Eligible Asset Criteria

The specific, contractually defined characteristics a legal-asset interest must satisfy to be included in a structured facility's collateral pool or borrowing base, typically addressing case type, jurisdiction, procedural stage, defendant concentration, expected duration to resolution, and the absence of specific disqualifying facts such as an adverse ruling already issued or a defendant in financial distress. Eligibility criteria function as the primary quality-control mechanism in a revolving or borrowing-base facility, since they constrain what a sponsor can add to the pool without requiring investor or lender approval of each individual addition. Because case quality is harder to standardize than conventional receivables, eligibility criteria in legal-asset facilities are typically more detailed and more heavily negotiated than in comparable asset-backed structures for other asset classes, often running to multiple pages of specific inclusion and exclusion tests.

Well-drafted eligibility criteria are what allow an investor or lender to extend a revolving or borrowing-base facility without re-underwriting every individual case added after closing, effectively delegating bounded discretion to the sponsor while retaining structural protection against adverse selection. Disputes over eligible asset criteria are among the most common sources of friction in structured legal-asset facilities, since a sponsor under liquidity pressure has an incentive to interpret ambiguous criteria generously when adding new collateral.