LegalPay exits first interim finance deal with over 26% returns

Can interim finance be a lucrative business? LegalPay, a litigation and interim finance firm, recently exited an interim finance deal with over 26% returns.

An elated CEO Kundan Shahi announced in a LinkedIn post that his company’s first investment in Insolvency finance earned them a healthy 26%+ IRR.

“Generally speaking, an investor must be compensated for the time value of money and risk.
But it is indeed a great feeling when your investment creates a real impact on the ground and also helps your stakeholders make money,” says Kundan Shahi in his LinkedIn post.

LegalPay provided interim finance during the corporate insolvency resolution process of Yashomati Hospitals. The CIRP of Yashomati Hospitals got successfully resolved with Kauvery Medical Care (India) Ltd successfully bidding for the distressed Bengaluru-based hospital.

The successful resolution applicant – Kauvery Medical Care (India) Ltd – provided for Rs 34 crore, or 100% of the creditors claim, in the resolution plan.

Shahi of LegalPay says the funding helped the company maintain its valuation and there was no haircut.

“While our capital supported the Yashomati Hospital to engage with the right resources to make sure they successfully achieve the CIRP process, it is indeed a commendable task of resolution professional, who spearheaded and managed the operation and other aspects of successful business M&A. Amidst the pandemic, we entered into this deal with a vision to fund the governance process of this CIRP,” the CEO of LegalPay said in his LinkedIn post.  

Getting interim finance has always been a problem for companies undergoing CIRP. Interim Finance is short-term, super-secure lending for 6 to 12 months granted to the companies undergoing insolvency and is used to pay operational costs of immediate needs such as payments to professionals, workers, security personnel, etc.

Shahi says that the main objective of the grant of interim finance is to keep the companies under insolvency running under the legal backing and safeguards provided by the Insolvency and Bankruptcy Code, 2016. given a super seniority status, implying it needs to get paid back first before all other creditors, and such an amount is 100% asset-backed with returns higher than most asset classes in the country.

“Alternative investment opportunities are not related to market dynamics. We understand that we are in the business of underwriting legal risk however our unique ability to identify the investment themes along with the deep domain expertise of the risk underwriting team will ensure the turnaround of target companies,” he says.

He believes that the strong organic influx of capital in litigation/insolvency financing asset class demonstrates the maturity of Indian investors to understand and diversify in newer asset classes.

“Globally, these assets are more mainstream and a very matured asset class, giving returns better than any other class and our job is to establish the same sentiments here,” says Shahi.

Also Read: Insolvency regulator proposes early liquidation of defunct corporate debtors