Burford have recently published a response to the Muddy Waters report. Given the number of issues involved I will focus this article on matters that I have commented on before. Note that I will need to break off from writing at 15:00 UK time (16:00 CET) for today’s webcast – I will tidy up / finish off this article once it has concluded.
Liquidity
In this yesterday’s 7:59 cut, I commented that Burford notably did not take the opportunity to say that they had sufficient liquidity without raising further capital. Today they again talk about access to expansion capital, but the crux is:
…Burford could simply slow its growth should it wish to access less expansion capital…
They do not say (for example) “Burford could simply stop new investments should it wish to cease accessing expansion capital”. I must conclude that without further access to capital (debt, equity or disposals) they would not be able to meet their current commitments. While technically the balance sheet will expand as a result of existing commitments, it is then questionable whether “expansion capital” is a suitable for term for capital that is required to meet these existing commitments.
This is an uncomfortable position for any company to be in, but especially one currently undergoing a “short attack”.
In some ways it has been noted that Burford’s model is similar to private equity. A PE fund such as HPVE has a similar issue with future unavoidable funding commitments. They manage these by holding plenty of cash and a open line of credit.
Napo Litigation
In my piece “The Napo Mysteries” I speculated that the 2013 conclusion of the case was due to Napo buying it back (and I have since seen the same speculation made elsewhere) and showed how this would fit in with balance sheet movements in the 2013 annual report.
However, Burford refute this, instead saying:
…Burford structured its financing agreement with Napo so that its recovery could come from not just Napo’s dispute with Salix, but from other litigation as well.
As it transpired, a litigation matter other than the Salix matter resolved first, and resulted in an entitlement for Burford. That is the figure shown in Burford’s 2013 reporting.
This raises the questions: a) What was this other litigation, b) Where is the Salix litigation in their reporting? and c) If they were aggregated together, why did the costs not increase after 2013? I hope that these will be answered in today’s conference call.
Level of disclosures
Burford again claim that they have enhanced their level of disclosures:
It is also remarkable that the core of the attack is based on Burford’s expanded investment disclosures, disclosures Burford began voluntarily publishing in March 2019.
I believe they are referring to the following: https://www.burfordcapital.com/investors/investor-information/concluded-investment-performance/
As I previously commented, this is equivalent to the information found in the 2013, 2014 and 2015 annual reports. Therefore, if I have understood correctly, I find their claim to have “began” publishing these in March 2019 disingenuous.
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