Is Litigation Finance Right for Your Client?

Litigation can get expensive, fast. Litigation finance is a funding tool many companies are considering to help cover the fees and expenses related to major legal claims. We at Lake Whillans Litigation Finance have compiled a list of questions to help you determine if your client is a candidate for litigation finance.

Is litigation finance the answer?

Here’s the first question to consider:

• Does your client have a fluid relationship with capital markets?

In other words, is your client publicly traded with regular fulfillment of bond/equity offerings with minimal transaction costs? If the answer is yes, litigation finance probably isn’t the best option in terms of economics (it still might be attractive for other reasons).

But if the answer is no, next ask yourself:

• What is the company’s weighted average cost of capital (WACC)?
• Does the company expect to produce positive free cash flow (FCF) annually?
• What is the expected FCF to the company on an annual basis for a three- to five-year forward-looking period?

Also consider:

• What is the company’s estimated ROI?
• What is the amount of legal fees and expenses necessary to optimally resolve the legal claim?
• What is the expected time period (in years) necessary to resolve the legal claim?
• What is a reasonable estimate of the amount at issue?
• What is the likelihood that the legal claim prevails on its merits?
• What percentage of net proceeds will a legal claim financier require to provide funding? (net proceeds equal gross proceeds less the amount of legal fees and expenses)

What next?

If litigation finance makes sense for your client’s claim, the next step is to work through these questions in more detail. Click here to download the Lake Whillans Guide to Litigation Finance.

It’s an analytics tool to get you started on evaluating whether or not it’s more profitable to self-finance or use litigation funding. Keep in mind, this is just a starting point. We are always happy to answer any questions or help you work through our interactive guide, including its methodology.

Lee Drucker is principal at Lake Whillans, a national litigation finance and distressed venture capital firm. He can be reached at [email protected]

                                                                                                                                       

This column is one in a series by Lake Whillans Litigation Finance. To learn more about us, and litigation finance generally, visit us at our website,       lakewhillans.com. To ask a specific question, suggest a topic, or simply say hello, drop us a line at[email protected].