JustKapital Independent Valuation of Funding Portfolio at $17.5m

KEY TAKEAWAYS:

• JustKapital Limited is to transfer its current litigation funding portfolio into a modern trust structure called the JustKapital Litigation Finance Trust.
• A valuation extent for the portfolio from $13.5m to $17.5m has been selected founded on a method of discounted cash flow by the independent valuer.
• Longford announced the successful closure of the Longford Capital Fund II on 18th September 2017.

JustKapital Limited’s Board of Directors has announced an update regarding the valuation of JustKapital’s litigation funding portfolio. To complement the working of JustKapital Finance as mentioned in JustKapital’s announcement on the 3^rd of July 2017, the present litigation funding portfolio needs to be shifted to a modern trust structure called the JustKapital Litigation Finance Trust.

In an Independent Valuation Report formulated for the Board of JustKapital, the portfolio has been valued. The independent valuer has chosen a valuation extent for the portfolio from $13.5m to $17.5m stemmed from a discounted cash flow method. This choice compares with the investment of the Group in the Portfolio of $7.8m during 30^th June 2017 (the investement including the capitalized overheads and external costs).

Overview

JustKapital announced in May 2017 that its short-term lending and disbursement funding would be joined into a single division to be called JustKapital Finance. As evident from the contradicting cash flow profiles portrayed by the two divisions and the persistent growth of JustKapital Finance, the Group’s Board presumes that the correct value of both businesses doesn’t give an accurate reflection in the current market capitalization of JustKapital.

Because of the nature of litigation, the costs and revenues for JustKapital Finance are fairly predictable when in fact the quantum of costs and revenues timing for the litigation funding are undetermined. JustKapital’s Board presumes that a majority of the mainstream debt financers are not willing to offer debt finance for the litigation funding as a result of the undetermined revenue streams of the litigation funding. JustKapital’s improved finance facility reported on 27^th September 2017 is presumed to support its view.

The following are the main terms of the Restructure;

• JustKapital is bound to take part in the Trust’s profits by obtaining a particular share of profits from every available case whereby the profit share will be on a sliding scale based on time in connection with the finalization dates of the prevailing cases.
• JustKapital will at first possess the entire units of the Trust, which are valued at ~$17m.
• JustKapital will be nominated the Trust’s manager and will acquire the management fees. This will be applied in the management of the Trust’s portfolio of cases.
• An additional capital of up to $20m is anticipated to be collected through the provision of new units within the Trust to the wholesale investors. The funds will be used in the funding of portfolio of cases to finalization and the funding of new cases.
• Trust will give out case profits to the unitholders as each case within it is finalized. JustKapital is bound to take part in these profits on the basis of its commensurate interest in the Trust.

The Portfolio’s integration into the Trust will cause profit for JustKapital. The profit will, however, be offset on consolidation and won’t affect the Balance Sheet or Income Statement of the Group.

Advantages of JustKapital Shareholders

The following are the main benefits of the Restructure to the shareholders of JustKapital:

• The Restructure should lead to extra capital being accessible to be utilized to the other parts of the business that are very strategic for business growth.
• The revenue of the Group from the management fees will be very predictable by creating the Trust. Since litigation funding offers lumpy and uncertain earnings and cash flows, it is probable that there may not be complete intrinsic value attribution to the business of Litigation Funding by the market.
• The Trust will undertake all the subsequent investments in instances by the litigation funding business. This is anticipated to lower JustKapital’s capital requirement.
• The shareholders will continuously share in the profit made at the time of case completions founded on JustKapital’s commensurate interest in the terms of the Restructure and the Trust.

Longford Capital Update

JustKapital became part of a co-funding agreement with the Longford Capital Management LP, which is a litigation funding company situated in the United States, in September 2015. JustKapital’s Board is glad to inform its stakeholders that Longford announced the successful closure of the Longford Capital Fund II on 18^th September 2017. This was a US$500 million fund aimed at investments in the commercial litigation finance. This successful closure will enable Longford to pursue further co-funding opportunities with JustKapital in New Zealand, the US, Australia among other jurisdictions like Southeast Asia.

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