Burford defends ‘reliable and judicious’ accounting methods

Burford defends ‘reliable and judicious’ accounting methods

23/09 - 16:46 - Litigation funder discloses valuations in response to Muddy Waters attack

Burford Capital has defended its accounting methods as “reliable and judicious” as it moved to assuage investor fears about the impact of Argentina’s economic crisis on its highest-profile case.

Shares in the embattled litigation funder rose 5 per cent on Monday after it published a presentation to investors on how it valued its investments.

Burford, which is reeling from an August attack by short-seller Muddy Waters, pays for litigation in return for a cut of the proceeds if court cases or arbitration succeed — part of a sector that has boomed in the era of low interest rates as investors hunt for higher returns.

Muddy Waters, headed by Carson Block, alleged Burford misled investors by overstating the value of the cases it was funding before litigation had finished and had got away with “aggressive and unwarranted marks” by manipulating return metrics.

Burford on Monday argued it had reliably written down cases when investments had been lost and had been conservative in marking up cases it was on track to win. It also revealed a potential multibillion-dollar settlement value in a case it has funded against the Argentine government.

It disclosed it had written down 47 per cent of its losses as fair-value gains before those cases finished, and that it had only marked about a third of its profits from successful cases as fair-value gains ahead of their conclusion.

Julian Roberts, analyst at Jefferies — which became a broker to Burford in September — said that “with one exception, Buford’s fair-value changes have been directionally correct, and in instances where they’ve lost cases, they have adjusted fair value down.”

Burford also revealed the extent to which its performance hinged on a blockbuster case between the Argentine government and the liquidators of Spanish conglomerate Petersen Group. Petersen went bankrupt after the Argentine government nationalised energy company YPF in 2012, taking its 25 per cent stake.

Burford said its return on invested capital spanning all of its investments stood at 98 per cent but acknowledged on Monday that this would fall to 59 per cent if its Petersen claim was stripped out. Burford’s internal rate of return would fall from 32 per cent to 24 per cent, it said.

But the litigation funder presented a bullish picture of the case, estimating the value of Petersens’ shares could be worth as much as $9bn — a sum that would form the basis of any settlement with Argentina and be divided between the liquidators and Burford.

However, Cannacord Genuity analyst Justin Bates criticised the company for not revealing the value ascribed to the Petersen case on Burford’s balance sheet.

“Burford makes a virtue of being transparent but they won’t disclose what value is being held at, and we don’t understand why,” he said. Burford said it could not reveal the value of the Petersen claim without breaching legally privileged information.

Burford has invested $18.4m in Petersen’s claims so far and netted $236m by selling its stake in the final outcome to third parties on the secondary market. However, Burford’s report suggested investors had grown nervous of the case amid political tensions and an economic crisis in Argentina.

“Some investors have asked about the impact of Argentina’s current political and economic uncertainty on the Petersen investment,” it said. The Argentine peso tumbled this month after investors reacted badly to Mauricio Macri’s primary election defeat.

Burford said the weakness in Argentina’s currency was “irrelevant”.