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.