Beyond Hourly Podcast

Read the transcript below:

The following episode of Beyond Hourly was recorded before the merger of IMF Bentham and Omni Bridgeway

Jim Batson:
Hello and thank you for tuning into the Beyond Hourly Podcast, hosted by Bentham IMF (now known as Omni Bridgeway). As one of the world's most experienced commercial litigation funders, Bentham IMF has invested nearly two decades into providing litigation finance and investment capital to plaintiffs and law firms. We offer law firms and their clients, a risk sharing partnership and a proven record of success as a leading global litigation funder. Episodes of this podcast could be found on our website, www.benthamimf.com (now at www.omnibridgeway.com).

     I'm your host today, Jim Batson. I'm the head of Bentham's New York office, where I've been an investment manager and legal counsel since joining the company in 2014. Before joining Bentham, I spent 20 years as a trial lawyer. My role at Bentham involves assessing investment opportunities and serving as a strategic resource for the parties we fund throughout the funding relationship.

     Our guest today is Ken Epstein, also an investment manager and legal counsel at Bentham IMF, and responsible for leading the company's investments in bankruptcy and insolvency related matters. Ken has extensive experience advising and managing debtors in possession, individual creditors, and credit groups (ad hoc and OCUCs), and financial institutions in insolvency and bankruptcy related litigation matters nationally and internationally. Ken, welcome to the Beyond Hourly Podcast. Thank you for joining us today.

Ken Epstein:
Thank you for having me.

Jim Batson:
Ken, what did you do before you joined Bentham?

Ken Epstein:
Prior to joining Bentham, I did several things. I was a lawyer at Cadwalader in their construction group for a number of years representing debtors and ad hoc creditor committees, and official committees of creditors in connection with corporate structurings. I did that for about four to five years. Then I moved to become an analyst, so I went to the business side and worked on ratings at Standard & Poor's, both on the structure finance side and also on the corporate recovery side. Then after, about three years of doing that, I reconnected with someone from my old law firm, who was then at a company called MBIA, which is a public financial institution underwriting risk of bonds. I was a workout officer at that company for about eight years. I've been in and around the bankruptcy space for most of my career.

Jim Batson:
It's certainly a well-rounded career in the bankruptcy world. You've seen it from every perspective, I think.

Ken Epstein:
Yes. It's been fun, especially with my background having a view of the economy and some of the workouts during the financial crisis, and the recession, and that type of stuff.

Jim Batson:
Sure. Ken, how did you become aware of litigation financing? What made you decide to join the industry?

Ken Epstein:
I was approached by a recruiter several years ago who was looking to fill a position at a competitor of Bentham's. In particular, somebody who had experience, like mine, with insolvency related matters. It seemed like a really fascinating area to me and it gave me an opportunity to think about it a little bit. At the time, I was employed and wasn't interested in making a change, but it always stuck with me as being a really cool area, and one with a lot of possibility.

Jim Batson:
Cool. Then how much later in time was it before you decided to make the leap into the industry? Was it another recruiter reaching out to you, again, to join Bentham?

Ken Epstein:
It was another recruiter. It was several years later that I learned about the opportunity at Bentham. I heard about it and immediately responded with interest, and a very short description of how I thought litigation funding could be used in the insolvency context. Some of those thoughts have formed a basis of our approach here in the last several years in trying to increase the awareness of and use of litigation funding in insolvency.

Jim Batson:
Since assuming the role of investment manager, what's been the most surprising aspect of your job?

Ken Epstein:
I've been in this role for a little under two years, and just in that short amount of time, I'm amazed at how rapidly this industry has changed and is evolving. The types of matters we're looking at, the interest from investors in the space, the use of the product by different types of claimants, corporations and the like. It's been really cool to be part of a new nascent industry that's growing and that's on something that's relevant and people are still trying to figure out.

Jim Batson:
Yes. The evolution of the industry, from my perspective, has just been stunning. I've been doing this for almost five years, and when I think back, like you said, two years ago I mean, the awareness and the different approaches to it, and the different types of deals that are struck, it really is amazing.

Ken Epstein:
I can imagine it probably doesn't resemble what it looked four years ago, since it barely resembles what it looked like two years ago.

Jim Batson:
Indeed, definitely. In the same vein, since you became an investment manager, what about your role is pretty much the way you expected it to be?

Ken Epstein:
There's a great deal of receptivity and interest in funding, especially amongst our generation, and the generation of junior partners. Then there is also resistance in the community among certain folks that are slow to change to adopt different methods doing business. I knew that was going to be a challenge and it has proven to be.

Jim Batson:
I bet. Over two years, though, you've probably found, I know I've noticed this, that the audiences to whom we're speaking—whether it's one-on-one, or a seminar, or something—have a better understanding of what it is we're talking about just by the nature of their questions, than was the case two years ago, or even more. Have you seen that in your area?

Ken Epstein:
I have. There's definitely increasing awareness and knowledge of litigation funding. I'm also still surprised that I go to conferences and speak to people and they've heard of litigation funding, but really have no understanding of how it works. They think that they do, but there are misconceptions that still permeate in the way that I almost would have thought we'd have been beyond that, at this point.

Jim Batson:
You, clearly, have an extensive background in bankruptcy law. What about bankruptcy, itself, makes you think it's well-suited for litigation finance?

Ken Epstein:
I believed this when I joined, and I believe it now. Bankruptcy and insolvency litigation is a great fit for litigation funding. You have parties that have, almost by definition, limited capital to pursue claims. You have claims that are often very valuable to bring. Bankruptcy, by definition, is a litigious process. When you file a bankruptcy petition, you go to the bankruptcy court to do it. From day one, the debtor is under the supervision of a federal court, and everything is resolved, or many things are resolved, with reference to the bankruptcy code and the powers that the bankruptcy court has. It's just a great fit for the introduction of an additional source of capital into that situation.

     Then the second part of that is, bankruptcy lawyers are, by necessity, very creative and come up with different ways to achieve the objectives and support the objectives of the clients. Having another source of capital introduced into that equation just expands the ability to accomplish their objectives and represent their clients, whether we're talking trustees, bankruptcy trustees, or receivers, or people representing assigners, or the debtors, themselves, there's a lot more you can do with this extra tool.

Jim Batson: 
What are some of the challenges of litigation finance arrangements that may be unique to bankruptcy?

Ken Epstein: 
Yes, it's a good question. Part of it is, it moves very fast. The process is unlike litigation outside of the bankruptcy context, and the federal court, even, and some state courts, where it can take years, and there's a real strict adherence to the rules of civil procedure. Bankruptcy is a little bit different. Its process is designed to resolve disputes. There's almost a presumption that people are going to try to come to the table and resolve things in the bankruptcy context. The speed at which that gets done, it can be difficult to underwrite a deal, or a litigation claim, within that context.

Jim Batson: 
Is that because you have to move more quickly, because different aspects of the bankruptcy are getting resolved in real time?

Ken Epstein:
Yes. I mean, what it means is, we need to get involved earlier in the process, and this is starting to happen. We're starting to see, as I am, practitioners who are reaching out to me, representing a debtor who has a claim—they're approaching the point of insolvency, or they're about to file. Where on the flip side, a practitioner who is looking to get an engagement, or to pitch business, to represent a trustee, or a creditors' committee, and wants to come to the pitch with a funding solution in place. It's very helpful to get involved sooner rather than later so you can help work that out. You can move at the pace of the bankruptcy process.

Jim Batson:
It strikes me that there may be instances where a company is facing the prospect of bankruptcy and has a viable claim—maybe that's why they're in such financial straits, because they suffered some wrong—but can actually avoid bankruptcy, if their counsel is aware of how litigation funding can provide capital not just to the lawyers litigating the case, but also where the claim will support it directly to the company, so that it can stay in business until the claim gets resolved. Are you seeing that inquiry from bankruptcy practitioners, or is that also something that you need to educate them on as a viable alternative?

Ken Epstein: 
Both. I’m definitely seeing an uptick in people thinking about it. As we've gone out as a company and educated the market about the availability of working capital to a company, as opposed to just funding litigation itself, people are, I think, realizing that those funds can be used during critical periods of time in the company's history. Either to slow the descent into a bankruptcy or, perhaps, to prevent it altogether.

     It does depend, in part, on the area of the market that you're playing in or that you're looking at. The liquidity we would provide in connection with a claim, probably, would be most beneficial to a mid-sized company or a small company, where our dollars would actually be meaningful—where they have a liquidity issue, but it could be helpful in any situation.

Jim Batson:
What don't people know, or realize, about litigation finance in the bankruptcy realm that you wish they did know?

Ken Epstein:
I wish that they would increasingly see us as a resource. We're in an incredible position. We see a lot of deals. We work with a ton of different professionals, lawyers, expert witnesses, forensic accountants, in connection with the matters we look at. We're in, really, a great position to serve as a resource to folks. My hope is that they'll call me early, just to throw ideas around, and to get my feedback on things. That's happening more often.

Jim Batson: 
I'm a little jealous of you having your focus on bankruptcy, because, you're right, I get the sense that you're able to be much more creative and actually be able to suggest solutions, or suggest alternatives to people, whether they're the companies, or the litigators, or someone else. You're able to suggest alternatives and solutions that are not really available in other contexts. Do you find that to be the case?

Ken Epstein: 
Yes, I do. The other day I got an incoming call from a lawyer who is representing a debtor that had already filed for bankruptcy. He was trying to get a plan confirmed and was struggling to pay what's called, administrative expense claims. In bankruptcy, in order to get a plan confirmed, you have to satisfy this type of claim, otherwise you can't emerge. I was able to offer a potential solution, which is to the extent that there is a viable claim that will be prosecuted post-bankruptcy. We may be able to bridge that financing need and allow the company to pay its administrative expense claims through a working capital facility to let them emerge, so that they can confirm a plan and, actually, move forward to prosecuting a claim, maximizing the value of the estate and recovery to the creditors.

     That's not something that the lawyer had thought of before, but it's something that we've looked at doing.

Jim Batson: 
Yes, that's a great example. I was thinking, too, about what you said. We're dealing with so many different types of people as we look at matters and, in your field especially, because of all the different players in a bankruptcy situation and because there are so many different types of bankruptcy situations.  Not only are you able to provide a unique perspective to incoming inquiries, but also connect to people, whether or not you're engaged.

Ken Epstein: 
Yes. That's really one of my favorite parts about the job is being a hub and a connector, because I do work with, or see, so many different professionals across the field. We get referrals, now, from investment bankers, and financial advisors, and debtor's counsel, and all these different people who have different expertise and different views on the market. I'm in a central position to help steer things in the right direction, or connect people, or resources, or whatever it may be.

Jim Batson: 
Where do you see bankruptcy litigation finance in two years?

Ken Epstein: 
I think it depends largely on what happens to the broader economy. I think there's going to be an increasing penetration of litigation funding in the insolvency context, period. Whether that happens at a steady slow pace of increase or a very rapid pace will depend on how the economy works, as a whole, because, obviously, bankruptcy and thus bankruptcy litigation is counter cyclical with the market, as a whole.

Jim Batson: 
If there's a big downturn, do you think there will be a much greater interest in litigation finance?

Ken Epstein: 
Yes. The more disruption there is in the market, the less liquidity there is in the market, the more people need to find different ways to maximize cash and the more litigation there is and, in particular, in the bankruptcy context. I think the answer to that will depend on the broader economy.

Jim Batson:
Last question, what is something interesting, or unique, about you that our listeners might not know about?

Ken Epstein: 
I think few people know, although I have told this story several times, that I took a year off after Cadwalader and I left on good terms. It's a great organization, but I wanted to travel, so I took a year off, and I traveled. The first thing I did was I did an outdoor wilderness survival course for 30 days. I hiked around the desert for 30 days learning how to build a shelter, navigate with a topographical map, and other truly insane things walking around the desert in Colorado.

Jim Batson: 
Too bad you're not doing that today, because there's about three or four TV shows that would have camera crews following you around.

Ken Epstein:
It's funny, I thought about applying to one of those shows, and I actually pulled up the application. My wife said, "NFW, no way is that happening. That will be the end of your career."

Jim Batson: 
Well, I'm glad that wasn't the end of your career. Sounds like it could have been touch or go there.

Ken Epstein: 
I think everyone's better off for me not ending up on Naked and Afraid.

Jim Batson:
No doubt. Ken, let me thank you again for appearing on Bentham's Beyond Hourly Podcast and sharing your knowledge.

Ken Epstein: 
My pleasure, thank you.

Jim Batson: 
As I mentioned at the outset, episodes of the Beyond Hourly Podcast can be found on our website, www.benthamimf.com (now at www.omnibridgeway.com), and on iTunes, Spotify, Stitcher, and SoundCloud. We'll be back soon with another episode focused on advancements in legal services that drive economic value for law firms and the clients they serve. Until then, I’d like to thank our audience for listening in and invite you to follow-up with us at [email protected] or [email protected], for any feedback, ideas or insights you have on topics we should cover on the podcast. Thank you and be well.