Why do funders use step-ups?

To protect their annual return against delay. A fixed multiple earned over two years is a high annual rate; the same multiple over six years is a low one. Burford's 10-K says time-based terms mean 'we are protected on duration risk' in some cases, and that court backlogs led to 'extensions of expected duration' that reduced the fair value of some assets in 2025. A step-up shifts part of that duration risk from the funder to the claimant.

Are step-ups the same as interest?

Similar in effect, different in shape. Interest accrues continuously at a rate; tiers jump at set dates, so a settlement a day after a step date costs the claimant much more than one a day before it. Zerify's August 2024 agreement used both forms: approved costs plus 15% a year, then amounts under any litigation funding agreement.

How do step-ups affect settlement decisions?

They push the claimant to settle before each step date and reduce the funder's incentive to settle early. Near a step, a claimant may accept a lower offer to avoid the jump; after the final step, the claimant's remaining share may be small enough that it prefers to gamble on trial. Agreements and consent rights determine who decides.

Do step-ups have caps?

Many do, through a final tier or a maximum share of proceeds. AmBase's tiers stop at plus 1.8x after 24 months. Bench Walk's agreement with Silver Bull capped its multiple option at 3.5x of capital outlay. Without a cap or a claimant minimum, a long enough case can leave the claimant almost nothing from a modest recovery.

What should an investor look for?

How much of a fund's expected return depends on step-ups, and how often cases reach the later tiers. Step-ups can raise dollar returns on slow cases while the annual return still falls. They can also make settlements harder if claimants are left with too little, which can extend duration further.

Time-Based Return Step-Ups

Litigation Finance & Legal Claims

Definition

A time-based return step-up is a term in a funding agreement that increases the funder's entitlement as time passes, either through tiers (a higher multiple after each date) or a running rate such as interest. Burford's 2025 Form 10-K describes 'a time-based return, such as an interest rate' and 'a multiple of our deployed capital that may increase over time' among its typical structures, and says some assets 'have time-based terms that increase our absolute returns as time passes.'

Why it matters

Step-ups move the cost of delay from the funder to the claimant, and in litigation delay is common. Burford's filings describe duration extensions from court backlogs, and AltStreet's Omni Bridgeway review shows average completion times rising from 2.7 to 4.6 years. For the claimant, a step-up means the same settlement is worth less each year; for the funder, it protects the annual return; for both, it changes when settling looks attractive. An investor in a fund should know how many of its cases carry step-ups and what share of expected proceeds comes from later tiers. A strategy that relies on cases running long, and on claimants accepting thin shares, is a source of settlement friction.

Common misconceptions

•A step-up is not a penalty for the claimant's conduct, because it applies with time whatever causes the delay, including court backlogs.
•A higher dollar return from a step-up is not a higher annual return, because the extra amount is earned over a longer period.
•Tiers are not interchangeable with interest, because a tier jumps on a set date while interest accrues gradually.
•Step-ups do not always favor the funder, because they can leave the claimant so little that it refuses to settle, extending the case further.
•A step-up without a cap is not harmless to the funder, because a claimant left with nothing has little reason to cooperate.

Technical details

Worked example (illustrative): a $30 million recovery at four dates, AmBase-style tiers

Fund amount $7.0 million; recovery fixed at $30.0 million; funder paid first to its entitlement.

By the first step date (fund amount + 50%): funder $10.5 million, claimant $19.5 million.

Within 12 months (+1.0x): funder $14.0 million, claimant $16.0 million.

Within 24 months (+1.5x): funder $17.5 million, claimant $12.5 million.

After 24 months (+1.8x): funder $19.6 million, claimant $10.4 million. The tiers are from AmBase's 10-Q; the amounts are hypothetical and ignore AmBase's separate 2019 entitlement.

Forms of time-based return

Tiers: the multiple steps up at set dates.

Rate: an interest-like return accruing on deployed capital.

Hybrid: a base multiple plus a rate after a date.

Percentage step-up: the funder's share of proceeds rises over time.

Caps and floors: a final tier, a maximum share, or a claimant minimum.

What AltStreet's reviews and filings show

AmBase's March 2026 funding agreement with its chief executive (10-Q for June 30, 2026) pays the funder first until it has received the fund amount plus 50% if proceeds arrive by September 30, 2026, plus 1.0x within 12 months of funding, plus 1.5x within 24 months and plus 1.8x after that, with the company receiving the rest.

Burford's 2025 10-K says a basic single-case deal typically returns its deployed capital plus 'one or a combination' of a time-based return such as an interest rate, a multiple of deployed capital 'that may increase over time,' and a percentage of the net realization 'that may increase or decrease over time or may depend on the size of the total resolution amount'; some assets have time-based terms that 'increase our absolute returns as time passes.'

Zerify 8-K EX-10.1 (August 2024): approved costs reimbursed with 15% a year from the date paid, ahead of any litigation funding agreement amounts.

AltStreet's Omni Bridgeway review: average time to completion rose from 2.7 years (FY2019 completions) to 4.6 years (FY2026).

Questions about step-ups

What are the step dates, and what triggers them (funding date, filing, judgment)?

Is there a cap, and does the claimant have a minimum?

What share of proceeds does the claimant keep at each tier at a realistic settlement?

Does the step-up apply to amounts funded later at the same dates?

How often have the fund's concluded cases reached later tiers?

How investors apply the term

Investors usually apply this term by tying the definition back to the controlling documents and then asking which cash flows, rights, restrictions, or valuation assumptions it changes. A useful review looks at the term alongside fees, leverage, liquidity, reporting frequency, and manager discretion rather than treating it as a standalone concept.

The practical diligence test is simple: identify who benefits if the assumption is wrong, who has control when conditions change, and what evidence the investor receives after closing. Terms that cannot be reconciled to documents, cash movements, and monitoring data should be treated as marketing shorthand until proven otherwise.

Frequently asked questions

Why can a longer case reduce the claimant's share of a settlement?: Because the funder's entitlement grows with time while the settlement does not. Under AmBase's 2026 agreement, described in its 10-Q for June 30, 2026, the funder is paid first until it has its fund amount plus 50% if proceeds arrive by September 30, 2026, plus 1.0x within 12 months of funding, plus 1.5x within 24 months and plus 1.8x after that. On a fixed $30 million recovery and a $7 million fund amount, the claimant's share falls from $19.5 million to $10.4 million across those tiers.
Why do funders use step-ups?: To protect their annual return against delay. A fixed multiple earned over two years is a high annual rate; the same multiple over six years is a low one. Burford's 10-K says time-based terms mean 'we are protected on duration risk' in some cases, and that court backlogs led to 'extensions of expected duration' that reduced the fair value of some assets in 2025. A step-up shifts part of that duration risk from the funder to the claimant.
Are step-ups the same as interest?: Similar in effect, different in shape. Interest accrues continuously at a rate; tiers jump at set dates, so a settlement a day after a step date costs the claimant much more than one a day before it. Zerify's August 2024 agreement used both forms: approved costs plus 15% a year, then amounts under any litigation funding agreement.
How do step-ups affect settlement decisions?: They push the claimant to settle before each step date and reduce the funder's incentive to settle early. Near a step, a claimant may accept a lower offer to avoid the jump; after the final step, the claimant's remaining share may be small enough that it prefers to gamble on trial. Agreements and consent rights determine who decides.
Do step-ups have caps?: Many do, through a final tier or a maximum share of proceeds. AmBase's tiers stop at plus 1.8x after 24 months. Bench Walk's agreement with Silver Bull capped its multiple option at 3.5x of capital outlay. Without a cap or a claimant minimum, a long enough case can leave the claimant almost nothing from a modest recovery.
What should an investor look for?: How much of a fund's expected return depends on step-ups, and how often cases reach the later tiers. Step-ups can raise dollar returns on slow cases while the annual return still falls. They can also make settlements harder if claimants are left with too little, which can extend duration further.