Technology-based litigation finance firm Legalist Inc. announced Tuesday it is breaking into stopgap financing for small businesses facing bankruptcy in the wake of COVID-related distress.
The San Francisco-based company raised $50 million for its first bankruptcy fund, which is called Legalist DIP Fund I.
The minimum investment accepted from any outside investor into the new fund was to be $100,000, according to paperwork filed with the U.S. Securities and Exchange Commission in August 2020. Financing will be debtor-in-possession loans for small and lower middle market debtors. The loans will be in the range of $1 million to $10 million.
"The main source of distress we anticipate coming out of the COVID-19 epidemic will be Main Street businesses that otherwise have few sources of credit," Eva Shang, Legalist's co-founder and CEO, told Law360 Pulse. "The role of DIP financing is to grease the wheels of bankruptcy, and small and lower middle market debtors are exactly the ones that struggle to find post-petition lenders willing to meet that need."
Founded in 2016, Legalist uses proprietary machine learning algorithms to assess investment opportunities. The company will use similar technology to evaluate court records to help guide its investing.
"Legalist's tech-enabled approach is exactly what allows us to tackle lower middle market cases in both litigation and bankruptcy," Shang said. "The new DIP fund is a natural extension of our existing tech capacities."
Nathan Jones, former chief investment strategist for United States Debt Recovery LLC, has been tapped to head the new bankruptcy team as Legalist's director of DIP underwriting.
"As a bankruptcy attorney for over 30 years and a distressed investor for 20 years, I'm excited to join Legalist in launching its bankruptcy strategy," Jones said in a statement. "It's especially necessary in an environment which will be marked by limited access to liquidity for many small businesses, amid uncertainty about economic recovery."
It's been a busy 2021 so far for Legalist. In January, former DLA Piper and Womble Bond Dickinson attorney Megan Baer joined the company as an investment counsel for the underwriting team.
--Additional reporting by Anna Sanders. Editing by Brian Baresch.