Question 1

What is a warehouse facility in the context of litigation finance?

Accepted Answer

A warehouse facility is a committed credit line extended to a litigation finance fund or originator to finance case investments before those investments are sold, transferred, or syndicated to long-term capital providers. The facility allows the fund to deploy capital quickly — committing to cases on short timelines — without waiting for LP drawdowns or permanent capital to fund each deal. The warehouse provider is repaid as cases resolve or as the portfolio is transferred to the permanent vehicle. Warehouse facilities are common in asset-backed structures and allow litigation finance originators to build and season portfolios before accessing permanent capital markets.

Question 2

What advance rates are typical in litigation finance warehouse facilities?

Accepted Answer

Advance rates vary significantly based on the quality of the underlying portfolio and the sophistication of the originator's underwriting. Typical advance rates range from 50% to 75% of committed capital across the funded portfolio, though well-underwritten portfolios with strong track records may command higher advance rates. Advance rates are also affected by concentration limits — portfolios concentrated in a single practice area, jurisdiction, or law firm will face lower advance rates than diversified dockets. Criterica Capital applies outcome model scoring to warehouse portfolios to assess expected recovery distribution, which informs our advance rate determinations.

Question 3

How does Criterica Capital structure warehouse facilities?

Accepted Answer

Criterica Capital offers revolving warehouse facilities that allow borrowers to draw, repay, and redraw as capital is deployed and cases resolve. Facilities are sized based on the expected deployment pace and portfolio composition. We require ongoing reporting — typically quarterly docket reviews and material case update notices — and maintain audit rights to verify portfolio quality. Pricing is structured as a spread over a benchmark rate, with commitment fees on undrawn amounts. We negotiate facility terms bilaterally with institutional borrowers; there are no standardized off-the-shelf warehouse products.

Question 4

What is NAV lending in litigation finance?

Accepted Answer

Net Asset Value (NAV) lending in litigation finance allows litigation funds to borrow against the marked value of their case portfolio. Unlike warehouse facilities (which finance new origination), NAV facilities allow a fund to extract liquidity from an existing, seasoned portfolio — using the fund's net asset value as collateral. This is particularly useful for funds in the harvest phase of a portfolio lifecycle, where capital is deployed but not yet returning, and the fund needs liquidity to make new investments or return capital to LPs. NAV lending is a form of leverage applied to the total portfolio value rather than individual case positions.

Question 5

How is the portfolio valued for NAV lending purposes?

Accepted Answer

Portfolio valuation for NAV lending requires case-by-case assessment of expected recovery, adjusted for probability of success, duration, and collectability risk. Criterica Capital applies outcome models trained on 106M+ court records to generate probability-weighted expected recovery distributions for each position in the portfolio. These distributions are then aggregated to produce a portfolio-level NAV estimate. Haircuts are applied to account for mark-to-market uncertainty, legal risk, and portfolio concentration. The resulting NAV supports a facility sized at a defined loan-to-value ratio.

Question 6

What types of funds are candidates for NAV lending?

Accepted Answer

NAV lending is best suited for litigation funds with a seasoned portfolio of two or more years of case investments, adequate diversification (no single case representing more than 20–25% of total committed capital), and a demonstrated underwriting track record. Funds with a high proportion of cases in late-stage litigation — close to trial, in settlement discussions, or in judgment collection — are strongest candidates because the expected recovery distributions are tighter and more reliable. First-vintage funds with predominantly early-stage cases are more challenging to underwrite for NAV purposes.

Question 7

Is NAV lending recourse to the fund's LPs?

Accepted Answer

No. NAV lending is typically structured as non-recourse to individual LPs. The loan is made to the fund vehicle, secured by the portfolio assets. If the portfolio generates insufficient recovery to repay the facility, the lender's recourse is to the portfolio assets — not to the LPs directly. This structure is an important feature for institutional LPs who cannot take on personal liability. The GP may have separate obligations under any guarantee provisions negotiated at closing, but LP-level recourse is not standard.

Question 8

What co-investment structures does Criterica Capital offer?

Accepted Answer

Criterica Capital offers two primary co-investment structures. The first is deal-level co-investment, where Criterica Capital and the co-investor fund a specific case or portfolio side-by-side on pari passu economic terms — sharing costs and recovery pro-rata based on each party's commitment. The second is vehicle-level co-investment, where the co-investor takes an interest in a defined portfolio vehicle or sub-fund managed by Criterica Capital. Deal-level co-investment is most common for large single-case investments where position size management is important. Vehicle-level co-investment is more common for institutions seeking diversified exposure without managing individual deal selection.

Question 9

What rights do co-investors typically have?

Accepted Answer

Deal-level co-investors typically receive information rights (periodic case updates, milestone notifications), consultation rights (the right to discuss material developments before settlement), and anti-dilution provisions (preventing Criterica Capital from increasing its own commitment without offering the co-investor a proportional increase). Co-investors do not direct case strategy — that remains with the law firm and its retained counsel, consistent with professional responsibility rules. Vehicle-level co-investors receive LP-style reporting: quarterly NAV estimates, annual audited financials, and GP reports on the portfolio.

Question 10

Can co-investors participate in select cases rather than a full portfolio?

Accepted Answer

Yes. Deal-level co-investment can be structured on a case-by-case basis. Co-investors with a particular interest in a specific practice area — IP litigation, mass tort, government contracts — can participate in cases within that vertical without committing to the full Criterica Capital portfolio. This allows co-investors to build targeted exposure to specific litigation risk factors that complement their existing allocation. Minimum co-investment amounts apply and are negotiated bilaterally.

Question 11

How can institutional investors access the litigation finance asset class through Criterica Capital?

Accepted Answer

Institutional investors can access litigation finance through several structures offered by Criterica Capital. Direct co-investment in specific deals provides targeted case-level exposure. Portfolio vehicle participation offers diversified exposure managed by Criterica Capital's underwriting team. Separately managed accounts (SMAs) allow larger allocators to deploy capital with a customized mandate — specific practice areas, geographies, case stage, or return profile. We work with institutional investors at the mandate design stage to structure exposure that fits their specific portfolio objectives.

Question 12

What return profiles can limited partners expect?

Accepted Answer

Litigation finance returns vary substantially by portfolio composition, case stage at investment, and deployment timeline. Gross returns on individual cases have historically ranged from 1.3x to 4.0x MOIC over three to five year hold periods, depending on case type and complexity. Fund-level returns, net of fees, management expenses, and loss provisions on adverse cases, have ranged from mid-single digits to low-double-digit IRRs in reported vehicles. Returns are not correlated to public equity or credit markets — which is a significant portfolio construction benefit for institutional allocators. Past returns are not indicative of future performance and specific return projections require separate engagement.

Question 13

What is the typical capital lock-up period?

Accepted Answer

Capital lock-up in litigation finance is fundamentally tied to case duration — which is difficult to predict with precision. Most single-case investments have expected hold periods of two to four years, with some complex commercial arbitrations or appellate matters extending to five to seven years. Portfolio vehicles typically have a five-to-seven year term with one to two year extension options. Warehouse facilities have shorter terms (two to three years) with revolving mechanics. We model duration risk at the portfolio level and provide investors with annual updated duration estimates based on actual case progression.

Question 14

What reporting do LP investors receive?

Accepted Answer

LP investors receive quarterly portfolio reports covering: active case count, committed and deployed capital, case stage distribution, estimated NAV, material case updates, and management discussion of portfolio performance. Annual audited financial statements are provided for fund vehicles. Separately managed accounts receive more granular reporting including deal-level performance metrics. We also provide an annual investor update call and are available for ad hoc meetings with investors on request. Reporting is delivered through secure investor portals with role-based access controls.

Question 15

Does Criterica Capital belong to any industry oversight bodies?

Accepted Answer

Yes. Criterica Capital is a member of the International Legal Finance Association (ILFA), the primary industry standards body for commercial litigation finance. ILFA membership requires adherence to a code of conduct covering non-interference in case strategy, transparent disclosure of funding arrangements, maintenance of sufficient capital reserves, and ethical treatment of funded parties. Criterica Capital also complies with the American Legal Finance Association (ALFA) standards for consumer pre-settlement funding — which carry additional consumer protection requirements including simple interest disclosure and rate transparency.

Question 16

How does Criterica Capital manage conflicts of interest at the portfolio level?

Accepted Answer

Portfolio-level conflicts are managed through a formal conflict review process before any new investment or co-investment is accepted. The most common conflicts arise when Criterica Capital has a funded position on opposite sides of a dispute (direct conflicts) or when a funder relationship with a law firm could affect its neutrality in evaluating that firm's cases (indirect conflicts). We maintain a conflicts register, conduct conflicts checks against all active positions, and escalate material conflicts to senior investment committee review. Funding relationships are terminated rather than managed through waiver when irreconcilable conflicts are identified.

Question 17

What independent oversight is in place for institutional vehicles?

Accepted Answer

Fund vehicles managed by Criterica Capital are subject to independent audit, fund administrator oversight, and limited partner advisory committee review. Advisory committee members — drawn from the LP base — are notified of material portfolio events and have consultation rights on significant decisions including investment committee override situations, GP-led transactions, and wind-down decisions. We welcome institutional investors who wish to participate in governance as a condition of commitment.

Questions from litigation finance funds and institutional investors.