Concentration Limit (Structured Facility)

A contractual restriction limiting the maximum percentage of a structured legal-asset pool that may consist of claims sharing a specific characteristic — the same defendant, the same case type, the same originating law firm, or the same jurisdiction — designed to prevent a single correlated event from disproportionately impairing the entire portfolio. Concentration limits are set based on the sponsor's and investors' joint assessment of how correlated outcomes are likely to be within a given category, with narrower limits applied to categories where a single adverse legal or factual development could affect many claims simultaneously, such as claims all turning on the same untested legal theory or all asserted against the same defendant. Facilities typically test concentration limits at each borrowing base recalculation or new-asset addition, treating a breach similarly to an eligibility failure requiring a cure.

Concentration limits are the primary structural tool for preventing a portfolio that appears diversified by case count from actually functioning as a single large correlated bet, which is why lenders and investors negotiate limits specific to the correlation risks of the particular case types in the pool rather than applying generic asset-backed benchmarks. A sponsor seeking to add a large new block of similar claims from one law firm or against one defendant will frequently need lender consent or a waiver once existing concentration limits are reached, giving investors an ongoing check on portfolio composition beyond the initial closing terms.