{"id":33291,"date":"2025-07-08T06:11:55","date_gmt":"2025-07-08T06:11:55","guid":{"rendered":"https:\/\/financialrush.com\/?p=33291"},"modified":"2025-07-08T06:11:55","modified_gmt":"2025-07-08T06:11:55","slug":"us-contractors-cut-off-by-doge-get-a-lifeline-from-private-credit","status":"publish","type":"post","link":"https:\/\/financialrush.com\/?p=33291","title":{"rendered":"US contractors cut off by Doge get a lifeline from private credit"},"content":{"rendered":"<p> \n<\/p>\n<div>\n<p>Unlock the White House Watch newsletter for free<\/p>\n<p class=\"article__content-sign-up-topic-description o3-type-body-base\">Your guide to what Trump\u2019s second term means for Washington, business and the world<\/p>\n<p><iframe class=\"article__content-sign-up-iframe close\" scrolling=\"no\" id=\"signUpIframe\" data-prev-url=\"\/register\/in-article-sign-up?ft-content-uuid=aa3699fa-2923-4207-b244-89af94c46279&amp;newsletter-id=65b8fec772badb00166eafc6\"><\/iframe><\/div>\n<div id=\"article-body\">\n<p>Private credit lenders have found a new batch of clients: US government contractors short-changed by Elon Musk\u2019s cost-cutting drive and trying to stay afloat. <\/p>\n<p>Legalist, a <a href=\"https:\/\/www.ft.com\/stream\/11ae579e-a7a1-4ffd-9cf2-af496b1e74bf\" data-trackable=\"link\">private capital<\/a> lender based in San Francisco, told the Financial Times that its \u201cgovernment receivables\u201d business had extended more than $100mn in financing to dozens of contractors since the start of 2025, more than doubling the strategy\u2019s previous total book of business. The group is looking to raise $250mn from investors to extend more similar loans.<\/p>\n<p>Contracts worth more than $70bn have been abandoned by the so-called <a href=\"https:\/\/www.ft.com\/stream\/cc2c1ad1-9867-4a6d-b2b5-06513aecbfc4\" data-trackable=\"link\">Department of Government Efficiency<\/a> (Doge), led by Musk until his falling out with President Donald Trump in May, according to HigherGov, a private research service.<\/p>\n<p>Loans from Legalist serve as bridge financing for government reimbursement on work that has been completed but not yet paid, often when traditional banks have balked at extending credit.<\/p>\n<p>Eva Shang, who co-founded Legalist as a litigation finance investor in 2016 as a participant in the Y Combinator start-up development programme, said the company\u2019s government contractor business had historically been \u201csmall time\u201d and \u201cslow going\u201d but had quickly accelerated as the Trump White House sought to shrink the size of the federal government.\u00a0\u00a0<\/p>\n<p>Doge had been envisioned by Musk and other Trump supporters as a way to slash trillions of dollars of government spending by cancelling government contracts, closing agency departments and firing employees en masse.<\/p>\n<p>In January, Doge issued a \u201cstop work order\u201d for all existing grants and contracts held by the development agency USAID. Over the next few months, it went on to issue similar orders via the departments of housing and urban development, homeland security and veterans affairs, among several others.<\/p>\n<p>Federal procurement rules allow contractors whose work is upended by policy changes to get their already sunk outlays reimbursed \u2014 eventually.<\/p>\n<p>If a stop work order is subsequently lifted \u2014 as many of Doge\u2019s orders have been \u2014 contractors are entitled to compensation for \u201creasonable costs\u201d incurred during the lull. In other instances, Doge issued \u201cterminations for convenience\u201d for thousands of government contracts outright, which allowed contractors to claim expenses incurred during wind-down.<\/p>\n<p>\u201cIt\u2019s kind of common wisdom in the government contractor community that if you get a termination for convenience you can sometimes be paid more than you would have under the contract,\u201d Shang said. Some industry observers cited the Biden administration\u2019s termination of several contracts agreed by the first Trump administration for the construction of a southern border wall, which ended up costing the government billions of dollars.<\/p>\n<p>Doug Monticciolo, co-founder and chief executive of Brevet Capital, a private investment firm that finances government contractors, told the FT that companies had been whipsawed by the new reality.<\/p>\n<p>\u201cDoge is having an impact,\u201d he said. \u201cCancellations of contracts and curtailing programmes, we have been seeing the effects of all that.\u201d <strong><br \/><\/strong><br \/>One contractor with USAID, who spoke on the condition of anonymity, said it found itself in a tough situation earlier this year with the government owing it nearly $200mn for services already rendered when a stop-work order was issued.\u00a0<\/p>\n<p>The company had existing credit lines with large banks but those facilities relied on historical accounts receivables that had already been collected to calculate a \u201cborrowing base\u201d. Those traditional financial institutions were unwilling to extend new liquidity amid the Trump actions against USAID, an agency targeted for an 83 per cent reduction in programmes by secretary of state Marco Rubio.\u00a0\u00a0\u00a0<\/p>\n<p>\u201cBanks had been pricing us as low risk. That wasn\u2019t true anymore and it was easier for them to walk away rather than find a solution,\u201d said a finance executive at the contractor.\u00a0<\/p>\n<p>Legalist provided as much as a $75mn credit line that was secured against monies owed for work the contractor already performed and as well as \u201ctermination budgets\u201d \u2014 what the government owed to make the company whole on previous expenditures for contracts that were to be cancelled.\u00a0<\/p>\n<p>\u201cWe are paying a pretty big premium relative to an asset-backed facility with a main street bank,\u201d said the executive, but added that he appreciated the \u201ccreativity\u201d of the Legalist loan.<\/p>\n<p>Shang told the FT the government receivables strategy at Legalist, which has about 70 current borrowers, targets an interest rate of at least 12 per cent with the loan size roughly 50-80 per cent of the expected reimbursement. <\/p>\n<aside aria-labelledby=\"aside-label\" class=\"n-content-recommended--single-story n-content-recommended--inset\" data-component=\"recommended\">\n<p class=\"n-content-recommended__title o3-type-body-highlight\">Recommended<\/p>\n<div class=\"o-teaser o-teaser--article o-teaser--small o-teaser--stacked o-teaser--has-image js-teaser\" data-id=\"085430ab-27fe-46fc-a798-1059649d3b32\">\n<div class=\"o-teaser__image-container js-teaser-image-container\"><a href=\"https:\/\/www.ft.com\/content\/085430ab-27fe-46fc-a798-1059649d3b32\" data-trackable=\"image-link\" data-trackable-context-story-link=\"image-link\" tabindex=\"-1\" aria-hidden=\"true\"><\/p>\n<div class=\"o-teaser__image-placeholder\" style=\"aspect-ratio:2048\/1152\"><\/div>\n<p><\/a><\/div>\n<\/div>\n<\/aside>\n<p>The group overall manages $1.5bn across three different products, including litigation finance and bankruptcy loans. The government receivables strategy, with the surge in lending this year, is close to exhausting its $275mn of existing committed capital from various institutional investors. <\/p>\n<p>Worries about the Trump administration failing to make good on payments owed have proven unfounded, in part due to existing rules and case law precedents.<\/p>\n<p>\u201cThe government has been quite responsive to what our clients put in for reimbursement as long as they are not seeking a windfall from the terminations for convenience,\u201d said Elizabeth Jochum, a partner at Blank Rome in Washington whose clients are government contractors. <\/p>\n<\/div>\n\n<br \/><a href=\"https:\/\/www.ft.com\/content\/aa3699fa-2923-4207-b244-89af94c46279\">Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"Unlock the White House Watch newsletter for free Your guide to what Trump\u2019s second term means for Washington,&hellip;\n","protected":false},"author":5,"featured_media":33292,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[23],"tags":[],"class_list":["post-33291","post","type-post","status-publish","format-standard","has-post-thumbnail","category-us","cs-entry","cs-video-wrap"],"_links":{"self":[{"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/posts\/33291","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=33291"}],"version-history":[{"count":0,"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/posts\/33291\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/media\/33292"}],"wp:attachment":[{"href":"https:\/\/financialrush.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=33291"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=33291"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=33291"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}