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Commercial

Frydenberg Wins Fight to Maintain Litigation Funding Restrictions

Treasurer Josh Frydenberg is known for his zeal in regulating the litigation funding industry in Australia. He was instrumental in instituting new restrictions and mandates for those who engage in the practice, and for funders themselves—including a requirement that funders register as Managed Investment Schemes while holding AFSL’s. Financial Review explains that One Nation leader Senator Pauline Hanson plans to introduce new amendments in 2021. One expected change is that specific new rules should be negated provided that funders agree to give at least 70% of damages to plaintiffs. This led Shadow AG Mark Dreyfus to assert that Senator Hanson is in league with the government’s attempt to deny access to justice to Australians. The changes instituted by Frydenberg were ostensibly put into place so that funders would have similar accountability as banks. But admittedly, the government also wants to stop the rise in liability insurance rates and reduce the size and frequency of class action verdicts.
Commercial

Litigation Finance for Cases on Remand

We all know that civil litigation takes time. Some cases can take hundreds of thousands of dollars and years to reach completion. The average time for a civil case is on a steady rise, and COVID-related delays impact that even more. Omni Bridgeway details that they are typically approached about funding cases early in the process. But what happens when a case is remanded or goes dramatically over the allotted funds or time frame? That can stop even the most meritorious cases in their tracks. That’s when litigation funding can come to the rescue. When a dispute is remanded to a lower court, it’s an opportunity to employ litigation funding. Funders benefit from existing rulings, and the clarity added during the beginning of the legal process can only serve to benefit funders and clients. Sometimes a case that’s further along is more attractive to funders than a case that’s just getting off the ground. While many clients and even lawyers only consider funding from the outset of a case—there are steps along the way that could benefit from an influx of funding. When the merits are strong but the cash flow isn’t, litigation funding can make all the difference in who sees access to justice and who doesn’t.
Commercial

Oligarch Accused of Hiding Assets Following Divorce Settlement

Complaining that she has only received $7 million and an ill-kept helicopter, divorcee Tatiana Akhmedova was due to face her son Temur in court in an effort to gain the rest of her $600 million divorce settlement. This time, the asset in question is a $40 million London apartment. The Daily Beast explains that Akhmedova is accusing her son of helping his father hide assets after the divorce settlement. He in turn claims that the apartment was a birthday gift and that such gifts are not out of the ordinary in his family. Akhmedova’s legal team, funded by Burford Capital, was recently granted leave to search Akhmedov’s apartment for evidence of hidden assets. Temur Akhmedov claims he doesn’t want to “sound spoiled,” but is adamant that there’s nothing unusual about the expensive apartment or large cash transfers to him. He later complained about a court order restricting his weekly spending at around $4,000. Temur Akhmedov speaks well of his mother generally. But here, he has stated that she is bitter due to him taking his father’s side in the divorce. The elder Akhmedov claimed that he and his wife divorced in Russia more than two decades ago. His ex-wife claims that they reconciled, and a new divorce was filed later in London, leading to the record-setting settlement. Previous asset freezes are in place, including a super yacht. If the recovery is successful, Burford Capital will receive a portion of the recovery per their funding agreement with Ms. Akhmedova.
Announcements Commercial

KBRA Assigns Preliminary Rating to PEAR 2020-1

Kroll Bond Rating Agency (KBRA) assigns a preliminary rating to one class of notes from PEAR 2020-1, LLC, an $80 million litigation finance ABS transaction serviced by Golden Pear Funding OpCo, LLC (“Golden Pear”). The PEAR 2020-1, LLC transaction represents Golden Pear’s first ABS collateralized by litigation finance receivables. Golden Pear is a litigation finance company that conducts business throughout the US but is concentrated primarily in the New York area. As of June 30, 2020, the company has funded over $626 million in aggregate advances dating back to 2008. The portfolio securing the transaction has an aggregate discounted receivable balance (“ADPB”), including assumed prefunding, of approximately $108 million as of the October 30, 2020 cutoff date. The ADPB is the aggregate discounted cash flows of the collections associated with the PEAR 2020-1, LLC portfolio’s litigation funding receivables. The discount rate used to calculate the ADPB is a percentage equal to the sum of the assumed interest rate on the notes, the servicing fee rate of 1.00%, and an additional 0.10%. As of the cutoff date, the receivables comprise pre-settlement litigation funding receivables with an average advance to expected settlement case value of approximately 13%. No post-settlement advances or medical lien receivables are included in the pool. The notes benefit from credit enhancement in the form of overcollateralization, a cash reserve account and a capitalized interest account. The transaction also features a $15 million prefunding account that may be used to purchase additional receivables during the three months after closing, subject to certain eligibility criteria. Click here to view the report. To access ratings and relevant documents, click here. Disclosures Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above. A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the U.S. Information Disclosure Form located here. Information on the meaning of each rating category can be located here. Further disclosures relating to this rating action are available in the U.S. Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com. About KBRA KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe is registered with ESMA as a CRA.
Commercial

Vocation Class Action Reaches Settlement of $50MM

Shareholders of Vocation Limited, a now-defunct training company, have settled a class action for a reported $50 million. Vocation had been listed on the ASX as of November 2013, and enjoyed a reputation as Australia’s premier provider of education and vocational training services. Slater and Gordon facilitated the settlement, funded by Omni Bridgeway. Mirage News explains that within a year after the ASX listing, Vocation LTD was required to return nearly $20 million in government funding. This came after a review of its services. Not long after, the company began voluntary liquidation. Allegations against Vocation included making misleading statements in IPO documents, and more deceptive statements after the listing was live. The $50 million settlement is subject to court approval.
Commercial

Funders Ponder Hedge Fund Claim vs Rio Tinto

Mining company Rio Tinto finds itself under threat of legal action from a US hedge fund. Pentwater Capital Management is threatening an oppression order to gain an extension of debt in order to expand the Oyu Tolgoi mine project into the Gobi desert. The expansion is controversial, in that it requires the destruction of a sacred Aboriginal site. Financial Times details that the minority owners, Pentwater, feel they’re being treated as pawns, not partners. This provides an option for litigation funders to fund the claim by Pentwater, or even Rio Tinto’s defense, should the struggling corporate require support. After all, the mine itself is expected to produce billions in gold and copper for decades to come; this could provide funders with the possibility of remuneration for defense-side funding--through a percentage of future mining profits.  It’s been suggested that Rio Tinto would do well to refinance the entire Oyu Tolgoi project—their largest and most potentially profitable project. This expansion is currently over a year behind schedule and a billion dollars over budget. Oyu Tolgoi LLC is funding an independent review at the behest of the Mongolian government—which owns a minority share in the project as well.  Rio Tinto stated they wouldn’t allow TRQ (Turquoise Hill Resources) to take on more than half a billion dollars more in debt, suggesting that they raise equity themselves. Meanwhile, Rio Tinto is seeking a new chief executive.
Commercial

Lowering the Cost of Legal Finance through Portfolio Funding

When looking for help via legal finance, it makes sense to want the best deal possible. With that in mind, portfolio funding might be worth a look. Single-case funding represents the highest risk for funders—because the non-recourse nature of litigation funding means there’s no remuneration for funders unless the case is successful. Burford Capital points out that portfolio funding allows risk to be diversified. This presents a more attractive level of risk for funders while allowing for flexible funding allocation. This lowers risk and lowers the need for any single case to provide an award. Law firms also benefit from a portfolio funding model. Portfolio cases collectively cost less than funding for individual cases, while having the added benefit of being adjustable if new cases fitting the original agreement parameters are found. Pricing for legal funding depends largely on risk—so reducing risks leads to better prices for everyone.
Commercial

Analysts are Bullish on LCM

Litigation Capital Management, a prominent face in litigation funding, makes a profit on nearly 90% of the cases in which it invests. This gives the funder an IRR of 78%. LCM largely operates in the UK and Australia, funding cases in exchange for a share of awards. Over the last decade, LCM boasts an ROIC of 134%. Proactive Investors explains that the success of LCM may be credited to the following factors:
  • Decades of industry experience dating back to 1998
  • A well-funded capital base that allows for growth and investment
  • Due diligence in vetting and case selection
  • Well-managed control of risks
Along with many litigation funders, LCM believes that eschewing the larger market in favor of alternative assets is essential during times of financial uncertainty. Asset management, including monetizing litigation and past awards, is an essential focus at LCM. This is demonstrated largely through an emphasis on portfolio investments. Still, the investment cycle for funding litigation is long—with 25 months being typical from investment to payout. That’s one reason due diligence in case selection is so important. LCM considers many factors when assessing a potential case for funding, and the size of the investment compared to the award is paramount, as there must be a clear legal principle at play—not a vague one or one that tests a previous ruling. There should be clear evidence, written if possible. The lawyers in question must be experienced and capable—which is generally more feasible when funding is not an issue for plaintiffs. Recoverability is the final factor; whether or not a defendant will be able to pay an award. In general, analysts consider LCM a strong investment based on past performance and future goals. The pipeline of new case referrals and funding requests indicate a vibrant business strategy and an enviable reputation within the industry.
Commercial

Are Class Actions Pushing Businesses into Insolvency?

 The phrase “new normal” can be unsettling, especially when it foretells an unwelcome change. Will rampant class actions lead to a glut of insolvency cases levied by shareholders? Some are predicting that as many as 50 new claims each year could be the new normal. Financial Review details that between 2019-2020, at least 35 class-action cases were settled, which is more than $1 billion in settlement funds. Does this indicate that class action numbers have leveled off? Or will they continue to rise as the pandemic continues impacting consumer spending? This year has seen 28 class actions filed in the time period between July 1st-October 31, 2020. These included financial products, securities, consumer claims, claims against governments, and a few employment claims as well. Some have speculated that new restrictions and requirements impacting litigation funders would lead to fewer class action filings. So far, this has not come to pass. An impending ruling on competing class actions is expected early next year. That may also impact class action filings since courts have long held that all class actions are harmed by multiple class actions for the same offense. This is being meted out in a trio of cases filed against RCR Tomlinson—with Burford Capital and Omni Bridgeway not backing down.