Using Litigation Finance to Monetize an Illiquid and Speculative Asset: MagCorp Case Study

The Problem

We represent the bankruptcy trustee of a company known as MagCorp who, after more than a decade of litigation, obtained a $213 million judgment (currently on appeal) against billionaire Ira Rennert and his company Renco Group. Post-judgment and when the appeal was filed, the trustee only had about $670,000 in the bank. The judgment was the only other asset. Creditors are owed over $200 million. They had no chance of any recovery, other than from the judgment. Our client was concerned with the risks that the judgment might be reversed on appeal; if so, that available assets might constrain the bankruptcy estate’s options relating to a new trial; and the possibility, however remote, that creditors might never achieve any recovery.

The Solution

We conceived, negotiated and obtained court approval (after three hotly contested hearings) of a transaction whereby our client sold an interest in the potential litigation recoveries to the largest litigation funder in the world, Gerchen Keller, for $26.2 million. As part of this process, we obtained Bankruptcy Court approval to run a public auction using Gerchen Keller as our stalking horse bidder to solicit better bids. We induced another prominent litigation funder to participate in the auction. As a consequence, the deal’s economics improved for our client by approximately $5 million.

This transaction enabled our client to monetize a portion of this speculative asset, hedge his downside exposure, provide much needed liquidity to the debtors, and guarantee that there will be money for creditors. As reported in the American Lawyer and other noteworthy publications, no transaction such as this one has been done in a pending bankruptcy case.

The Litigation Finance and Alternative Funding Group

Our Litigation Finance and Alternative Funding Group works to achieve end-to-end solutions in this emerging marketplace.

Stevens & Lee lawyers have been at the forefront of the alternative funding movement, assisting clients with actual litigation financing arrangements, then acting for those clients consistent with the arrangements. We advance and protect our clients’ rights as plaintiffs and defendants in judicial and arbitral disputes pending across the United States. As appropriate, this has included obtaining market-tested terms from competing funders.

For More Information

Please contact Nick Kajon at 212.537.0403, or Eric Robinson at 212.537.0408. Mr. Kajon is Co-Chair of Stevens & Lee’s Bankruptcy and Financial Restructuring Department and Co-Chair of the Litigation Finance and Alternative Funding Group. Mr. Robinson is Co-Chair of the Litigation Finance and Alternative Funding Group.

This News Alert has been prepared for informational purposes only and should not be construed as, and does not constitute, legal advice on any specific matter. For more information, please see the disclaimer.