6th Apr

No Further Questions – Burford Launches Eight Year Bond Offering 6.125%

Burford Capital, a company that provides litigation finance and in which rock star fund manager Neil Woodford holds a 10% stake has launched a  retail bond offering investors a coupon of 6.125% over eight years.  

The company provides funding for litigation claims and generates returns by taking a percentage of the proceeds or settlements in winning cases, which it said was a ‘high yielding’ strategy ‘uncorrelated to equity markets’; Woodford owns the stake in AIM-listed Burford via his CF Woodford Equity Income Fund. 

 Burford is seeking to raise up to £75 million and will pay a twice yearly coupon – on 19th February and 19th August – until the bond matures in 2024. 

The bond has been launched on the London Stock Exchange’s Order Book of Retail Bonds (ORB), where it will be traded in the secondary market. A minimum £2,000 initial investment is required and bonds can be bought in multiples of £100 after this. 

Burford Capital finances civil legal cases, primarily in the UK and US, in exchange for a cut of any subsequent damages awarded. 

This is its second launch on ORB after its August 2014 issue paying 6.5% raised £90 million. 

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.  

At the time of its original issue Burford chief executive Christopher Bogart said the company had talked to its shareholders about adding debt to its capital structure. ‘It is a classic financial business structure to have debt on the balance sheet,’ he said. ‘[All companies] have debt on their balance sheets. If we only have equity then the cost of capital is higher and we have to pass on that cost to clients. 

The cost is higher because equity holders look for higher returns than debt holders do.’ Following the 2014 bond issue he said Burford would ‘do what we have always been doing which is making investments and financing litigation’. 

The relatively high coupon on offer reflects the difficulty that bond investors may have in understanding the true risk attached to their investment and the business model they are funding. 

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.

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