Burford Capital Limited (LSE:BUR) shares crumpled 20% after a generally positive trading update, where it reported on better year for cash realisations but a lack of progress on its major Argentinian claim and delayed publication of its full accounts due to ongoing discussions with the US financial regulator.
Talks between the litigation finance funding specialist and the US Securities and Exchange Commission (SEC) have been going on for six months over whether to adopt a new fair valuation methodology for legal finance assets.
With Burford needing to know whether its historical valuation methodology will be acceptable under US GAAP, the accounts are now expected within the next 45-60 days.
Analysts at broker Peel Hunt said: "No guidance has been given on the impact of this, and whilst we could see mark-ups to fair value (previously almost all cases are held at the lower of cash invested or expected value), this is not necessarily the case.
"If the report is delayed beyond 30 April, they could be technically in default of loan agreements. The questions that it raises about Burford’s accounting are uncomfortable, even if not necessarily justified."
Analysts at Jefferies said: "Our sense is that these discussions have been progressing constructively and that resulting modifications to Burford's fair value approach should validate its historical disclosures."
Elsewhere, the update pointed to a pick-up in business activity levels in the second half amid a "meaningful upswing in portfolio activity" as courts resume fully normal operations post-pandemic, with cash receipts exceeding US$300mln and Burford-only capital provision-direct realisations rising 33% to US$350mln.
Positive momentum has gathered pace in 2023 with more than 30 trials and final merits hearings already scheduled - nearly three times the number of such hearings in 2022.
The shares plunged below 500p for the first time since the first month of the pandemic, but climbed back to 553p by mid morning.