finance: Finance on a portfolio basis

In January, we shared five ways law firms and business can leverage legal finance in 2017. In our “Trends in legal finance” series, we’ll elaborate on how each of these strategies.

Among the fastest-growing areas of legal finance is portfolio-based financing, which provides flexibility and attractive terms for firms and corporate legal teams to reduce risk and cost across a range of matters. Portfolio financing is often (but not always) a natural progression for lawyers or companies who have successfully financed single case matters.

Portfolio finance defined

Portfolio finance uses a group of cases as collateral to provide capital to fund matters in the portfolio or operating capital for the firm or company. Portfolios can be built around an identified pool of matters or on a going-forward basis, with several different structures designed to meet the capital needs and risk tolerance of the client. In Burford’s experience, portfolio financing offers several benefits:

• Flexibility
  Capital can be used to finance portfolio matters or for broader business purposes.
• Pricing
  Because risk is diversified, the cost of capital is typically lower than for a single-case litigation finance investment.
• Versatility
  Portfolios can encompass plaintiff and defense matters and existing and/or future matters and matters at any stage of the litigation process.
• Risk management
  Financing across a portfolio of matters allows the firm or company to proactively manage its litigation risk.

Law firm portfolio finance

For law firms, portfolio financing offers greater flexibility than single-case litigation funding. When a law firm secures financing on a portfolio of matters, the capital can be used flexibly among the matters in the portfolio to pay fees and expenses as they are incurred by the firm, or in certain structures, used to fund broader firm operations. This is tremendously valuable when the emerging needs of important matters change unexpectedly.

Burford finances portfolios based on existing cases, future cases or a mix of both. For future cases, or “going forward portfolios,” Burford commits capital at closing to be put toward new matters as the firm vets them and chooses to take them on full or partial contingency. Terms are negotiated in advance along with criteria for the types of cases the firm will consider for the portfolio. Then, when pitching for a big litigation, the firm knows it has a funder in place to share risk and on what terms, and is able to offer clients a complete solution for financing fees and/or expenses without a separate, time-consuming negotiation between a funder and client. Having portfolio financing in place gives the firm a huge competitive advantage in obtaining new business – and enables lawyers to focus on what they do best—litigate strong cases.

Case study: $50 million for law firm expansion

A leading law firm wanted to expand its litigation practice, offer more aggressive alternative fees to clients and receive the additional upside for taking risk, but could not take additional alternative fee risk onto its balance sheet.

Burford worked with the firm’s head of global disputes to create a $50 million going-forward portfolio of potential matters that would each be placed into the portfolio as new case opportunities arose. The assurance of having financing available for future matters gave the firm a competitive advantage over other top firms offering alternative fee options and ensured the firm would not have to turn down a strong case or new client simply because the firm could not absorb additional risk. As a result of this flexible portfolio arrangement, the firm was able to expand its practice and increase its opportunity to earn highly profitable success fees, while limiting its exposure to a loss of its time and out-of-pocket cash investment.

Company portfolio finance

Businesses involved in a significant number of litigation matters can use portfolio financing to pay for all or partial fees and expenses, for expenses only, or to monetize litigation value. Financing its legal costs across a portfolio of matters also enables the company to control the negative impact litigation has on operating profits.

Case study: $45 million portfolio for FTSE 20 company

A FTSE 20 company had been paying for the significant legal fees and expenses associated with litigation out of its own revenues, thus reducing operating profits.

In a groundbreaking deal, Burford provided $45 million in financing to the company backed by a portfolio of pending litigation matters. The arrangement with Burford transformed how the company managed litigation costs, enabling it to use the capital either to relieve legal expense budget pressure or for operations unrelated to litigation matters. Because the capital is provided on a non-recourse basis, the company has more flexibility in how it can book the capital and removing litigation costs from operating expenses immediately boosted profitability. Simultaneously, the company removed or limited the risk that it would not obtain a return on investment for the investment of fees and expenses in the litigations.

For more information about how Burford finances portfolios of litigation, contact us at [email protected].