BUR : Burford Capital pays first interim dividend
Burford Capital is declaring its first interim dividend (1.74 cents, payable in December). The net asset value was more or less flat over the first half of 2014. The Board seem quite enthused with the fund’s progress however as pre-tax, pre-exceptional profit rose by 89% compared to the equivalent period in 2013 and the portfolio threw off $42m of cash. $62m was reinvested in new commitments. They raised $150m of eight year bonds with a coupon of 6.5% just after the period end and are now looking to invest this.
Perhaps the most interesting part of the results is a detailed look at one investment where, for a change, they were allowed to report the detail of a case they funded. We reproduce this here.
“Rurelec was pursuing an arbitration claim against Bolivia for the expropriation of one of Rurelec’s power plants. Rurelec did not need capital to pay its lawyers – what is generally called “litigation funding”. Rather, it needed capital to continue to grow its business – but lenders wanted very high interest rates because of the loss of its Bolivian assets. Unlike a traditional lender, Burford was able to evaluate the value of Rurelec’s pending arbitration claim, and thus was able to provide the following facility:
— A fully recourse, secured $15 million senior loan at a 12% capitalised interest rate
— A contingent value right to receive a portion of the ultimate arbitration award, expressed on a sliding scale based on time and amount
Rurelec then won its claim, extracted payment from Bolivia, and paid off Burford.
The Rurelec transaction was profitable for Burford, which earned an $11 million net profit on a $15 million investment, generating a 73% return and a 34% IRR. However, what is truly noteworthy about this transaction is its innovative structure and its demonstration of the expanding market potential for litigation finance.
The public disclosure of this transaction also allows us to indicate the kind of law firms with which Burford often deals. Rurelec was represented by Freshfields Bruckhaus Deringer in the arbitration proceeding and by Skadden, Arps, Slate, Meagher & Flom in the financing transaction. Burford performed its own internal evaluation of the arbitration claim with its own experienced team, and was represented by Latham & Watkins in the financing transaction.”