Funded Party

The funded party is the claimant, plaintiff, or petitioner whose legal claim is being financed — the entity receiving capital under the funding agreement and to whom the capital is provided on a non-recourse basis. In some structures, the funded party is a law firm (receiving portfolio financing) or a special purpose vehicle holding an assigned claim rather than the original claimant directly. The funded party's obligations under the agreement typically include cooperating with the funder's monitoring rights, maintaining the litigation diligently, disclosing material developments in the case, and complying with the settlement authority and return waterfall provisions. The funded party's creditworthiness is generally irrelevant in non-recourse transactions — underwriting focuses on the claim rather than the claimant.

Because underwriting in a non-recourse deal focuses entirely on the claim rather than the funded party's creditworthiness, funders instead scrutinize the funded party's obligations around cooperation, diligence in prosecuting the case, and disclosure of material developments — covenants that substitute for the credit protections a conventional lender would otherwise require. When the funded party is a law firm rather than the original claimant, funders add an additional layer of diligence on the firm's own financial stability, since firm-level distress can affect how diligently any individual funded matter is actually pursued.