How portfolio financing can unlock hidden corporate revenues
Large companies may be sitting on a rich vein of previously undetected revenue that could be mined through a smart litigation strategy and a strong relationship with a litigation funder.
Across major corporations, individual business units are likely to have significant plaintiffs-side claims that they have not pursued, often out of a reluctance to incur the costs and other risks traditionally associated with litigation.
By coordinating those claims and working with a funder to identify and pursue meritorious disputes, a company can create a significant recovery program with the potential for capturing millions of dollars for its coffers. And it can do so without taking on significant additional risk that will jeopardize corporate profits.
A funder like Bentham IMF, staffed with litigation experts and deeply experienced in identifying the value of cases, can help companies develop a coordinated strategy to pursue their claims. Bentham’s team can evaluate the company’s cache of potential litigation, select claims that are strongest on the merits and have the greatest potential for a significant return, and fund portfolios of cases that can translate into a multi-million-dollar windfall for the company.
Reducing risk
Bentham provides non-recourse financing for litigation in exchange for a return on its investment, usually a percentage based upon the size of the recovery. This arrangement permits companies and counsel to share in the upside of a significant recovery and also gives Bentham the opportunity to collect a profit on its investment.
With a portfolio approach, Bentham invests in several cases at once–allowing it to spread risk across the portfolio of cases and often enabling it to provide greater investment sums to the claimant. We fund company portfolios that include two or more commercial cases with funding requested in excess of $2 million. To qualify for funding, the litigation must have strong prospects for success, and a defendant must have a clear ability to pay a judgment or settlement.
Portfolio financing represents a significant change from the traditional way companies have approached their litigation. From a corporate perspective, litigation has often been viewed warily by executives and board members because of its unpredictability. Litigation costs are difficult to budget against, and for a public company whose stock price is affected by earnings reports, a long-running litigation can be a significant drag on the bottom line.
A contingency victory, while welcomed, also does little to heal the accounting damage of self-funded litigation. At most earnings-driven companies, income from a recovery is treated as a special event for accounting purposes and, thus, cannot be counted against revenues and profits on an earnings report.
A cross-unit strategy
With funding, dollars provided by Bentham can be treated as a revenue event for corporate accounting purposes. Costs, too, may be reduced on the balance sheet, because Bentham can cover them. And the company is still able to take part in the upside of a large contingency victory when it occurs.
By working with a funder, companies can develop a business process that helps them identify litigation for financing across business units. A cross-unit strategy can help unlock financial revenue in litigation where none previously existed. A program of plaintiffs-side cases also sends a strong message to the marketplace that the company will fight back when harmed. This, too, might dissuade other wrongdoers from attempting to take advantage of the company in the first place.
And even if litigation does not succeed, the company has taken a calculated risk with its litigation portfolio that leaves it with minimal potential downside. It is not spending millions of dollars out of pocket on counsel to handle a case–Bentham is. And it owes Bentham nothing if a case is unsuccessful.
The first step in building a successful recovery program is partnering with a highly experienced funder. To learn more about litigation financing and how your company can benefit from using it to unlock the value of litigation assets, contact us for a consultation. And visit our Company Insights to learn about the CLE seminars we offer to companies interested in working with funders. There, you also will find our recent client podcasts, blog posts and videos.