Servicing Agreement

A contract governing the ongoing administration of a portfolio of legal-asset interests held by an SPV, under which a servicer — often the original fund manager or a specialized third party — handles case monitoring, collection of proceeds, lien and waterfall administration, investor reporting, and enforcement of the underlying funding agreements on behalf of the SPV and its investors. Servicing agreements specify the servicer's standard of care, typically requiring the servicer to act in accordance with practices it would apply to similar assets held for its own account, and they define the servicing fee, usually calculated as a percentage of assets under management or of proceeds collected. Because the servicer often has ongoing relationships with the underlying law firms or claimants and detailed knowledge of individual case status, replacing a servicer mid-facility is operationally difficult, which is why servicing agreements typically specify a limited set of default triggers — such as fraud, gross negligence, or insolvency — that permit removal rather than allowing termination for ordinary underperformance.

Investors in a structured legal-asset facility are underwriting the servicer's competence and continuity almost as much as the underlying case portfolio, since case-level monitoring, timely lien resolution, and accurate waterfall administration directly determine whether modeled recoveries actually convert into distributed cash on schedule. Facilities increasingly include backup servicer arrangements specifically to address key-person and operational-continuity risk at the servicer, since a servicing disruption can delay distributions across an entire portfolio regardless of how the underlying cases are actually performing.