Burford Capital Share Discussion Threads

[maddox] 18/3/2023 23:25

Hiya Ptolemy,

What you have to realise is the BUR isn't really trying to achieve anything on the accounting side apart from be compliant with the accounting regs. As Chris Bogart has said - "we run the business on a cash-basis not an accounting one - we cannot spend fair value" - that is on what they pay-out and what they'll get back - and making sure they have enough liquidity to fund their commitments.

He even said that this new methodology would mean he'd not have to talk about 'accounting standards again' - haha good luck with that.

[bradvert] 18/3/2023 22:40

Perfect metaphor PT. It was a game of two halves before, and things are now getting oddly confused by a switch to American football and it's four quarters.Innings, used in cricket and baseball would likely suit Burford's business model perfectly, but sadly no stock exchange has yet adopted this more subjunctive style of calendar..

[maddox] 18/3/2023 18:10

Agreed Donald, How can a methodology rest on a single firm's proprietary model - one of the questions I asked on the second webinar - with no response.

If other firms don't have something as robust then the arbitrary nature of the methodology adds nothing to the current one.

[donald pond] 18/3/2023 17:52

Having just listened to the webinar I can understand their thinking. There is an element of marking your own homework but really it is an asset class without any analogy. But if the valuation methodology is based on their model, and their model is proprietary and the best in the business, it is hard to see how it could become industry standard

[ptolemy] 18/3/2023 17:00

To a lay person, such as myself, what BUR is trying to achieve seems somewhat forced and farcical.

To use a sporting analogy it's a bit like a soccer team (called 'A') averaging two goals per game over each season. At half-time neither team has scored but the referee declares that team 'A' is one nil up.

I, too, think cash accounting makes more sense.

[maddox] 18/3/2023 16:33

Haha PTSD great analogy!

[williamcooper104] 18/3/2023 14:44

No probs I think the drop was a bit of shareholder PTSD over the mention of fair value accounting :) There's still a low level of trust - IMO not helped by not accruing management performance fees into balance sheet carrying values

[williamcooper104] 18/3/2023 14:42

Yep - that makes sense I like cash accounting with estimates for a lower and upper proceeds and average time to realisation for each years vintage That way you can get year by year cash progress and an idea as to future returns - you can PV the current case load and then add something in for the platform and you then have an easy valuation

[three black crows] 18/3/2023 14:39

Thankyou William for viewpoint and detail

[maddox] 18/3/2023 14:34

Hi Donald,

I've come to the same conclusion - just hold the case investments at cost but allow an unaudited memorandum of the case portfolio's worth at the reporting date to accompany the results.

I appreciate what the accounting standards are seeking to achieve by way of 'fair value' accounting but in practice this isn't helpful for litigation finance. It attempts to make certain what is inherently uncertain and thus lacks credibility. Also, it leave scope for accusations of manipulation that undermines confidence in the markets and the accountancy profession. The closer accounts stay aligned to cash-accounting the more trustworthy they are perceived to be.

In the year before case conclusion it typically is valued at just 21% of the final value achieved [BUR 29 Mar 22 FY22 presentation p33]. So, the current methodology is inaccurate and hugely conservative - and it's difficult to envisage a new methodology being very much better. At least a cost-based approach removes any subjectivity and will I'd suggest be no more or less accurate.

Accounting for cases at cost would then mean we'd get the results out far sooner, more cost effectively, without the rigmarole of validation of subjective opinion. All this to produce figures that few people appear in reality believe.

[williamcooper104] 18/3/2023 14:30

If the FV exercise turns out to be just noise and we get >$200m P&L and similar or greater amount of cash generation ex investment then share price ought to be higher

[planit2] 18/3/2023 13:46

Yes, in the presentation CB said the number of cases where a portion had been sold was very small (I think he might have said just 2, Peterson and another) and because of this would not bear any significant impact on the fair valuation (excluding Peterson) going forwards.

Syoun2, I don't think they will have to write down a portion on entry as that would admit a case is worth less than entry value meaning they wouldn't engage. On average the carrying value is 25% of the final outcome so their 'fair' value is much less than their internal models think it is worth (exclude Peterson).
Syoun2 - Peterson is valued according to that event, the new fair value accounting should come up with the same values as the old system at these events as a market price is visible. The problem is valuing the other 99% of cases where there is no market price.

ThreeBleackCrows - I think and hope we are in a temporary down grade due to the results delay and fair value uncertainty. Burford has always struggled with investor confidence regarding this issue peaking with MW. CB repeatedly said he looks forward to getting the accounting treatment finalised with the SEC so he won't have to spend time addressing something which in his mind is a non-issue - it doesn't affect the business case or profit outcomes. Reading between the lines he is frustrated dealing with this recurring issue and explaining it rather than answering questions on their great performance.

donald - I would be surprised if EY weren't being taken along on this SEC journey as it unfolds. They are expecting 45-60 days for resolution and getting the results out which wouldn't give EY long if they were just getting started.

Burford seem to be working with the SEC to come up with a pricing model for legal assets that will be used as an industry standard. Most of the reporting this week assumes this is some kind of discussion where the SEC are unhappy with Burford's valuations. In the presentation they said this will use the same basics as are used now (accrued costs and pricing events) but there will be some small time value added to it effectively discounting back the final value.
They used an example on a case where intial costs were $100m and outcome was $300m. They said you can't discount back all the $200m as the case would be appreciating rapidly with no actions on it but some small discount rate would be applied. After listening to the presentation I agree with OP's above who are expecting a small increase in carrying value. The reason CB is so excited about this is the clarity of valuation methodology will remove the discussion, Burford are just 'applying industry standards'

One last point on the issue of credit default CB, CB said the chances of default were 'vanishingly small' and that the risk factors were in the release for disclosure reasons. So either he was directly lying or he is not worried, he did lay out the times involved (no deadlines until June).

[donald pond] 18/3/2023 12:54

I think they are arguing that their model is the best predictor of fair value and have built a huge track record in support of that claim. The overall aim must be to give investors an honest and accurate view of the value of the assets owned, and the model probably beats all other approaches, but smacks of marking your own homework.Personally I'd like to see Burford given a special accounting treatment where each case is valued at cost until it is resolved. That is clear and everyone could accept there is hidden upside. Petersen has been exceptional in that it has been part sold to third parties. That seems unlikely to happen often.

[syoun2] 18/3/2023 12:49

Anyone think they might have to write down a % of each commitment based on the overall loss rate at the point of committing funds. Would seem unfair but he did say that they were looking at accounting based on end rather than beginning of case.

[three black crows] 18/3/2023 12:25

What are the views regarding the share price. Are we in a temporary down grade until the issues are resolved over the coming weeks or is this current share price reflecting the current value ?

[williamcooper104] 18/3/2023 12:14

Previously most of the fair value uplift over cost was Peterson

[syoun2] 18/3/2023 11:48

I understand it just an accounting change but I think I recall now that they accrued based on the sale value so if that’s included in the new methodology its likely that no change or only a minor change would be required for Petersen.
Anyone know what the total value of all rhe accruals for fair value across the portfolio are on the books.

[donald pond] 18/3/2023 11:38

They sold 10% for $100m in 2019 and now hold 61% iirc. It's very odd though, as this is a case that is simple to understand but impossible to objectively evaluate. The method of valuation chosen does not in any way affect the eventual outcome. So it shouldn't matter and I don't think Burford care, they just want it resolved

[williamcooper104] 18/3/2023 11:35

Yep - think it was $770m then they reduced it because they hadn't accrued for management carry (which they should always have accrued for or at least disclosed in a note)

[syoun2] 18/3/2023 11:09

And what value is Petersen currently being held as in the books. From memory I thought it was 700million dollars but not sure.

[syoun2] 18/3/2023 11:05

Trying to second guess what the impact of the changes might be I was thinking that the new equation might include that any assets partly sold to a secondary market should be the same valuation applied to the remaining part of the asset. With that in mind can someone remind me what % of the Petersen assets Burford sold & how much did they get.

[donald pond] 18/3/2023 10:33

BUR has said they are finalising discussions with SEC and expect results to be out in 45-60 days. I expect BUR will be able to produce results quickly using any methodology but EY will take their time to get comfortable.I am wondering whether the next step should be an RNS confirming that a methodology has been agreed and that it's broad impact will be xyz. That seems to me a regulatory duty to announce as soon as you know it. "A new methodology has been agreed and while work on restating historical accounts will take some time to complete, the broad effect will be to increase A by x%/decrease B by y%". Surely that would have to be announced as soon as it is resolved?

[williamcooper104] 17/3/2023 21:01

The US bonds appear to only have incurrence covenants - eg you can't borrow more money if you're above 2x debt to TNW - that's what we like - cov lite The UK bonds have got maintenance financial covenants of Indebtedness being under 50 percent of Tangible Gross Assets (last I looked, from memory, a few years ago there was plenty of headroom - can't see what GAAP this is per; it's probably IFRS but might be US if that's what the parent company/guarantor is using) The US bonds have cross acceleration and cross payment default So breaching the UK bonds doesn't default the US bonds unless the UK bond holders accelerate (eg demand repayment following a covenant breach)

[williamcooper104] 17/3/2023 20:30

I will do :) It's bank loan docs you can't usually get hold of And inter creditor agreements

[tradertrev] 17/3/2023 18:55

Rather than guessing, you could take a look at all of Burford's bond prospectuses at:

So they appear to be your kind of hobby horse.
Have a fun weekend reading all of them!