08:00 Thu 02 Apr 2020
Burford Capital Ltd - Update On Liquidity Strength And COVID-19 Impact
BURFORD CAPITAL UPDATE ON LIQUIDITY STRENGTH AND COVID-19 IMPACT
In summary:
· Burford's business has transitioned well to working remotely around the world
· Burford expects the progress of some existing matters to slow although others remain on pace and the courts remain open
o Unlike many business matters, litigation progress is not affected by economic conditions. The only effect, if there is any, on court and arbitration timetables will be due to actual COVID-19 impacts
· In the short term, new business will inevitably slow, but in the longer term, economic disruption tends to generate litigation and thus potentially significant levels of new opportunities for Burford especially given corporate liquidity constraints
· Burford's own liquidity is more than sufficient for its needs although to maximise future opportunity Burford will seek to husband liquidity (including by not recommending a final 2019 dividend)
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· Burford's draft annual report and accounts for FY2019 are well advanced but finalisation of the audit has been affected by COVID-19-related delays (and Burford is mindful of the announcements made by the
o We expect to release financial statements that are consistent with the guidance provided in our
Burford's business operations
Burford has completed the transition to remote working across its business, with all of our offices closed until further notice. We have also suspended all business travel. Burford's business is designed to operate remotely and we have not experienced any significant difficulties with our new working arrangements. We have dispersed our executive team geographically to reduce risk, particularly with the outbreak ongoing in
Progress of existing litigation matters
As a general matter, courts and arbitral tribunals remain in operation and continue to render decisions. Indeed, Burford received winning decisions in two matters in just the last two weeks, a smaller balance sheet case and a larger success in one of our legacy investment funds,
Courts recognise the importance of the societal role they play and are trying valiantly to remain in operation notwithstanding the coronavirus. For example, the Lord Chief Justice of
In general, the status of the courts (including arbitral tribunals) is as follows:
· Courts are open to receive new filings in new and existing cases
· Courts are continuing to hold hearings and non-jury trials, usually using video conferencing technology
· Courts are continuing to issue decisions
· Jury trials have been suspended
· Pre-trial discovery requiring travel or in-person attendance (such as witness depositions) is being postponed
The net result of this is that some cases will proceed in the ordinary course, especially those that are less dependent on witness testimony and do not require a jury trial, whereas other cases will inevitably experience some delay and disruption. Moreover, it is too soon to tell if macroeconomic conditions will reduce near-term settlement willingness by corporate defendants.
Burford does not expect the delays to have a permanent negative impact on its business; unlike many other businesses, delay for us is simply deferral as opposed to loss of income, and indeed in many instances the risk of delay lies on our counterparty and not on Burford, with Burford's terms often increasing as time passes. However, it is reasonable to expect that cash proceeds from litigation resolutions will be lower in the near term as the courts work through these issues.
Future opportunity: significant increase seen
We are cognisant that the COVID-19 pandemic is greatly disrupting the global economy as well as people's lives and remain sensitive to that fact. Nonetheless, looking out at the longer-term, just as the global financial crisis of 2008-09 was followed by a large amount of litigation, Burford expects that the current global crisis and what is likely to be a time of economic pressure will result in a significant increase in the volume of large dollar litigation and arbitration matters in which Burford specialises and a corresponding increase in demand for Burford's services. Moreover, as businesses face liquidity challenges, Burford anticipates an increase in corporate monetisations of litigation positions. However, the short-term impact of COVID-19 and the logistical challenges of writing new business will likely result in a decrease in new commitments before we see an upswing in litigation.
Ample liquidity
Burford is in a strong liquidity position to meet the needs of its current commitments and its operating expenses.
At
Moreover, Burford's assets regularly produce cash that is available for reinvestment. Last year, Burford generated more than
Burford also has access to a further
Without raising any incremental capital from any external source, Burford is thus capable of meeting its existing commitments and also continuing to grow its business. It may assist to provide some more granular information about Burford's liquidity needs and obligations under its current portfolio. At
To be sure, there are likely to be so many opportunities for Burford in the next few years that to take advantage of all of the desirable ones may need more capital than Burford has access to at present, but just as investors recognised the desirability of Burford's relatively short duration and uncorrelated cash flows in the aftermath of the financial crisis, we expect them to do so once again, presenting us with future opportunities to raise external capital through both corporate debt issuance and private fund raises. But that is a question of expansion, not the maintenance of Burford's existing business. Burford is also taking steps to husband liquidity, detailed below, to enhance its ability to take advantage of those opportunities without access to new external capital.
Annual report and accounts timing
Burford's draft annual report and accounts for the year ended
Actions to enhance liquidity further
As noted, Burford sees a period of significant opportunity ahead to continue to make desirable investments and grow its business. While Burford is comfortable with its liquidity position, at the same time it believes that husbanding its cash for use in new investments is both desirable and the best path to attractive long-term returns for shareholders, particularly as access to external capital may be constrained in the near-term due to market conditions.
Thus, Burford is taking a number of actions to husband liquidity and position the business for what we expect to be a busy next few years, including:
· Burford's CEO and CIO have committed to use their entire 2019 bonuses, after tax, to purchase Burford securities in the market once the results for the year ended
· Burford believes in this period of opportunity with liquidity-constrained markets that applying all available cash to its business is in shareholders' best interests, and thus Burford intends, like many other companies, not to propose a final 2019 dividend and instead reallocate that capital to its financing business.
"We are looking forward to sharing Burford's new annual report with shareholders, which is already substantially complete and contains significant enhancement in our disclosure about our operational performance, returns and assets. All of us are having to adjust to a new reality with COVID-19, just as the courts are, and while near-term delays will certainly occur in our business as well as in our financial reporting, we have a great deal of optimism about what the future holds as businesses face an environment that is both dispute-heavy and liquidity-constrained."
For further information, please contact:
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+1 917 985 9840 |
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+44 (0)20 3530 2023 |
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+44 (0)20 3037 2000 |
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+44 (0)20 7029 8000 |
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+44 (0)20 7260 1000 |
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