Burford Capital Limited (“Burford”), a leading global finance
and investment management firm focused on law, is pleased to
announce that a favourable decision in an arbitration matter
underlying one of its investments has been rendered by the
arbitration tribunal.
The arbitration matter is a claim by Teinver S.A. and others
against Argentina in connection with Argentina’s expropriation of
two airlines. The arbitration tribunal ruled yesterday evening
against Argentina, requiring it to pay $324,254,807 in damages plus
pre- and post-award interest which remains to be computed.
Burford’s entitlement from the award is dependent on a number of
other variables which are not yet known precisely but is estimated
to be in the range of $140 million and is subject to an ongoing and
compounding interest entitlement.
As at 30 June 2017, Burford’s current investment in this matter
is approximately $13 million and it is carried on the balance sheet
at a fair value of approximately $30 million. Thus, this favourable
result is expected to result in the recognition of substantial
additional income (although not approaching Burford’s full
potential entitlement above) pursuant to Burford’s valuation
policies. Any such income would be included in Burford’s financial
result for the second half of its financial year 2017, to be
reported in its financial results for the year ended 31 December
2017. However, Burford has not yet determined, nor yet consulted
with its auditors about, any impact of the arbitral decision on
Burford’s financial statements in 2017.
It is important to emphasize that this arbitral decision does
not necessarily mean that this amount will actually be paid in
full, or at all. There remain various avenues for challenge to the
decision and the matter is not yet free of litigation risk; indeed,
the entire decision could later be overturned by an adjudicatory
body with higher authority and result in a loss for Burford.
Moreover, it is commonplace for there to be negotiations,
settlement discussions and discounting that could reduce materially
the figures provided above, and Burford generally does not have any
control over the outcome of those discussions as it is a third
party to the actual litigation.
Nonetheless, it is Burford’s policy to announce individually
significant investment results such as this one for the information
of shareholders despite the uncertainty as to the final outcome.
For further background to the Teinver investment, please refer to
Burford’s 2015 Annual Report.
Christopher Bogart, Chief Executive Officer of Burford,
commented:
“We are very pleased with this result and are gratified to see
justice done for Teinver and its stakeholders. Without Burford’s
capital, it is doubtful that this kind of recovery could have been
obtained for the claimants. This investment is from our 2010
vintage and proves out what we have said to investors over time:
that it is premature to judge any investment vintage until it is
entirely complete.”
Background to Burford’s investment valuation process and its
impact on reported earnings
Burford values transparency in its presentation of financial
results and wants to be clear with investors about its approach to
those results.
Most of Burford’s income comes from its litigation finance
business. Within that business, there are two principal sources of
income for accounting purposes, realized gains on investments and
unrealized gains on investments. (Realized and unrealized losses
will naturally negatively affect income and the principles we set
forth here apply equally to losses.)
Realized gains are straightforward: they represent the amount of
profit, net of the return of Burford’s invested capital and any
previously recognized unrealized gains, on an investment that has
either resolved entirely or has been settled or adjudicated such
that, in Burford’s view, there is no longer litigation risk
associated with the investment. (In the latter event, Burford may
discount the anticipated profit in respect of an investment to
account for any continuing uncertainty as to the recoverability of
any amount.) Burford announces individual investment results that
will produce realized gains separately from its financial results
only when the individual gain is new information which may be
material to Burford.
Unrealized gains are more complex: they represent the fair value
of Burford’s investment assets, as determined by Burford’s board of
directors in accordance with the requirements of the relevant IFRS
standards, as at the end of the relevant financial reporting
period. There is no active secondary market for litigation risk,
and thus there is generally no market-based approach to assessing
fair value; to the extent that a secondary market transaction does
take place with respect to an investment, the implied value of that
transaction is a key valuation input. In the absence of such a
transaction, we are mindful that the outcome of each matter Burford
finances is likely to be inherently uncertain, may take several
years to conclude and is often difficult to predict with accuracy.
Moreover, litigation matters frequently experience multiple
significant shifts in sentiment during their evolution. Burford
thus eschews fair values based solely on current sentiment, and
focuses on objective events (such as court rulings or settlement
offers) to ground its assessment of fair value.
Burford’s board of directors assesses the fair value of
Burford’s investments after the close of each financial reporting
period and therefore investors should not expect updates about
potential changes in fair value during the course of any given
reporting period. Following the close of each financial reporting
period, Burford’s board determines the fair values of investments
after taking into account the views of management, the operation of
the audit process and input from external experts (as it considers
appropriate). Generally, that process does not conclude finally
until shortly before the release of Burford’s financial results for
the relevant period.
Burford is pleased to be followed by a number of research
analysts and we are grateful for their efforts to understand and
explain our business. They perform a valuable role in assessing our
operating performance, the evolution of the litigation finance
market and interpreting other relevant industry developments.
However, prospective investors and other market participants must
appreciate that, due to the confidential, potentially privileged,
long-term and uncertain nature of each investment asset, it is very
difficult for research analysts to project accurately the likely
investment income of the business. Any projections produced by
research analysts are not produced on behalf of Burford and Burford
takes no responsibility for such projections.
As a result, prospective investors and other market participants
should not treat, and Burford does not intend to treat, the
financial projections produced by research analysts as indicative
of the market's expectations of Burford’s future financial
performance. We specifically eschew any obligation to correct
estimates made by financial analysts or to inform the market should
we come to believe that our actual performance will diverge from
those estimates. This is, of course, different to the approach
taken by most operating companies, in respect of which research
analysts can produce relatively reliable estimates and the relevant
company will advise the market if it expects to see performance
materially different from the consensus of analyst forecasts. It is
important that investors understand that Burford takes a different
approach as a result of the different nature of its business.
This announcement contains inside information. The person
responsible for this release is Elizabeth O’Connell, a Burford
Managing Director.
About Burford Capital
Burford Capital is a leading global finance and investment
management firm focused on law. Its businesses include litigation
finance and risk management, asset recovery and a wide range of
legal finance and advisory activities. Burford is publicly traded
on the London Stock Exchange, and it works with law firms and
clients around the world from its principal offices in New York,
London and Chicago.
For more information about Burford: www.burfordcapital.com
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Macquarie Capital (Europe) Limited – NOMAD and Joint
BrokerJonny AllisonNicholas Harland+44 (0)20 3037 2000orLiberum
Capital Limited - Joint BrokerRichard CrawleyJamie Richards+44
(0)20 3100 2222orNumis Securities Limited - Joint
BrokerCharlie FarquharAndrew Holloway+44 (0)20 7260
1000orNeustria Partners - Financial Communications for
Burford CapitalRobert Bailhache [email]Charles Gorman [email]Nick
Henderson [email]+44 (0)20 3021 2580orBurford Capital
LimitedElizabeth O’Connell, CFA, +1 212 235 6825Managing
Director
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