16% interest on loans issued? It’s a damn good deal if you can find a borrower, but that’s exactly what finance company LawFinance (ASX: LAW) has done in one of the few places in the world where the real winners in the legal system tend to be lawyers.
While it is common for finance companies to fund class action lawsuits where individuals do not have the resources to pursue high profile lawsuits, LawFinance has launched a new legal finance product – LOC Advance.
Having just launched it, the Australian-based company has signed its first client, having entered into a binding agreement to finance USD $10m to two Texas-based medical service providers owned by a US personal injury medal group.
“This portfolio transaction will bring our book size to c.US$28 million which, together with improving returns on investment and the cost savings achieved to date, completes Phase 1 of our turnaround,” said LawFinance CEO, Daniel Klejin.
The $10m finance facility has been secured against $28.5m in medical receivables held by the client and will be repaid over 3 years.
Notably, the interest rate on the $10m is 16% per annum, paid monthly. Which is substantially higher than most bank facilities would charge in a solid win for LawFinance.
Credit cards for example – commonly regarded as the most predatory credit product – charge around 20% interest pa.
To accelerate their ambitious growth strategy in the United States, LawFinance has entered into a joint venture partnership with Trident Health Group in the US. This is aiming to increase their accessibility to a $400 million market opportunity in the State of Arizona alone, where Trident is based.
The joint venture has the potential to rapidly transform LawFinance’s funding of medical lien claims emanating from hospital emergency rooms, that are currently funded by the US Government’s Medicare and Medicaid programs.
Due to the nature of US personal injury claims where most cannot be pursued without funding, there is a regular market for loan book portfolios in the US that LawFinance can target for their initial penetration which brings with it a large amount of money into the funding ecosystem.
The Company has now identified one that they intend to pursue to accelerate their US growth and intends to purchase it, bringing with the corresponding interest revenue into their cash flow.
“This portfolio purchase and the execution of the Trident Health Group (“Trident”) joint venture agreements continue the momentum and demonstrates the potential of the business,” said Klejin.
“We are now focusing on Phase 2, which will comprise growing the book to more than US$45 million, execute the plan for Trident, roll-out the LOC Advance product in our network and reduce our US secured facility interest costs.”
To fund the portfolio purchase, LawFinance has entered into a trading halt while they execute a capital raise.
Alfred Chan is an Analyst at Emerald Financial, specialising in ASX-listed small cap companies.
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