Owners of royalties, licenses and long-term contracts often hold valuable, predictable cash flows that conventional lenders struggle to underwrite: there is no building to appraise and no inventory to count. Royalty and contract monetization provides capital today against those cash flows, secured by the contracts and the rights behind them. It is our royalty and contract monetization focus area.
Loan or sale?
Monetization can take two broad forms.
- A sale of all or part of the royalty stream to an investor, who then bears the risk that payments fall short.
- A secured loan, where the owner keeps the asset, borrows against it and repays from the cash it produces. The lender’s upside is capped at interest and fees; the owner keeps any excess.
We lend. A royalty-backed loan keeps ownership with the borrower and puts us in a senior secured position against the rights and the collections. The distinction matters for accounting, tax and, in some industries, regulatory treatment, which is why both sides take advice on it.
What qualifies
The best candidates have:
- Creditworthy payors. A royalty paid by a large pharmaceutical company, a contract with an investment-grade offtaker, or a take-or-pay agreement with a strong counterparty.
- Clear legal documentation. The right to receive payment is well defined, assignable and not subject to easy termination or offset.
- Verifiable history. Payment histories that can be verified, and assumptions that can be tested.
- Low correlation. Cash flows with low correlation to broader markets, so that a recession does not hit the collateral and the borrower at the same time.
Examples include pharmaceutical and medical device royalties, technology licenses, music and media catalogs with long payment histories, and long-term service, lease or capacity contracts. Contracted equipment can fall here too, as in Project Lattice, contracted GPU financing repaid by a take-or-pay contract.
How the loan is sized
The lender projects the cash flows under a base case and a downside, discounts them and lends a fraction of the result. The key is to size the loan to cash flows we can verify, not to the most optimistic forecast.
Illustrative arithmetic
The figures below are illustrative only.
| Item | Base case | Downside |
|---|---|---|
| Annual royalty receipts, year 1 | $12.0M | $9.0M |
| Annual decline thereafter | 5% | 15% |
| Receipts over 5 years (undiscounted) | About $54.3M | About $33.4M |
| Loan | $25.0M | $25.0M |
| Loan as share of 5-year receipts | About 46% | About 75% |
On these illustrative numbers, a 100% sweep of receipts would repay principal and interest within the term in the base case and still within a reasonable margin in the downside. A loan that only repaid in the base case would be too large. Project Meridian shows a pharma royalty loan sized at a fraction of royalty value, with a full royalty sweep.
Structure
Collections sweep
Payments are redirected to a controlled collection account, usually by a notice to the payor. A defined share—often all of it—is applied to interest and principal. This makes the loan self-liquidating: it repays as the asset pays.
Security over the rights
The lender takes a security interest in the royalty or contract rights, the related intellectual property where relevant, the collection account and often the equity of a special-purpose entity that holds the rights. Perfection depends on the asset: UCC filings, intellectual property filings, payor acknowledgments and account control agreements. See collateral, security and guarantees.
Covenants and triggers
Covenants track performance against the underwriting case: minimum receipts per period, a cumulative shortfall test, cash traps if receipts fall below plan, and information rights such as payor royalty reports and audit rights. Security over the underlying rights, controlled collection accounts and covenants that track performance against the underwriting case are the core protections.
Specific risks
| Risk | Example | Typical mitigant |
|---|---|---|
| Product or market risk | A competing drug, patent expiry, a lost customer | Downside sizing, diversified royalties, shorter term |
| Counterparty risk | Payor credit deterioration or dispute | Creditworthy payors, payor acknowledgment, audit rights |
| Legal risk | Termination rights, offsets, challenge to the patent or contract | Legal diligence, representations, insurance where available |
| Concentration | One product or one contract | Lower advance, faster amortization |
| Timing | Payments arrive later than modeled | Interest reserve or longer tail beyond loan maturity |
What to send
The underlying contracts or license agreements, at least several years of payment history with payor statements, projections and the assumptions behind them, any patent or exclusivity timeline, and the published essentials: executive summary, schedule of collateral, borrower bio and sources and uses. See how to request a loan, and for how this compares with cash flow lending, cash flow versus asset-based underwriting. Back to the chapter overview.
This entry is general information as of November 2026, not investment, legal or tax advice, and not an offer of securities.