A Short Guide to Monetization
Legal claims are valuable assets—but highly illiquid and with uncertainty as to timing and outcome. Monetization can de-risk and turn these liabilities into cash.
Pending claims often represent vast latent value to companies ranging from start-ups to the Fortune 500. Unfortunately, these claims carry a tremendous amount of uncertainty as to both outcome and timing. Because they are highly illiquid, traditional capital sources historically have been unable to assign asset value to them. With significant experience and expertise in assessing the value of legal assets, CDC can help companies unlock value through monetization.
To put it simply, monetization is the conversion of a portion of a pending claim into cash. In such an arrangement, CDC advances capital that would otherwise be captive until the resolution and payment of the claim in question.
Capital is provided up front, without the company needing to wait for outstanding claims to resolve—offering immediate liquidity. Unlike fees and expenses financing, in which money flows from the finance provider to pay legal fees and expenses, capital provided through a monetization can be redirected to fund defensive positions in the legal department—or to build warehouses, hire staff, shore up corporate balance sheets or any other corporate purpose. And because the capital typically is provided on a non-recourse basis, the company is obligated to repay the investment only following the successful resolution of the matter.
HOW IT WORKS
- Monetization advances a portion of pending claims or awards immediately
- Capital is paid up front or in tranches based on agreed future trigger events
- Repayment is contingent upon a successful outcome in the matter, meaning that nothing is owed unless and until legal processes resolve successfully
WHY COMPANIES USE MONETIZATION
- Mitigating risk: Companies can reduce their exposure to the risk of loss, a reduction of damages or a reversal set aside of a judgment
- Controlling timing: Companies gain access to capital based on their preferred timeline—cash they can then invest in the business without delay
- Unlocking better pricing: Should companies have multiple claims suitable for monetization, financing can be offered through a portfolio-based facility that provides more competitive pricing
SUCCESS STORY: ACCELERATING PAYMENT FOR A FORTUNE 100 COMPANY
A Fortune 100 company with a global footprint was a claimant in high-stakes, protracted litigation. By arranging for $75 million in non-recourse capital that could be used for general business purposes, CDC delivered an accelerated and guaranteed financial result ahead of the resolution of the case. CDC’s monetization was a complement to the client’s contingency arrangement with outside counsel in that the law firm covered litigation cost, while CDC’s financing delivered a timely and substantial cash infusion based on an anticipated value of the claim. This provided the client with a solution that simultaneously offloaded the cost of pursuing the high-value claim while generating significant capital with no downside risk. Flexible deal terms reflected the client’s business priorities and CDC’s alignment with the client’s success in the litigation.
WORKED EXAMPLE: CAPITAL INFUSION ADDS VALUE FOR A COMPANY
After being overcharged nearly $1 billion by an anticompetitive supplier, a company decided to pursue an antitrust claim. The company had a strong case and ample resources, so it decided to engage a top litigator at a leading firm and to pursue its claim on an opt out basis. As the claim passed motion to dismiss, the company still faced a potentially lengthy delay to remuneration. Facing a quarterly reporting deadline, the CFO wished to access some of the cash from the asset. The GC secured a $100 million monetization through CDC on a non-recourse basis, in exchange for a portion of the potential recovery. The monetization injected $100 million of immediate cash into the business, which was used to fund a combination of defense matters and a recovery program.
WHY CDC?
With access to investment portfolios of $14.2 billion, CDC has unmatched capacity to monetize commercial litigation and arbitration. We conduct diligence in-house and draw on multiple funding sources, speeding the process and optimizing pricing. We are the institutional-quality legal finance partner— consummate professionals respected for our high standards and careful approach to sensitive matters.
Contacts us: frank.mulder@commercialdamagesclaims.com