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Commercial

2021: Burford Capital Posts $72M Loss and $1.1B in Commitments

Burford Capital’s group-wide commitments scored $1.1B in 2021 allocations. Meanwhile, net losses came to $72M for the year, a rather significant drop from 2020’s profit of $165M. Burford forecasted a 2021 loss range of $70-80M. The final figures are well in-line with industry expectations. The Law Society Gazette reports that even with 2021 global pandemic disruption(s), Burford managed $152M in total turnover, while 2020 saw $359M turnover.  Meanwhile, the firm calls attention to the ultimate legacy worth of its litigation portfolio, which is expected to generate robust value and shareholder return(s).  Burford’s 2021 operational revenue was $6M. Burford Chairman Hugh Wilson says with $239M in 2020 revenue, 2021’s data may read lower. However, with over $1.1B of ligation agreements booked in 2021, the firm is bullish on a bright future. Chairman Wilson went on to say that Burford generated ample cash flow(s) that exceeded expenditures during the term.   Buford announced an annual June dividend of 12.5c a share, subject to shareholder vote.    
Commercial

The UK’s Rise of ‘No Win No Fee’ Payment Schemes

A poll of 200 law firm partners by third party investor Harbour reveals 90% are under pressure to cut costs and offer clients expanded billing agreements. The poll also shows that 80% of those surveyed are planning to employ no win no fee payment schemes, with 89% expected to engage litigation finance products as a solution.    CityAM.com reports that 40% of those surveyed expect to cut firm expenses, with 37% planning to do so through legal technology. As with any business, driving down costs to maintain revenue generation is smart. CityAM cites the creativity of litigation finance to help lower case investment costs on the balance sheet, with greater opportunity to increase revenues as portfolio assets mature.   CityAM also notes that law firms are tracking a near 2x increase in time to collect receivables. March 2020 figures show a 23-day payment window, which has now increased in 2022 to a payment window of 39 days.
Commercial Regulatory Issues

Paris Court of Appeal on Third Party Funder Precedent

Tricky case law can creep in when least expected. With funders serving as members of the litigation team of advisors, some aim to include litigation investors as co-claimants. The Paris Court of Appeals approached one such instance citing the precedent that third party funders are subject to “exceptional circumstances” before being considered party to arbitration proceedings.  Paris’ Court of Appeals cites that just because a third party investor is involved in a case, this does not constitute exceptional circumstances.   Deminor Recovery Services (USA) Inc. profiles Senior Legal Counsel Mehdi Mellah’s take on the Paris Court of Appeals ruling. The argument is that if a third party funder is a co-claimant in arbitration, that does not necessarily translate to a ‘no’... However, it would take an exceptional scenario for the court to consider a circumstantial ‘yes’. Given the prevalence of third party funding in arbitration proceedings, those on the other side of the case are resorting to clever interpretations of case law as a defense mechanism.  With the fast pace and evolution of litigation finance, international arbitral organizations are updating arbitration rules and regulations. The guiding principle in altering arbitration rules appears to support greater transparency into litigation investor identities.  
Case Developments Commercial

The $300B Shock Verdict and Social Inflation  

A $300B damage award is serving as an example of shock verdicts driving the notion of social inflation. Preserving the ecosystem of litigation finance from shock verdicts is a priority for some in the industry.  Best Review’s monthly insurance magazine highlights the general trepidation of insurers being ‘on the hook’ for high dollar claims that are funded by third party litigation investors. There are those that argue obscene, high-dollar awards are a threat to the judicial system and therefore have the ability to diminish access to justice. Furthermore, litigation finance is blamed for insurance premium spikes–in some cases premiums have increased 25%.  The $300B shock verdict referenced above relates to trucking insurance. The award could potentially be the largest damages verdict in United States history. This, as the insurance industry has worked to clamp down on trucker insurance coverage. Best Review notes that insurance contracts for trucking operations previously allowed for $50M in coverage. Today, insurers have reduced many trucking insurance contracts down to only $1M coverage options.  Best Review references that savvy insurers continue to approach the problem of social inflation with a barrage of solutions, including lobbying dollars on tort reform. Overall, it would appear that insurers are targeting sophisticated third party investors who likely hold a variety of portfolios that include insurance claims.  
Commercial

Elite Litigation Finance Firms 

Pretentious as it may sound, not all litigation finance institutions are created equal. A myriad of common denominators between individual litigation investors tell a story of winners and losers upon close inspection. Just like every other industry, when choosing a litigation funder, quality can be found in industry rankings. That said, there are rankings for top litigation finance firms and also rankings for elite litigation finance firms. The differences between the two terms commonly relate to size rather than overall quality.   Case Works has collated a list of respected litigation funders with exceptional track records with a drive to lead regional rankings. When facing unique legal challenges, oftentimes it can be advantageous to select a boutique third party investor to organize a unique and innovative litigation funding agreement. Clever companies will recognize that the cost of capital in funding meritorious yet profitable legal action is a risk worth taking.  Check out Case Works’ list of seven elite litigation investment companies to learn more.
Commercial Regulatory Issues

Omni Bridgeway Research on Antitrust Law and Litigation Finance 

Trade restraints, fixing prices and monopolistic tendencies often breed the essence of unfair competition. Complicating the picture, cross-border litigation requires an increasingly sophisticated, techno-scientific approach to win potential multi-district damages. Omni Bridgeway published new antitrust research on litigation investment, defining the asset class as a meaningful financial instrument.   Omni Bridgeway’s insights outline four key research categories:   
  • Complexity: Antitrust lawsuits are commonly associated with governmental interpretation of jurisdictional mandates. Considering aspects concerning regulatory arbitrage, antitrust definitions may vary with respect to a multi-district approach. The complexities of antitrust litigation are real, and litigation funders are becoming a resource tool for clients looking to hire the best legal team to win a claim. 
  • Duration: Globally, antitrust matters are a multi year effort. Litigation investor blueprints are mindfully designed, keeping in mind realistic success timelines. 
  • Budget: Funding a winning antitrust litigation agreement is a high dollar phenomenon.
  • Award: Pursuing antitrust litigation incorporates the prospect of securing substantial awards. Omni Bridgeway’s research studies 60 cases with an average settlement of $500M.  
Omni’s concluding analysis begs judgmental scrutiny when selecting a third party investor to fund meritorious antitrust wins. 
Announcements Commercial Fundraising

BURFORD CAPITAL CLOSES NEW $360 MILLION PRIVATE INVESTMENT FUND

Burford Capital Limited, the leading global finance and asset management firm focused on law, today announces that it has raised a new $360 million private investment fund, the Burford Advantage Master Fund LP (“Advantage Fund”). The Advantage Fund focuses on lower risk, lower return pre-settlement litigation investments than we include in our core legal finance portfolio, targeting matters expected to produce returns in the 12-20% IRR range. The Advantage Fund fills the gap between the Burford Alternative Income Fund, which focuses on lower return post-settlement investments, and Burford’s core business. The Advantage Fund has a structure that rewards Burford more than traditional fund models for producing good performance: the fund does not have a traditional management and performance fee structure, but instead provides the first 10% of annual simple returns to the fund investors while Burford retains any excess return. Based on our internal modeling, Burford does better with this approach than a traditional “2 and 20” fee structure once its returns exceed approximately 13%. (If the fund produces super-normal returns for this level of risk, which is not expected, a level of sharing with fund investors would kick in.) A range of institutional investors made commitments in the aggregate amount of $300 million. Burford has made a 20%commitment, or a further $60million. The Advantage Fund’s investment period runs until December 24, 2024, with a multi-year harvest period thereafter under an American waterfall. Christopher Bogart, Burford Capital’s chief executive officer, commented: “Burford is still scratching the surface of the legal finance market. As we continue to respond to our clients’ needs, we have found unmet demand for products in the middle range where litigation risk remains but where the risk is anticipated to be lower for structural or other reasons. In response to this demand, we have created the Advantage Fund to match client demand with institutional investors seeking exposure to the uncorrelated cash flows of legal finance at a lower risk of loss with commensurate returns.” About Burford Capital Burford Capital is the leading global finance and asset 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 theNew York Stock Exchange (NYSE: BUR)and the London Stock Exchange (LSE: BUR), and it works with companies and law firms around the world from its principal offices in New York, London, Chicago, Washington, DC, Singapore, Sydney and Hong Kong. For more information, please visit www.burfordcapital.com.
Announcements Commercial Deals

BURFORD CAPITAL REPORTS FULL YEAR 2021 RESULTS; RECORD LEVELS OF BALANCE SHEET DEPLOYMENTS

Burford Capital Limited, the leading global finance and asset management firm focused on law, today announces its financial results for the year ended December 31, 2021.(1) The Burford Capital 2021 Annual Report, including financial statements (the “2021 Annual Report”), is available at the following link: http://www.rns-pdf.londonstockexchange.com/rns/4070G_1-2022-3-29.pdf or at Burford’s website www.burfordcapital.com/shareholders. In addition, a new financial data supplement, as well as Burford’s inaugural Sustainability Report for 2021, are available on our website at the same URL. Hugh Steven Wilson, Chairman of Burford Capital, commented: “Burford turned in an excellent 2021. This may seem odd to say as we report the first loss in our history, but that is a matter of timing. We wrote significant new core legal finance business in 2021. Even in an era of slower case progress,wegeneratedsignificantlymore cash thanneeded tocover allofour expenses. Burford ended the year with substantial liquidity and strong access to capital, and we recently announced our latest $360 million private fund.” Christopher Bogart, Chief Executive Officer of Burford Capital, commented: “We are delighted with our strong new business performance in 2021. To write more than $1 billion of new commitments during a pandemic is a significant achievement. We deployed more capital than ever before from our balance sheet into assets with the potential to generate our highest returns and profits, auguring favorably for future capital provision income. Though it was a slower year for realized gains, contributing toour 2021 loss, there were few adverse developments to causeeither realized or unrealized losses and the portfolio remains well positioned. The slow pace we are experiencing is a timing issue, not one affectingour viewofthe ultimaterealizable value of theportfolio andits potential tocreatesignificant shareholder value, and no client has discontinued a single matter due to these delays. We are optimistic about the portfolio’s future potential.” 2021 highlights New business
  • Record-breaking new business2, with Group-wide new commitments of $1.1 billion (2020: $758 million) and deployments of $841 million (2020: $595 million)
o Burford-only capital provision-direct new commitments of$649million(2020:$335million); the 2021 amount includes $63 million of new commitments warehoused for our funds; excluding those warehoused deals, new commitments were $586 million o Perhaps most significantly for potential future shareholder benefit, Burford-only capital provision-direct deployments, representing our assets capable of generating our highest balance sheet returns and profits, doubled to $447 million (2020: $225 million) Portfolio and balance sheet
  • Consolidated portfolio grew to $4.4 billion at December 31, 2021 (December 31, 2020: $3.8 billion)
o Group-wide portfolio grew to $5.1 billion (December 31, 2020: $4.5 billion), driven by new business growth
  • Cumulative return on invested capital from Burford-only capital provision-direct assets increased to 93% (December 31, 2020: 92%) with an IRR of 30% (December 31, 2020: 30%)
  • Internal model update at December 31, 2021 suggests core legal finance portfolio excluding YPF-related assets couldgenerate$3.8 billioninBurford-only realizations, $2.2billioninrealized gains and $400 million in asset management performance fee income (June 30, 2021: $3.4 billion in realizations, $2 billion in realized gains and $360 million in asset management performance fee income)3
  • Burford-only liquidity of $315 million at year end (December 31, 2020: $336 million)
Income
  • Total income of $152 million (2020: $359 million), including capital provision income of $128 million (2020: $340 million), reflecting slow case progress, in part due to Covid-linked disruption o Burford-only capital provision-direct net realized gains of $128 million (2020: $180 million) o Burford-only capital provision-direct realized losses of $9 million represented a loss rate of
0.8% (2020: $20 million; 2.2%)
  • Income from operations of $6 million (2020: $239 million), with decrease from 2020 due mainly to lower capital provision income and higher operating expenses, including legacy asset recovery charges
  • Net loss attributable to ordinary shares of $72 million (2020: net income attributable to ordinary share of $165 million), within previously disclosed expected range of $70 million to $80 million o Net loss per diluted share of $0.33 (2020: net income per diluted share of $0.75)
Capital
  • Total shareholders’ equity attributable to Burford Capital of $1.6 billion at December 31, 2021 (December 31, 2020: $1.7 billion)
o Burford-only total shareholders’ equity of $7.08 per share at December 31, 2021 (December 31, 2020: $7.59 per share) o Total tangible shareholders’ equity of $6.47 per share (December 31, 2020: $6.98 per share) • Declared final 2021 dividend of 6.25¢ per share payable on June 17, 2022, subject to shareholder approval at the annual general meeting to be held on May 18, 2022, to shareholders of record on May 27, 2022, with an ex-dividend date of May 26, 2022; total annual dividend of 12.5c per share -- (1) All figures in this announcement are audited and presented on a consolidated basis in accordance with the generally accepted accounting principles in the United States (“US GAAP”), unless otherwise stated. Definitions, reconciliations and information additional to those set forth in this announcement are available on the Burford Capital website and in the 2021 Annual Report. 2 Burford-only new commitments for 2021 include approximately $63 million of interests in assets that were warehoused for our funds at December 31, 2021, including a $13 million asset warehoused for Burford Opportunity Fund C LP and a $50 million asset warehoused for Burford Advantage Master Fund LP (the “Advantage Fund”), which will be reflected as a capital provision-indirect asset post-transfer. New commitments reflect the allocation in place at December 31, 2021, and does not reflect the intended transfer to other funds, which occurred or is expected to occur in early 2022. Excluding the warehoused commitments, Burford-only new commitments in 2021 for capital provision-direct were $586 million. Of the $50 million new commitment warehoused for the Advantage Fund, the Burford-only portion of this capital provision-indirect asset is expected to be $8 million. Total Burford-only new commitments to capital provision assets in 2021, post-intended transfers, were $594 million. 3 Data based on calculations derived from our internal modeling of individual matters and our portfolio as a whole. This data is not a forecast of future results, and past performance is not a guide to future performance. The inherent volatility and unpredictability of legal finance assets precludes forecasting and limits the predictive nature of our internal modeling. Further, the inherent nature of probabilistic modeling is that actual results will differ from the modeled results, and such differences could be material. The data based on calculations derived from our internal modeling is for informational purposes only and is not intended to be a profit forecast or be relied upon as a guide to future performance. See sections titled “Forward-looking statements” and “Risk Factors” in our Annual Report on Form 20-F for the year ended December 31, 2021 filed with the US Securities and Exchange Commission on March 29, 2022.
Commercial

Leaders League Ranks Top US and UK Litigation Funders

With investment in litigation finance on the rise, the industry will naturally breed winners and losers in terms of funder rankings. As potential claimants research the best third party investors to evaluate their case, it may be helpful to consult industry rankings. Leaders League offers a unique online tool allowing users access to rankings of litigation funders worldwide.  Leaders League rankings for top litigation funders in the United States comprises a group of 12 industry leaders. Leaders League also ranks the 14 top litigation funders in the United Kingdom.  Founded in Paris, France in 1996, Leaders League prides itself on collating international rankings spanning law, private equity, innovation marketing and wealth management.