Counsel Financial President & CEO, Paul Cody, and Managing Director of Strategic Initiatives and Financial Operations, Todd Kushman, were recently guests on a Litigation Finance Journal podcast to discuss the unique financial products offered by Counsel Financial, how they differ from other lenders in the litigation finance industry and the opportunity for partnership among financing companies with differing business models.
Counsel Financial’s financial product offerings for plaintiffs’ lawyers set it apart from others in the litigation funding industry. For the past twenty years, Counsel Financial has been providing working capital lines of credit to plaintiffs’ law firms—meaning that unlike many litigation finance groups, Counsel Financial is a commercial lender.
Counsel Financial has the unique ability to use a firm’s greatest asset—its portfolio of contingency fee cases—to underwrite a line of credit. This results in much larger borrowing capacity as compared to traditional banks, as a result of underwriting a firm’s case portfolio and expected fees and then advancing credit against that anticipated income. As such, firms can leverage their fees to secure lines of credit that are often two to five times greater than what they can secure with traditional lending institutions. Counsel Financial’s credit lines generally start at $500,000 and can exceed $50 million dependent upon each law firm’s individual needs and business model.
Much like conventional banks, the Company files a UCC a lien again all law firm assets (principally its contingent fees), as well as personal guarantees from primary equity partners and collateral assignment of life insurance in the amount of the loan.
Lines of credit from traditional banks are often structured as one-year facilities and contain other terms that are less conducive to the schedule of contingent-fee receipts for a plaintiffs’ law firms. Examples include annual “clean-up” provisions which require the law firm to pay the loan to zero for a period of time each year. Financing from Counsel Financial affords a firm more flexibility as a four-year revolving line of credit, with payments tailored to when a client actually receives fees on its cases. The Company provides the opportunity for interest-only payments to start, followed by principal pay downs as the case portfolio begins to generate cash flow for the law firm.
KNOWLEDGE OF CONTINGENT-FEE FIRM STRUCTURES
One of the greatest advantages to working with a lender like Counsel Financial is having a team of internal experts who understand how the world of contingent-fee litigation operates.
The Company has a team of attorneys with a wealth of prior experience in both plaintiffs’ litigation and insurance defense, allowing it the unique ability to assess value to a potential client’s caseload, which in turn translates into collateral for the loan. Internally, Counsel Financial tracks all major class action and mass tort cases as they journey through the court system. Between the case-tracking technology employed internally and the Company’s expansive network of attorneys, including numerous current and former clients who are key players in multidistrict litigations or are members of plaintiff steering committees for prominent litigations, Counsel Financial has procured an unparalleled level of expertise benefitting both the Company and its borrowers. This knowledge allows the group at Counsel Financial to assist applicants in ascertaining the true value of their cases, allowing them to leverage that value in ways which substantially benefit the firm.
Since bringing in a private equity partner in 2019, Counsel Financial has been able to structure financing in a larger variety of situations to solve for even more nuanced challenges and proposed business ventures for its clients. The Company is now able to offer larger facilities (up to $50 million+) as well as recourse and non-recourse options. Due to the depth of its knowledge in evaluating case values and its current expanded funding capabilities, Counsel Financial has been able to provide creative financial solutions, especially associated with national mass tort cases and large class actions, to fit the unique needs of its clients.
In working with its strategic partner, Counsel Financial has underwritten over $100 million in non-recourse transactions and continues to develop an expansive pipeline that can now be serviced with this added flexibility and opportunistic funding capacity.
LONGEVITY AND EXPERIENCE
Counsel Financial was founded by a group of plaintiffs’ lawyers who saw a huge void in the financing industry over twenty years ago. Having previously weathered economic storms, especially during the 2008 recession, it has seen its competitors fail due to their inability to adequately assess risk and overextension of their resources. The experience that has been garnered over two decades has kept Counsel Financial in the forefront of the industry as a stable source of working capital for law firms, in both times of growth and downturn.
The Company advises attorneys to be proactive during today’s challenging times and continue to evaluate their budgets, especially the timing of receipt of settled cases/accounts receivable. In periods of economic strain, cash flow can quickly become an issue given significant delays in litigation, slow payments from defendants and reduction in case intake. Firms should look to continue to pursue new opportunities during this time and have adequate resources in place to do so.
To hear more from Paul and Todd, click here to listen to episode 43 of the Litigation Finance Podcast