Rising interest rates are having a significant effect on the litigation finance market. In prior years, when interest rates were near zero, family offices and hedge funds struggled to find investments that could provide high yields. The result, litigation finance became an attractive option. These investments were uncorrelated with the market and could produce returns that were far above the other options available. Now that US Treasury bonds are now providing over 5% interest at zero risk, the same family offices and hedge funds are allocating less of their capital to litigation finance investments.
What does this mean for you as the attorney seeking funding? Since the litigation finance providers have less capital to deploy and even more attorneys are seeking funding, the Funders can, and have, become very selective in the cases they choose to fund. While at a recent litigation funding conference, I heard an underwriter at a funding company say that he had 3 cases on his desk that he would be happy to fund. However, due to lack of capital, he was told by the investment committee to pick one of the three. This is anecdotal, but as a broker working on several deals, can say that this is not an isolated example.
So how can you help yourself get approved for funding in this tightening market. Here are some tips.
1)Merits, Damages, Collectability - You need to be able to address all three of these points with funders. Make sure you have your supporting documentation in advance of speaking with a funder. At the very least you need the complaint and all the pleadings of dispositive motions, both sides’ papers. If you have an expert report on damages, that is ideal, but it is not necessary. What is necessary, is your own theory and calculations on damages. You need something more than, “I think this case is worth $20m.” Lastly, be prepared to answer questions about the financial health of the defendant and their ability to pay.
2) Legal Budget - You need to have a legal budget that will show a funder how you are going to wisely use their capital. The more detailed the better. The best budgets break down the spend based on the stage of the case. For example, it is going to cost $x to get past the motion to dismiss, the discovery phase will cost $x, and trial will be $x.
3) Hone your Pitch - Make sure that you are well prepared when you get your chance to pitch your case to funders. You only get one chance to make a first impression. Know your facts and legal arguments cold. It is also good to acknowledge the weak points of the case and address them directly.
4) Confirm Capital - Make sure the litigation finance company you are speaking with has cash on hand to deploy. While this may seem silly, many funders are currently low on funds and may have to raise capital to provide you with funding. Confirm that they have cash on their balance sheet ready to go.
Bottom line, Funders are becoming increasingly selective. If you do all the items mentioned, you will stand out from the crowd and give yourself a much better chance of getting to "Yes".
