Overview
Invest in a Fund that will provide exposure to a diversified mix of legal finance transactions. Selected law firms and plaintiffs will use the capital raised by the Fund to finance approved lawsuits. The Fund may also invest directly or indirectly in the debt or equity securities of selected plaintiffs that have brought or may bring appraisal actions. The Fund will target plaintiffs and leading law firms with experienced litigators pursuing a full range of business disputes, including those based on antitrust, bankruptcy, securities fraud, contract violation, business torts, appraisal rights, false claims, international arbitration, and qui tam (whistleblower).
Engaging in lawsuits is a capital intensive process that often requires millions of dollars of investment to pay for expert witnesses, consultants, research, and law firm overhead. As a result, many plaintiffs do not have access to the funds required to pursue their claims. To reduce the upfront cost burden to plaintiffs, certain law firms have engaged in contingency fee arrangements, whereby plaintiffs and other parties seeking damages elect to share case settlement proceeds with the law firms in exchange for eliminating upfront legal fees. This arrangement benefits both plaintiffs who, but for the contingency-based model, might otherwise be unable to seek damages, as well as law firms, who are able to fund cases on behalf of their clients in exchange for a participation in the settlement proceeds.
When law firms participate in contingency fee arrangements with their clients, they absorb the burden of the upfront costs. In some instances, law firms will seek financing to pursue these lawsuits while absorbing the upfront costs. Law firms may look to alternative lenders for credit to finance these lawsuits in exchange for participation in the proceeds of potentially multi-million dollar settlements.
The Fund intends to seek investments that will enable it to provide target annualized returns of 12% - 15% to investors through the term of the Fund, although returns may be higher or lower than the target range. Returns and cash flows to the Fund will be event-based and coincide with the conclusion of each underlying legal case. The Fund has a remaining initial term of up to 45 months with the option of two 12-month extensions.
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Highlights
Diversified offering
Accessibility
Structural protections
Experienced manager
Essentials
Please refer to the Private Placement Memorandum for more details about this offering.
Please refer to the Private Placement Memorandum for more details about this offering.
Capital structure
Capital structure
Where may some of the Fund’s investments lie in terms of priority?
The Fund will primarily target investments that are senior in the capital structure in which the Fund is entitled to receive proceeds from case settlements consisting of principal and a portion of the settlement amount before the law firm or the plaintiff. Additionally, the Fund may invest in credit facilities to law firms collateralized by the proceeds of the law firm’s portfolio of cases. These facilities typically will be structurally senior in terms of repayment. The Fund may also invest directly or indirectly in the debt or equity securities of selected plaintiffs that have brought or may bring appraisal actions.
Cash flow
Cash flow
How do I get paid?
The lawsuits underlying the Fund’s investments are not tied to a formal payment schedule, therefore, investors can expect to receive distributions as the underlying cases settle. The Fund intends to seek investments that will enable it to provide target annualized returns of 12% - 15% to investors over the life of the Fund.
As cases settle or investments are sold, repaid or redeemed and their proceeds are received by the Fund, management fees are first deducted and then capital contributions are returned to investors. Next, the remaining proceeds are paid to investors up to an 8% return (Investor Preferred Return) on invested capital (which accrues on an annualized basis). Additional remaining proceeds are paid to the Fund Manager (YS Catch Up) until it has received an amount equal to 20% of all returns (which is calculated net of invested capital and paid management fees), and then all remaining proceeds (Profit Sharing) are split between investors and the Fund Manager on an 80%/20% basis. Please also refer to the accompanying chart.
Investments
Investments
What type of investments will the Fund make?
The Fund’s mandate allows it to make debt and equity-like investments in a range of contracts, securities and instruments, the underlying values of which are derived from, or materially impacted by, the outcomes of litigations. The investments that the Fund makes can be structured in various ways, such as loans to law firms, participations in litigation funding agreements, the purchase of future proceeds from case settlements and direct and indirect investments in debt and equity securities of plaintiffs that have brought or may bring appraisal actions.. The underlying cases are expected to include antitrust, bankruptcy, securities fraud, contract violation, business torts, false claims, appraisal actions, international arbitration, and qui tam (whistleblower). Yieldstreet intends to raise additional funds periodically as new investment opportunities are identified.
Each underlying lawsuit is evaluated to determine the expected potential settlement amount. However, there is the possibility that the underlying lawsuits will not be successful or will be settled for less than their expected value. To help mitigate risk, the Fund aims to offer a diversified portfolio of cases across law firms, type of case, geography, and case stage, with underlying lawsuits typically valued at under $5M.
To further mitigate risk, the Fund may structure its investments with additional forms of credit protection, such as borrowing bases, recourse to the law firm, personal guarantees from litigators, and insurance policies.
The Fund may have overlapping investments with Legal Finance Fund I, however potential overlapping investments are expected to be less than 25% of Fund II once its fully invested.
Current Holdings:
Law Firm Loan I: The Fund funded a $7.0M increase to an existing senior secured loan to a New York-based law firm that focuses on class action litigations. The loan is secured by a first lien on all assets of the borrower, which primarily consists of contingent fees payable to the borrower upon the settlement of, or obtaining judgement on, a number of ongoing lawsuits. The total amount funded under the loan is $25.0M, $18.0M of which was funded by the first Yieldstreet Legal Finance QP Fund. The loan bears interest at a target annualized rate of 18%. The remaining term is approximately 18 months with two 12-month extension options at the Fund’s discretion. As of July 2021, the loan was primarily secured by 21 lawsuits. In addition to the loan made by the Fund, the borrower has additional first lien secured debt provided by a publicly traded commercial bank. Payment and lien priorities between the two loans are determined by an intercreditor agreement. While the Fund and the bank each hold first lien pari passu interests in the same collateral, the bank’s claim to payment is subordinated to the Fund’s claim to payment.
Appraisal Litigation I: The Fund made a $16.0M indirect investment in an entity that purchased shares of a publicly-traded company with operations outside of the United States. The company is in the process of being acquired by a group of existing shareholders alongside new investors. The acquisition was announced in mid2020 with closing expected in late 2021. The Originator believes that the terms of the acquisition value the shares below fair value and the shareholding entity expects to file an appraisal action seeking compensation based on the fair value of its shares. The litigation will take place outside of the United States, where the business is incorporated, and is expected to be resolved within two to three years.
Group Action I: The Fund made a $7.0M investment in a $55.0M entity managed by Bench Walk Advisors that is providing financing to certain putative and actual class representatives and a United Kingdom-based law firm. The class representatives and law firm are pursuing a group action against two publicly-listed international corporations. The action asserts years of anticompetitive behavior on the part of the defendants and seeks compensation for the plaintiffs. The action is being brought primarily on behalf of small and medium sized businesses in the United Kingdom. The defendants have settled related cases for billions of dollars in the past. The Originator anticipates a settlement in 2025 or 2026. Of the $7.0M commitment, $2.5M was funded at deal close with the remainder expected to be called by July 2022.
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Returns & fees
Management fee
2%
Target net return
12-15%
Share of excess profits
80%
Schedule
Payment schedule
Event based
Term
Date
Initial term
45 months
Possible extensions
Two, 1-year
Structure
Tax document
K-1
Offering structure
SPV
Expenses
First year expense
$250
Annual flat expense
$150
Docs
Content
This offering page describes only certain aspects of the offering ("Offering") of the securities issued by YS LF QPF II LLC ("Fund"). The Offering is made only by means of the Private Placement Memorandum dated June 3, 2021 relating to the Offering (the "PPM"). The information on this offering page is a summary of the Offering, does not purport to be complete and should not be considered a part of the PPM, or as incorporated in the PPM by reference or as forming the basis of the Offering. No person has been authorized to give any information or to make any representations other than those contained in the PPM or in any marketing or sales literature issued by the Fund or Yieldstreet Management, LLC, as adviser thereto, and referred to in the PPM, and, if given or made, such information or representations must not be relied upon. All investors must read the PPM in its entirety prior to investing in the securities.
Investing in private markets and alternatives, such as this offering, is speculative and involves a risk of loss, and those investors who cannot afford to lose their entire investment should not invest. Returns are not guaranteed.
2 Represents an average net realized internal rate of return (IRR) with respect to all matured investments in your portfolio, utilizing the effective dates and amounts to and from the investments and net of management fees and all other expenses charged to the investments. Past performance is not a reliable indicator of future results and should not be relied upon as the basis for making an investment decision. All securities involve risk and may result in significant losses, including the loss of principal invested.[read more]