Monetising Arbitration Awards
Transforming Legal Victories into Liquid Capital [1]
Arbitration awards granting money damages or costs are, in essence, financial assets. They represent legally enforceable rights to payment capable of ownership, valuation and, subject to applicable law, transfer.
A broad international enforcement architecture gives those rights value beyond the jurisdiction in which an award is rendered. The New York Convention provides a framework for the recognition and enforcement of foreign arbitral awards across more than 170 contracting jurisdictions. ICSID Convention awards benefit from a separate regime under which Contracting States are required to recognise an award as binding and enforce its pecuniary obligations as though it were a final judgment of their own courts. Enforcement against sovereign assets remains subject to applicable rules of sovereign immunity.
But an enforceable right to payment is not the same thing as cash.
Enforcing an arbitration award can be expensive and time-consuming. For many companies, victory in an arbitration proceeding does not immediately translate into a healthier balance sheet. Recalcitrant sovereigns may use sovereign immunity protections, challenges to enforcement and other legal strategies to delay recovery for years. Award holders are often inexperienced in the specialised field of enforcement litigation, may lack the resources or appetite to pursue it, or may simply prefer not to incur further costs in pursuit of an uncertain future recovery.
One potential solution is monetisation.
Monetisation allows a claimant or award creditor to convert some or all of the value of an illiquid legal asset into current capital. Importantly, it is not a single type of transaction. Different structures allocate ownership, economic upside, enforcement risk and control in different ways.
For more than 15 years, Slaney Advisors has advised claimants and award holders on monetisation strategies, including pioneering innovative structures designed around the particular circumstances of the claim, award and client.
From Claim to Final Award: What Can Be Monetised?
Although the term “award monetisation” suggests a transaction involving an existing and final arbitration award, monetisation need not begin at that point. Claims, non-final awards and final awards can all potentially have economic value capable of being monetised. What changes is the nature and degree of risk — and therefore price.
A claim that has not yet resulted in an award carries substantial outcome risk. An investor must assess whether the claimant will prevail, the potential amount and timing of an award, and ultimately the prospects for recovery.
Once an award has been rendered, an important element of that uncertainty falls away. But the award may remain subject to annulment, set-aside or other proceedings affecting its finality or enforceability. A final award removes further layers of legal risk, but may still present substantial sovereign credit, enforcement and duration risk.
The distinction between a claim and an award is therefore important, but it does not create a bright line between assets that can and cannot be monetised. Each stage presents a different package of risks that can potentially be valued, priced and allocated between the parties.
Slaney Advisors has worked across this spectrum. In one particularly innovative transaction, Slaney pioneered the forward sale of an arbitration award before the award itself had been rendered. The transaction required the parties to value an anticipated future award while uncertainty as to outcome remained.
The economics necessarily reflected that additional risk. An investor assuming outcome risk as well as enforcement and duration risk will price the asset differently from an investor acquiring a final award with an established entitlement to payment.
The point at which monetisation occurs is therefore itself an important component of valuation.
The Core Monetisation Structures
Once a claimant or award holder decides to explore monetisation, the next question is how the transaction should be structured.
Three structures form the core architecture of the market: assignment, participation and investment in or acquisition of the award-holding entity. They should not, however, be regarded simply as alternative legal mechanisms for accomplishing the same result. Each produces a different allocation of ownership, risk, control and economic upside.
Assignment
The conceptually simplest structure is an assignment of the award itself.
In a conventional assignment, the award creditor transfers legal title to the award, either in whole or in part, to an investor in exchange for payment. That payment may take the form of a lump sum at closing, payments phased over time, or a combination of upfront and contingent consideration.
For an award holder, assignment can provide the cleanest form of exit. It may be attractive where the holder wants immediate liquidity, no longer wishes to devote management time and financial resources to enforcement, or wants to transfer the uncertainty of a potentially lengthy recovery process to a specialist investor.
For the purchaser, direct ownership can provide greater control over enforcement strategy, settlement and the timing of recovery. A specialist investor with the capital, expertise and time horizon to pursue enforcement may therefore place a different value on the award from an operating company that never intended to become a long-term sovereign creditor.
An assignment does not necessarily require the seller to surrender all future economic interest. The purchase price can incorporate contingent consideration or an upside-sharing arrangement, allowing the seller to transfer ownership while retaining an economic interest in a successful recovery.
Nor should assignability simply be assumed. Whether an award and associated enforcement rights may be transferred can depend upon the nature of the award and applicable law in relevant jurisdictions. Recent litigation, notably in the United Kingdom and, more recently, the United States concerning the assignment of ICSID awards has highlighted the importance of analysing these issues as part of the transaction structure.
Participation
A second — and often more flexible — structure is a participation agreement.
Under a participation, the award creditor generally remains the legal owner and claimant of record but grants an investor a defined economic interest in the proceeds. In exchange, the investor provides capital to the award holder, typically on a non-recourse basis, and assumes an agreed portion of the risk associated with recovery.
The critical distinction is that legal ownership and economic exposure can be separated.
For the award holder, this can provide liquidity without requiring a complete disposal of the award. Depending upon the transaction, the holder may retain a share of future recoveries and some degree of control over enforcement and settlement.
Participation can therefore be particularly attractive where the seller believes strongly in the ultimate value of the award but does not want to bear all of the cost, delay or risk associated with obtaining payment. It may also be useful where outright assignment would create legal, procedural or other complications.
For an investor, a participation provides economic exposure to the recovery without necessarily requiring it to become the legal owner or claimant of record. The parties can negotiate control over enforcement strategy, funding obligations, settlement decisions and distributions.
The choice between assignment and participation is therefore not simply a legal one. An award holder seeking a clean exit and maximum transfer of enforcement risk may prefer an assignment. One seeking liquidity while retaining ownership, control or future upside may prefer a participation. Investors make a corresponding calculation about the degree of ownership and control they require in return for assuming risk.
Investment in the Award-Holding Entity
A third structure obtains exposure to the award indirectly through an investment in, or acquisition of, the entity that holds it.
An investor may acquire shares in the claimant entity, acquire debt issued by it, or use another corporate instrument whose economic value is linked to recovery of the award. The award itself remains where it is; what changes is the ownership or financing of the entity holding it.
There can be advantages to this approach. A direct transfer of the award may be difficult or undesirable, while tax, confidentiality, regulatory or corporate considerations may favour an entity-level transaction. Maintaining the original claimant as legal owner may also be advantageous in particular circumstances.
But buying an entity is not the same thing as buying an award.
A purchaser potentially acquires everything that accompanies the corporate vehicle: liabilities, tax exposures, contractual commitments, other assets and, where the claimant remains an operating company, an ongoing business requiring management.
Entity-level transactions can therefore be particularly attractive where an award sits in a relatively clean special-purpose vehicle, or where the existing corporate structure provides a specific transactional advantage. In other circumstances, the additional diligence and complexity may outweigh the benefits.
Structuring the Economics: Retaining Upside
Choosing the legal form is only part of the monetisation exercise. The parties must also decide how the economics of a future recovery will be divided where the up-front purchase price is not the full consideration. One of the most important questions for an award holder is whether obtaining liquidity today necessarily requires giving up the value of a potentially much larger recovery tomorrow. It does not.
A monetisation can combine an upfront payment with a contingent entitlement to participate in future recoveries. Such an arrangement can help bridge a valuation gap between buyer and seller: the seller obtains liquidity and transfers much of the enforcement risk while retaining exposure to a successful recovery; the investor receives a priority return for providing capital and assuming that risk.
There are numerous ways of structuring the economics and each transaction will reflect the parties’ needs and expectations. The investor might first recover its invested capital together with an agreed return, after which additional proceeds are shared with the seller on an equal basis. Alternatively, the parties may use hurdles, stepped percentages or other waterfalls that vary according to the amount or timing of recovery.
Time to recovery is a particularly important variable.
A structure that appears balanced when executed can produce very different economics depending upon whether recovery occurs in two years or ten. An unusually rapid recovery can produce a very substantial return for an investor that assumed enforcement risk for only a short period. Conversely, if an investor's preferred return continues to accrue throughout a lengthy enforcement process, the seller's retained upside can be substantially eroded before the sharing threshold is reached.
Sophisticated structures can address both possibilities. Upside sharing may, for example, vary across different recovery periods, or the parties may limit the period over which a preferred return accrues before the seller participates in additional proceeds.
The appropriate solution will depend upon the parties' respective views of value, expected enforcement timeline and appetite for risk. The important principle is that upside sharing should be designed around different possible paths to recovery, rather than a single assumed recovery date.
Club Deals: Sharing the Risk
Larger awards can create a different challenge: the capital required or concentration risk may be greater than a single investor wants to assume.
A club transaction can allow several investors to acquire portions of the exposure, spreading risk while increasing the pool of capital available to the award holder. For investors, diversification may make it possible to participate in a transaction that would otherwise exceed an individual fund's preferred exposure. For the seller, a club can broaden the investor base and potentially improve transaction economics.
But club deals require their own structuring. The parties need to consider who controls enforcement and settlement decisions; how additional funding obligations are allocated; whether investors participate on equal economic terms; what happens if one participant does not meet a funding obligation; and the circumstances in which investors can transfer their interests.
Transfer rights within the club can be particularly valuable. The ability to sell a position to another participant can provide investors with an additional route to liquidity before the underlying award is recovered and may, in turn, affect the return required at the outset.
Club structures therefore illustrate the same broader principle: monetisation is an exercise in allocating risk, return and control, rather than the sale of a standardised product.
A Secondary Market in Practice
Why has this market developed?
At its core is a straightforward mismatch: a claim or arbitration award can have substantial economic value while remaining highly illiquid.
An operating company that has spent years pursuing arbitration may have little interest in spending several more years as a sovereign creditor. Private equity owners may approach the end of a fund's life before enforcement has produced a recovery. Other holders may simply conclude that receiving a certain amount today is preferable to continuing to fund enforcement in pursuit of a potentially larger but uncertain payment tomorrow.
Specialist investors make the opposite calculation. They may have the capital, enforcement expertise, portfolio diversification and time horizon required to assume precisely those risks.
The long-running proceedings in the context of Venezuela surrounding the proposed sale of CITGO to satisfy a number of arbitration and litigation creditors provide a useful illustration of how far this secondary market has developed. As of the writing of this paper, twenty-five claimants are in line for potential payment of their judgment claims through the CITGO sale process. Slaney Advisors' analysis indicates that 11 of those claims arise from arbitration awards and, importantly, five of those 11 are held by secondary holders rather than the original award creditors.
The timing and rationale behind each acquisition are not necessarily publicly available, and it would therefore be wrong to assume that those awards were acquired because of the CITGO enforcement proceedings. But the composition of the creditor group demonstrates something significant: arbitration awards do not necessarily remain with the original claimant until recovery. They can change hands during their post-award life and ultimately be pursued by investors that were not parties to the underlying arbitration.
CITGO also illustrates why such a market exists. Even where an award creditor has a credible path to enforcement against a valuable asset, converting that legal entitlement into cash can take years. For some creditors, monetisation offers the opportunity to exchange some of that duration and enforcement risk for earlier liquidity. For specialist investors, the same complexity and delay may represent an investment opportunity.
A similar market has developed around investment treaty awards against Spain arising from changes to its renewable-energy incentive regime, with specialist investors acquiring interests in awards and participating in subsequent enforcement proceedings.
These examples point to something broader than occasional sales by distressed claimants. A specialist secondary market is developing around the transfer and pricing of arbitration risk.
Valuing the Asset
That leads to the central question in every monetisation transaction: what is the asset worth today? Unlike conventional debt instruments, arbitration claims and awards are not traded on organised markets and do not have readily observable market prices. Face value is therefore only the starting point.
The relevant question is the present value of the legal asset at its particular stage of development, taking account of the risks that remain.
For a pending claim, that includes outcome risk. For a rendered but non-final award, finality and challenge risk remain important. For a final award, valuation may increasingly turn on the creditworthiness and behaviour of the debtor, available enforcement targets, sovereign immunity, expected duration of recovery, enforcement costs, post-award interest and the likelihood and terms of settlement.
The transaction structure matters as well. An investor acquiring an award outright may price risk differently from one taking a partial economic interest through a participation or club structure. Upside sharing, transfer rights and the allocation of future enforcement costs can all affect value.
The progression can therefore be thought of broadly as:
Claim → Rendered Award → Final Award → Enforcement → Recovery
As the asset moves through that lifecycle, some risks fall away and others become more important. Value does not necessarily increase in a straight line: new information can change the expected recovery; sovereign credit can improve or deteriorate; enforcement opportunities can emerge or disappear; interest can accrue; and the expected recovery timeline can change.
This makes valuation a specialised exercise at the intersection of law and finance. The question is not simply what the claimant is legally owed, but what the probability, timing and cost of converting that entitlement into cash are and who is willing to assume the risks in between.
From Legal Claim to Financial Asset
Monetisation represents a broader evolution in international arbitration.
For claimants and award holders, it can provide liquidity, accelerate the realisation of value and transfer some or all of the risks associated with obtaining payment. For investors, it provides access to assets whose returns are driven by a distinctive combination of legal outcome, sovereign credit, enforcement strategy and time.
But the development of the market also demonstrates that monetisation is not simply about “selling an award.” Claims can be monetised before an award is rendered. Final awards can be sold outright or their economics separated from legal ownership. Sellers can retain upside. Investors can share exposure through club arrangements. Transaction structures can evolve around the particular legal asset and the objectives of the parties.
The challenge — and opportunity — lies in finding the structure and price that appropriately allocate ownership, liquidity, risk, control and future upside between seller and investor.
For 20 years, Slaney Advisors has worked at that intersection of law and finance, advising on award monetisations and developing innovative structures for complex claims and awards.
Building on that experience, the Slaney Group is developing a series of AI-powered analytical tools through the SOVREN Suite designed to support the valuation and monetisation of arbitration claims and awards. The methodology for assessing the value of these assets will be the subject of future Slaney Group Insights.
[1] This Slaney Insight was written by Tobias Griffin, a Senior Analyst at The Slaney Group.