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Burford shares tumble after watchdog probe

The litigation funder might have to restate the value of its assets following a review by the US Securities and Exchange Commission
March 16, 2023

Shares in Burford Capital (BUR) fell by 13 per cent on Thursday morning, after the litigation funder warned that the value of its legal cases might have “materially" changed following a probe by the US markets watchdog.

Burford has been forced to delay the publication of its full-year results and warned that financial statements in its 2022 annual report “may differ materially from prior disclosures”. This follows a six-month review by the US Securities and Exchange Commission (SEC) into how Burford values its legal finance assets. 

Burford said it currently assesses the worth of its investments based on “objective events in the underlying litigation matter” such as court decisions. It does not account for the passage of time or an internal assessment of how the case is progressing. However,  'probabilistic modeling' - which relies on data analytics - could be used going forwards.

"Because our revised approach is yet to be finalized, we cannot comment on its likely outcome, but our methodology will still rely heavily on objective adjudicative events as it does today," the company said. "We are very pleased with the amount of time and attention the SEC staff has put into this effort, which has included accounting staff at the most senior levels of the SEC," it added.

A potential fall in the value of its legal assets is not the only problem facing Burford. Management warned that it could breach its debt covenant if it fails to provide audited financial statements to the holders of senior notes by 30 April and the situation remains unremedied for 60 days. If it misses the deadline without the lender providing a covenant waiver, management would need to refinance the debt and “there can be no assurance that we would be able to do so on a timely basis or on satisfactory terms, if at all”.

The company declared a dividend despite the uncertainty, at 6.25¢ a share, to be paid in June. 

Burford said it has “always considered and managed the business on a cash basis and provided significant amounts of data to investors to enable them to do the same”.

However, there has often been a large discrepancy between the group’s profits and its cash. In the six months to 30 June 2022, for instance, operating income jumped from $7mn (£5.81mn) to $51.7mn, but operating cash flow was still resolutely negative at -$141mn.