Litigation Finance Market Heats Up
The team at Greenpoint Capital Management is sensitive to the fact many of those reading this have been impacted by the Covid-19 pandemic. We are living in times of unprecedented uncertainty. In the face of these generational events, no doubt many of us are reflecting on questions and assumptions that extend far beyond capital markets. That said, as we reflect on the litigation finance market - which we think is a bright spot in the broader economic blight - we wanted to share some of our insights. For our part, neither isolation nor market dislocation has done much to slow our work days.
Those initiated in litigation finance are aware that these assets tout, as a primary differentiator and value driver, limited correlation to the macro economy and capital markets. It occurs to us that, given the nascency of these strategies, this is the first bear market cycle in which this hypothesis has been broadly tested. While economic uncertainty may be far from over, early indicators support these claims. Below are a few supporting data points:
While courthouse doors are generally closed around the country, legal proceedings have not been adjourned and settlement discussions are ongoing.
Case in point, the WSJ reported on March 13th that Bayer reached draft settlement terms with 6 of the largest plaintiffs firms holding Roundup claims in the glyphosate litigation.
On March 27, 2020, one of our investments was refinanced at par and the initial draw on a new $50 million law firm facility was funded by one of the largest alternative asset managers (interest rate 21%).
We hear from partners at a bulge bracket investment bank that unsolicited inquiries for private credit investment opportunities are skyrocketing - presumably in search of portfolio yield enhancement.
Since the beginning of March, GPCM has received multiple term sheets for a $50 million litigation finance transaction and is receiving unsolicited inquiries from institutional platforms seeking access to Litfin assets more broadly.
As with the 2008 recession, which sparked rapid growth of the U.S. litigation finance market, we expect the 2020 market dislocation to again drive demand, both from funders and borrowers. We believe gross returns of 12% to 22% per annum are sustainable through the cycle.
More than anything, we hope you, your families, and your loved ones continue to remain safe in the weeks ahead.