23rd Jul

The Jury’s Out as Burford Capital Issues a 2022 Dated Retail Bond at 6.5%

Investors are being offered an annual return of 6.5% from a new retail bond issued by Burford Capital, a company that provides litigation finance. 

The eight year bonds are issued on the London Stock Exchange’s Order Book for Retail Bonds - therefore tradeable in the secondary market - with interest payable twice a year and a minimum investment of £2,000 with £100 increments thereafter. 

Burford Capital provides finance to companies or law firms that want to pursue litigation and the bonds are issued as ‘senior’ debt, which means that bondholders are at or near the front of the queue for any available funds in the event of insolvency; however they are not secured against the company's assets and retail investors need to ensure that they are comfortable with the level of risk they are exposed to before dipping their quills.

Potential investors in the bonds may be reassured to know that ‘rock star’ fund manager Neil Woodford, holds around 7% of the equity in parent company Burford  via his new company Woodford Investment Management. 

Burford is incorporated in Guernsey and quoted on LSE's junior AIM market – Woodford’s previous paymaster Invesco Perpetual, has a stake of almost 30%. Burford Capital is a company engaged in litigation finance, whereby the business finances civil legal cases, primarily in the UK and US, in exchange for a cut of any subsequent damages awarded, but the announcement of its funding scheme has not been received with universal approval. 

Head of fixed income at Rathbones, Bryn Jones believes that the bond  is only suitable for investors with a higher than average risk profile, who  commented that he is ‘not keen’ on the bond for private investors, as it is ‘too risky'. 

Jones identifies the sector in which Burford plies its trade as being ‘high risk’ and he is further concerned that it is a ‘young company’ lacking diversification in terms of its sources of revenue. He is also worried that likely competition from hedge funds may have a negative impact on the margins the company can achieve on its investments. 

Those investing in the bond will be dependent upon Burford’s ability to select cases that they can win and there are concerns that a reverse in its fortunes in that regard or any downturn in the economy could compromise the performance of the business. 

Peter Doherty, of Tideway’s Global Navigator Fund has not invested ‘because I don't understand their business.'; however he believes that investors seeking to build a diverse portfolio may be attracted on the basis that ‘it's a very different company and one which is not necessarily correlated to all other financial assets, so it could be a good diversifier away from property or financial bonds.’ 

Christopher Bogart, CEO of Burford Capital countered by pointing out that the company has 'no current gearing whatsoever' in its capital structure and had committed to restrict all borrowing to no more than half the company's total tangible assets. He added: 'Burford is a listed company with transparent financial reporting, so investors can see for themselves just how dramatically Burford’s performance would have to reverse before it would not be able to honour its obligations under the bonds being issued.' 

Interest rates remain at historically low levels and the fact that Kent Reliance currently tops the best buy tables with a one-year fixed rate Cash Nisa paying 1.75% the challenge for savers and investors is clear. 

The fact that Burford has added further diversity to the range of investment opportunities on ORB is to be applauded and the coupon on offer is bound to prove attractive in certain circles; however, the words of caution emanating from the professionals should encourage the retail investor to proceed carefully and as ever Mr Bond urges those thinking of participating in the primary market should read all supporting documents thoroughly and ensure they are comfortable with Burford’s business model and the risk profile of the bond on offer before signing on the dotted.


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