I enumerate a few points above. The Fortress share in the returns of the Fund, is to IMF-Bentham in effect the cost for funding IMF-Bentham operations, & is as such the effective interest cost. Is it not?
By comparison, the Fortress share of profit, called the Investor Preference at an indicative equity rate of 15% as interest is expensive in comparison to the existing straight vanilla loans.
Does the Non-Recourse-Leverage-Equity-Capital Funding Agreement offer the comparative tax shield as a straight loan would? The capitalised worth of the PV of the tax deduction on IMF-Bentham's A$ 120m debt, is worth almost A$36m to shareholders.
This seems to be forgone in this fund structure.
Despite this the IRR that IMF-Bentham stands to make is extremely appealing at a comparable ROIC of 1.2 X (Return - Inv)/Inv as shown in the shareholders 2017 presentation, on page 7 of Andrew Sakers' power point presentation.
Finance doesn't often offer up a "free lunch" to investors, and the challenge (for me) is to see how this Non-Recourse-Leverage-Equity-Capital Funding Agreement deal is able to do so! Where is the conjury?
Is it clear to anyone? With so much that is clear to see is - foregone, then where is the extra yield to IMF-Bentham to come from?
A question I would have liked Andrew Saker to address.
In the current operations, a cursory divide exists between the costs identified as specific to identified litigation contracts, which are then matched to those contracts, and then deferred in the accounts as an expense until the litigation is resolved, either yeah or nay, while all other expenditure is expensed in the year it arises.
Whereas
The Fund is a pool of cases. One of it's desired purposes is to effect this pool. Under current litigation contract accounting, these costs identified as specific to identified litigation contracts,are appropriations 'in house' as it where.
Will Fortress will be willing to fund anything IMF-Bentham directs at the fund, and will it not be in IMF-Bentham's interest to direct much more expense to the Fund than it does now? The hypothetical investment example points to currentmetrics for it's analysis, but will that structure, because of the motivations, not be something quite different? i.e. the ROIC of 1.2 X as used as a benchmark.
1) How will IMF-Bentham be accounting for expenses & returns for the cases in the case pool, within the periods of the Fund's formations & final dissolution? Mr. Saker goes at length to the board's strategy to combat idiosyncratic risk & systemic risk, inherent in the legal & litigation funding game.
I think he means - a roving cash flow.
Will we continue to try defer expenses as is employed in the accounts to date, or in some new novel way accrue for returns already achieved in the Fund for completed cases?
Failing this, I see an even more roving cash flow, and more volatide income disclosure in the whiles between formation & dissolution?
[see point 2]
2) What has been the treatment been to date? For the initial stage in 2017. I am not sure if this is covered specifically in the notes or accounting policies (dread - a place where mere mortals fear to tread)
As the company accounts are not shown, the effect in the consolidation, in consolidated accounts, is revealed in the cash flow statements, which tag into dangling Note 31. So I'm guessing the investment of $A 7.450m 'US fund establishment cost' and the $A 7.209 'Cash inflows from non-controlling interests' and the 'Non-controlling interest' of $A 2.366m is a tepid consolidation of what is in effect a subsidiary. in the shell of Betham IMF 1 LCC
And if so the LCIP written to date is A$10.332m (not shown in note 31. by error/ellipsis) but $A15.893(Total Assets) - A4$5.561m (Current Assets)
I think?
Implying a full accrual of the LCIP operations within the Fund, in the annual accounts of IMF-Bentham .
There seems to be some dissonance whether IMF 1 LCC is a subsidiary or not, as it is described as Materially Partly Owned Subsidiary (which is what ¿) of a non-recourse equity capital funding (¿) yet the outside shareholder's interest is described as the interest of the non-controlling interest (¿).
So who controls IMF 1 LCC then? A moot point.
What the A$4.843 transaction cost to the non controlling interest is? I have no idea!
