Though US-based, the finance company Buford Capital is reaping the benefits of listing in London and sidestepping the problems of its relative newness and lack of credit rating.

Burford Capital is a complex alternative finance company run by a New York-based chief executive and listed on London’s junior stock market, the Alternative Investment Market. With a history of only seven years and a business model focused on large law firms and their corporate clients, it is not an obvious candidate for the London Stock Exchange’s retail bond market, normally used by UK household names such as Tesco, HSBC or GlaxoSmithKline.

Nonetheless, the group debuted a £90m ($130bn) eight-year bond in 2014 and followed it in April this year with a highly successful £100m bond, maturing in 2024 and paying a 6.125% coupon.

“We wanted to add a modest amount of leverage to the business to help fund our growth,” says chief executive Chris Bogart. “We were not trying to raise huge sums of money so the retail bond market seemed ideal. And it helps to raise the profile of our equity.”

Burford Capital describes itself as "a leading global finance firm focused on law": in essence it helps companies and law firms to finance litigation more effectively. As a former global general counsel at Time Warner, Mr Bogart knows this area well. In particular, he was acutely aware that, under accounting protocol, litigation is financed as a cost on the profit-and-loss account but any wins are treated as exceptional items.

Freeing up capital

As litigation has become both more pervasive and more expensive, this imbalance has become increasingly frustrating for companies, many of whom are seeking ways of funding lawsuits more efficiently than via the traditional hourly billing mechanism.

“Litigation is increasing in volume and in cost, even as corporate clients are becoming more budget-conscious. They don’t want to tie up capital in expensive and protracted lawsuits so we act as an outsourced provider of capital,” says Mr Bogart.

Burford provides upfront funding, in the hope of receiving its money back – and more – once a case settles. The company began thinking about debt financing earlier this year, in direct response to growing client demand.

“We initially considered either a revolving credit facility or the retail bond market, but we liked the transparency of the public market,” says Mr Bogart. “In addition, this sort of stable and liquid funding base, with its regulated market disclosure requirements, is very important for clients undergoing time-consuming and expensive litigation. It reassures them that even before they need to access funds, the cash is ready to support them, on our balance sheet, and originates from public capital market sources.” 

Unrated version

When considering its options, Burford needed also to take into account that it has no rating: the sector in which it operates has such a short history that rating agencies find it almost impossible to assess possible risks. However, the retail market is less sensitive to credit ratings, further enhancing its appeal to Burford. So Mr Bogart contacted Canaccord Genuity [1], leaders in this space and the bookrunners of the company’s debut bond.

“Canaccord was recommended to us in 2014 for our first bond by one of our major shareholders and appeared to have a leading position in this specialised market. It executed both transactions adroitly,” he says.

Intriguingly, even though the 2014 bond was primarily targeted at the retail market, there was considerable institutional interest, including some big-ticket orders from blue-chip investors. Against that backdrop, Canaccord – and fellow bookrunner Peel Hunt – arranged a comprehensive roadshow for both institutions and retail distributors.

“Institutional investors were often already familiar with Burford, either through participation in the first bond issue or from our equity story,” says Mr Bogart “Investor focus tended to be around probing the diversity of the portfolio, the quality of past returns and the business’s continuing growth prospects. Institutional investors also appeared to be affected by the uncertainty in the sterling bond market around Brexit and market uncertainty and volatility.

“Retail focus tended to be more about the business model and the market landscape. Some retail brokers and investors were new to the concept of litigation claims as financeable assets and the discussion tended to be more about the macro themes in the legal market generally. Retail investors were nonetheless also very interested in historical portfolio performance.”

Two-week window

Unlike bonds launched on the institutional market, where books tend to remain open for a few hours, retail bond orders are built up over several days. Hence Burford Capital’s bond was launched on April 5 and the books remained open for two weeks. Such was the response from investors, however, that the size of the issue was increased from £75m to £100m.

“We saw a strong response from new names as well as existing investors who held both our equity and our previous bond,” says Mr Bogart. “Our offering was oversubscribed and we attracted very healthy participation from a wide range of institutional and high net worth investors, as well as private individuals.”

The company is likely to return to the market.

“One of the challenges of mid-sized companies is the need to make efficient use of senior management time, and at this stage having a market presence and the ability to repeat a known path and process with receptive investors and high-quality advisors is clearly valuable to us,” says Mr Bogart. “We also appreciate the global recognition and credibility that comes with having bonds listed on the LSE.”

[1] The Canaccord debt advisory and origination team have now moved to JC Rathbone Associates.

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