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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.
Commercial

Litigation Funding and Security for Costs

Security for costs is frequently asked for in international arbitration cases, but almost never granted. In fact, the common thinking is that security for costs should only be granted in certain rare and specific instances. Notably, one of the main things spurring requests for security for costs is litigation funding. Many defendants are more likely to ask for this when plaintiffs utilize third-party-funding. Burford Capital explains that granting security for costs carries specific risks that are best avoided. These include the possibility of reducing access to justice and the risk of making determinations on a case’s merit before adjudication can begin. Reimbursement rights depend on who wins the case, and who will be asked to cover legal costs. Those things cannot be known with certainty until the case is over. Further, mandating upfront security may disallow plaintiffs from filing their case at all. Ideally, there should be no financial barriers to the pursuit of justice. At least, courts can ensure that they aren’t a party to putting up financial barriers. In the case of Eugene Kazmin v Republic of Latvia, security for costs was granted upon request by the state. This happened because the claimant was under criminal investigation and their assets had been seized. Accusations of tax evasion and money-laundering factored in as well. The court determined that the claimant’s behavior reasonably predicted the potential for non-compliance. A key point here is that the claimant did demonstrate that he had the means to cover costs—but past deeds suggested a propensity to leave financial obligations unfulfilled. Courts seem to have decided that the use of third-party litigation funding is not reason enough to grant an order of security for costs. But there may always be exceptions. If you have concerns about such requests, discussing them with an experienced funder is a good place to start.
Commercial

Reducing Risk and Uncertainty with Legal Finance

Economic uncertainty is plaguing industries around the globe. Between the COVID pandemic, bizarre political circumstances, and ongoing international market turbulence—unpredictability is everywhere. Investors are seeking new investment types that are uncorrelated with the rest of the marketplace. For some, third-party legal funding meets all the requirements. Omni Bridgeway explains that Litigation Finance can be a key factor in reducing risk, pursuing expensive litigation, or keeping balance sheets in line. How? There are three main ways: --Enforcement. Monetizing judgments that have not yet been collected can be an excellent way to utilize litigation funding. When a case is successful, but funds haven’t been fully recovered, some firms merely accept it as a loss. Pursuing the funds might require asset tracing, seizure across international lines, or could involve complications like state-owned companies or multinationals. Even defendants with large bank accounts may prove themselves immune to collections. But a litigation funder can pursue collection of awards in exchange for a share.  --Portfolio funding. Often times, third-party litigation involves one large case, such as a class action or a case against a huge company or government. But portfolio funding—providing funds for an array of smaller cases—is gaining in popularity. This funding style diversifies risk while allowing for partial contingency funding. This increases access to justice for plaintiffs while keeping the risk for investors low. Portfolio funding is a boon to investors, and also to law firms. --Monetizing claims. We know that many companies choose not to pursue litigation even when its merits are obvious. It can simply cost too much and take too long. But what if firms could finance litigation without adding pressure to balance sheets or risking the expense? That’s what litigation funding accomplishes. It can allow firms to free up assets, adding liquidity when it’s needed, all for the promise of a share of future recovery.
Commercial

Chairman’s Address Explains Details of LCM-Funded Claim

In its most recent general meeting, Bronwyn Brown’s chairman’s address laid out the most noteworthy actions and accomplishments of the year. The talk was attended by non-executive directors, the company secretary, several auditors, and of course, the Executive Chair. Market Screener details the contents of the address, which begins with an explanation of a case involving the Tanzanian government and arrangements for the Ntaka Nickel Project. This action centered around the lapse of retention rights caused by unexpected changes in legislation and exacerbated by the pandemic. Compensation of nearly $100 million is being sought over what’s being called the illegal expropriation of the Ntaka Hill Nickel Project. In January of this year, a six-month time frame was initiated in which the involved parties could reach an amicable agreement. However, the Tanzanian government declined to participate. This led to an international arbitration firm taking on the case. Lalive is an experienced investment firm now taking over the case against the Tanzanian government. Legal funds are being covered to the tune of over $4.5 million by noted funders Litigation Capital Management. The non-recourse funding arrangement with LCM is expected to cover all legal costs associated with taking the case to completion. Much like the projects in question, the case is experiencing disruption and delay due to COVID. Also mentioned in the address were plans to acquire two Patron Resources subsidiaries. These are expected to further gold mining interests in Australia. While global deals are especially challenging now, Brown expresses confidence in these future exploration opportunities. Drilling is also expected to commence in South Australia before the end of the year--even as Indiana Resources Limited continues to pursue compensation for damages relating to the Tanzanian mine deal collapse. Brown concluded by thanking the board and the company shareholders. Directors at IRL have deferred fees this year, though the firm is still confident in its current slate of projects.