In addition to statements of historical fact, this report for the six months ended June 30, 2022 (this “Interim Report”) contains “forward-looking statements” within the meaning of Section 21E of the US Securities Exchange Act of 1934, as amended (the “Exchange Act”). The disclosure and analysis set forth in this Interim Report include assumptions, expectations, projections, intentions and beliefs about future events in a number of instances, particularly in relation to our operations, cash flows, financial position, plans, strategies, business prospects, changes and trends in our business and the markets in which we operate. These statements are intended as “forward-looking statements”. In some cases, predictive, future-tense or forward-looking words such as “aim”, “anticipate”, “believe”, “continue”, “could”, “estimate”, “expect”, “forecast”, “guidance”, “intend”, “may”, “plan”, “potential”, “predict”, “projected”, “should” or “will” or the negative of such terms or other comparable terminology are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. In addition, we and our representatives may from time to time make other oral or written statements which are forward-looking statements, including in our other periodic reports that we file with, or furnish to, the US Securities and Exchange Commission (the “SEC”), other information sent to our security holders and other written materials. By their nature, forward-looking statements involve known and unknown risks, uncertainties and other factors because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and are based on numerous assumptions, expectations, projections, intentions and beliefs and that our actual results of operations, including our financial position and liquidity, and the development of the industry in which we operate may differ materially from (and be more negative than) those made in, or suggested by, the forward-looking statements contained in this Interim Report. In addition, even if our results of operations, including our financial position and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Interim Report, those results of operations or developments may not be indicative of results of operations or developments in subsequent periods.
Factors that might cause future results of operations or developments to differ include, among others, the following:
▪ | Adverse litigation outcomes and timing of resolution of litigation matters |
▪ | Valuation uncertainty in respect of the fair value of our capital provision assets |
▪ | Our ability to identify and select suitable legal finance assets and enter into contracts with new and existing clients |
▪ | Changes and uncertainty in laws and regulations that could affect our industry, including those relating to privileged information |
▪ | Improper use or disclosure of privileged information under our control due to cybersecurity breaches, unauthorized use or theft |
▪ | Inadequacies in our due diligence process or unforeseen developments |
▪ | Credit risk and concentration risk relating to our legal finance assets |
▪ | Competitive factors and demand for our services and capital |
▪ | Negative publicity or public perception of the legal finance industry or us |
▪ | Current and future economic, political and market forces, including uncertainty surrounding the effects of the Covid-19 pandemic |
▪ | Potential liability from future litigation |
▪ | Our ability to retain key employees |
▪ | The sufficiency of our cash and cash equivalents and our ability to raise capital to meet our liquidity needs |
▪ | Other factors discussed under “Risk factors” in our annual report on Form 20-F for the year ended December 31, 2021, filed with the SEC on March 29, 2022 (the “Annual Report”) |
These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements contained in this Interim Report, the Annual Report and our other periodic reports that we file with, or furnish to, the SEC. New factors emerge from time to time, and it is not possible for us to predict all of these factors.
Burford Capital Interim Report 2022 1
Further, we cannot assess the impact of each such factor on our business or the extent to which any factor, or combination of factors, may cause actual results to be materially different from those contained in any forward-looking statement.
The forward-looking statements speak only as of the date of this Interim Report and, except as required by law, we undertake no obligation to update or revise the forward-looking statements contained in this Interim Report, whether as a result of new information, future events or otherwise.
Basis of presentation of financial information
We report our condensed consolidated financial statements for the six months ended June 30, 2022 and 2021 included in this Interim Report in accordance with the generally accepted accounting principles in the United States (“US GAAP”). Our condensed consolidated financial statements are presented in US Dollars.
Non-GAAP financial measures relating to our business structure
US GAAP requires us to present financial statements that consolidate some of the limited partner interests in funds we manage as well as assets held on our balance sheet where we have a partner or minority investor. See note 17 (Variable interest entities) to our condensed consolidated financial statements for additional information. We refer to this presentation as “consolidated”. We strive to provide a view of Burford as a stand-alone business (i.e., eliminating the impact of these managed funds) by furnishing information on a non-GAAP basis that eliminates the effect of this consolidation. We refer to this presentation as “Burford-only”. In addition, we strive to provide supplemental information that presents the totality of our legal finance activities by furnishing information on a non-GAAP basis that reflects the contribution of both our consolidated and non-consolidated managed funds. We refer to this presentation as “Group-wide”. To that end, throughout this Interim Report, we refer to our business as follows:
▪ | Consolidated Refers to assets, liabilities and activities that include those third-party interests, partially owned subsidiaries and special purpose vehicles that we are required to consolidate under US GAAP. At the date of this Interim Report, the major entities where there is also a third-party partner in, or owner of, those entities include the Strategic Value Fund, BOF-C, the Advantage Fund, Colorado and several other entities in which we hold investments where there is also a third-party partner in, or owner of, those entities. |
▪ | Burford-only Refers to assets, liabilities and activities that pertain only to Burford on a proprietary basis, excluding any third-party interests and the portions of jointly owned entities owned by others. |
▪ | Group-wide Refers to the totality of assets managed by Burford, including those portions of the funds owned by third parties and including funds that are not consolidated into Burford’s condensed consolidated financial statements. Group-wide is therefore the sum of Burford-only and non-controlling interests in consolidated and non-consolidated funds. Group-wide does not include third-party interests in capital provision assets, the economics of which have been sold to those third parties, that do not meet the criteria to be recognized as a sale under US GAAP. This includes the third-party interests in Colorado and other capital provision asset subparticipations. |
We use Burford-only and Group-wide financial measures, which are calculated and presented using methodologies other than in accordance with US GAAP, to supplement analysis and discussion of our condensed consolidated financial statements. We believe Group-wide financial measures, including Group-wide information on our capital provision assets and undrawn commitments, are useful to investors because they convey the scale of our existing (in the case of Group-wide capital provision assets) and potential future (in the case of Group-wide undrawn commitments) business and the performance of all legal finance assets originated by us. Although we do not receive all of the returns of our managed funds, we do receive management and performance fees as part of our income. Further, we believe that Group-wide portfolio metrics, including the performance of our managed funds, are important measures by which to assess our ability to attract additional capital and to grow our business, whether directly or through managed funds. These non-GAAP financial measures should not be considered as a substitute for, or superior to, financial measures calculated in accordance with US GAAP. See “Financial and Operational Review—Reconciliations” for the reconciliations of these non-GAAP financial measures to our condensed consolidated financial statements prepared in accordance with US GAAP.
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APMs and non-GAAP financial measures relating to our operating and financial performance
APMs
This Interim Report presents certain unaudited alternative performance measures (“APMs”). The APMs are presented because (i) we use them to monitor our financial position and results of operations and/or (ii) we believe they are useful to investors, securities analysts and other interested parties. The APMs, as defined by us, may not be comparable to similarly titled measures as presented by other companies due to differences in the way the APMs are calculated. Even though the APMs are used to assess our financial position and results of operations, and these types of measures are commonly used by investors, they have important limitations as analytical tools, and you should not consider them in isolation from, or as substitutes for, our condensed consolidated financial position or results of operations. Consistent with how management assesses Burford’s business, we also present certain of these APMs on a (i) consolidated basis, (ii) Burford-only basis and (iii) Group-wide basis.
The presentation of the APMs is for informational purposes only and does not purport to present what our actual financial position or results of operations would have been, nor does it project our financial position at any future date or our results of operations for any future period. The presentation of the APMs is based on information available at the date of this Interim Report and certain assumptions and estimates that we believe are reasonable. Several of the APMs measure certain performance of our assets to the end of the period and include concluded and partially concluded portfolios (as described below).
In discussing cash returns and performance of our asset management business, we refer to several metrics that we have applied consistently in our financial disclosure:
▪ | Assets under management Consistent with our status as an SEC-registered investment advisor, we report publicly on our asset management business on the basis of US regulatory assets under management (“AUM”). For the benefit of non-US investors, the SEC’s definition of AUM may differ from that used by European investment firms. AUM, as we report it, means the fair value of the capital invested in funds and individual capital vehicles plus the capital that we are entitled to call from investors in those funds and vehicles pursuant to the terms of their capital commitments to those funds and vehicles. |
▪ | Concluded and partially concluded assets A legal finance asset is “concluded” for our purposes when there is no longer any litigation risk remaining. We use the term to encompass (i) entirely concluded legal finance assets where we have received all proceeds to which we are entitled (net of any entirely concluded losses), (ii) partially concluded legal finance assets where we have received some proceeds (for example, from a settlement with one party in a multi-party case) but where the case is continuing with the possibility of receiving additional proceeds and (iii) legal finance assets where the underlying litigation has been resolved and there is a promise to pay proceeds in the future (for example, in a settlement that is to be paid over time). |
In most instances, concluded assets both conclude and result in receipt of all cash proceeds associated with the assets in the same period. Sometimes, non-cash assets are received or cash will be paid over time. In those instances, a “due from settlement of capital provision assets” receivable is recorded on our condensed consolidated statement of financial position, in which event we estimate the future date we expect to receive cash for purposes of calculating returns or other metrics, such as IRR and WAL (each as defined below). When proceeds are ultimately received, we adjust our presentation of returns to reflect actual proceeds and timing.
▪ | Deployed cost Deployed cost is the amount of funding we have provided for an asset at the applicable point in time. |
For purposes of calculating returns, we must consider how to allocate the costs associated with an asset in the event of a partial conclusion. Our approach to cost allocation depends on the type of asset:
- | When single case assets have partial resolutions along the way without the entire case being resolved, most commonly because one party settles and the remaining party(ies) continue to litigate, we report the partial resolution when agreed as a partial realization and allocate a portion of the deployed cost to the partial resolution depending on the significance of the settling party to the overall claim. |
- | In portfolio assets when a case (or part of a case) resolves or generates cash, we report the partial resolution when agreed as a partial realization and allocate a portion of the deployed cost to the resolution. The |
allocation depends on the structure of the individual portfolio arrangement and the significance of the resolution to the overall portfolio, but it is in essence a method that mimics the way an investor would allocate cost basis across a portfolio of security purchases. |
▪ | Commitment A commitment is the amount of financing we agree to provide for a legal finance asset. Commitments can be definitive (requiring us to provide funding on a schedule or, more often, when certain expenses are incurred) or discretionary (allowing us to provide funding after reviewing and approving a future matter). Unless otherwise indicated, commitments include deployed cost and undrawn commitments. |
▪ | Internal rate of return Internal rate of return (“IRR”) is a discount rate that makes the net present value of a series of cash flows equal to zero and is expressed as a percentage figure. We compute IRR on concluded (including partially concluded) legal finance assets by treating that entire portfolio (or, when noted, a subset thereof) as one undifferentiated pool of capital and measuring actual and, if necessary, estimated inflows and outflows from that pool, allocating investment cost appropriately. IRRs do not include unrealized gains. |
▪ | Return on invested capital Return on invested capital (“ROIC”) from a concluded asset is the absolute amount of realizations from such asset in excess of the amount of expenditure incurred in funding such asset divided by the amount of expenditure incurred, expressed as a percentage figure. ROIC is a measure of our ability to generate absolute returns on our assets. Some industry participants express returns on a multiple of invested capital (“MOIC”) instead of a ROIC basis. MOIC includes the return of capital and, therefore, is 1x higher than ROIC. In other words, 70% ROIC is the same as 1.70x MOIC. |
▪ | Weighted average life Weighted average life (“WAL”) of one of our legal finance assets represents the average length of time from deployment and/or cash outlay until we receive a cash realization (actual or, if necessary, estimated) from that asset weighted by the amount of that realization. In other words, WAL is how long our asset is outstanding on average. In the past, we have sometimes referred to “duration” of our legal finance assets to give an indication of their tenor. Duration and WAL are often used somewhat interchangeably in finance, but technically we are analyzing WAL (where time is weighted by cash flows) rather than duration (where time is weighted by the present value of those cash flows). |
Unlike our IRR and ROIC calculations, using the aggregate cash flows from the portfolio in making our portfolio level computations will not readily work with WAL computations because our funded assets are originated in different timeframes. Instead, in calculating a portfolio WAL, we compute a weighted average of the individual asset WALs. In doing this, we weight the individual WALs by the costs deployed on the asset and also, as a separate calculation, by the amount of realizations on the individual assets.
Non-GAAP financial measures
In addition to these measures of cash returns and performance of our asset management business, we also refer to cash receipts and tangible book value attributable to Burford Capital Limited per ordinary share, which are non-GAAP financial measures:
▪ | Cash receipts Cash receipts provide a measure of the cash that our capital provision and other assets generate during a given period as well as cash from certain other fees and income. In particular, cash receipts represent the cash generated from capital provision and other assets, including cash proceeds from realized or concluded assets and any related hedging assets, plus cash received for asset management fees, services and/or other income, before any deployments into funding existing or new assets. |
Cash receipts is a non-GAAP financial measure and should not be considered as a substitute for, or superior to, financial measures calculated in accordance with US GAAP. The most directly comparable US GAAP measure is proceeds from capital provision assets as set forth in our condensed consolidated statements of cash flows. We believe that cash receipts is an important measure of our operating and financial performance and is useful to management and investors when assessing the performance of our Burford-only capital provision assets. See “Financial and Operational Review—Reconciliations—Cash receipts reconciliations” for a reconciliation of cash
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receipts to proceeds from capital provision assets, the most comparable measure calculated in accordance with US GAAP.
▪ | Tangible book value attributable to Burford Capital Limited per ordinary share |
Tangible book value attributable to Burford Capital Limited per ordinary share is calculated by subtracting intangible assets (such as goodwill) from total Burford Capital Limited equity and dividing the difference by the total number of outstanding ordinary shares.
Tangible book value attributable to Burford Capital Limited per ordinary share is a non-GAAP financial measure and should not be considered as a substitute for, or superior to, financial measures calculated in accordance with US GAAP. The most directly comparable US GAAP measure is total Burford Capital Limited equity as set forth in our condensed consolidated statements of financial position. We believe that tangible book value attributable to Burford Capital Limited per ordinary share is an important measure of our financial condition and is useful to management and investors when assessing capital adequacy and our ability to generate earnings on tangible equity invested by our shareholders. See “Financial and operational review—Reconciliations—Tangible book value attributable to Burford Capital Limited per ordinary share reconciliations” for a reconciliation of tangible book value per ordinary share to total Burford Capital Limited equity, the most comparable measure calculated in accordance with US GAAP.
Certain terms used in this Interim Report
In this Interim Report, references to “Burford”, “we”, “us” or “our” refer to Burford Capital Limited and its subsidiaries, unless the context requires otherwise.
Certain additional terms used in this Interim Report are set forth below:
Advantage Fund
Burford Advantage Master Fund LP, a private fund for which BCIM serves as the investment advisor and which is focused on pre-settlement litigation strategies where litigation risk remains, but the risk is anticipated to be lower than that of our core legal finance business. Investors in the Advantage Fund include third-party limited partnerships as well as Burford’s balance sheet. Investments in the Advantage Fund are recorded as capital provision-indirect assets.
Alternative strategies
Encompasses complex strategies, lower risk legal finance and post-settlement finance assets that provide lower but attractive risk-adjusted returns.
Asset management
Includes our activities administering the private funds we manage for third-party investors.
Asset management income
Income from fees earned from administering the private funds we manage for third-party investors.
Asset recovery
Pursuit of enforcement of an unpaid legal judgment, which may include our financing of the cost of such pursuit and/or judgment enforcement.
BAIF
Burford Alternative Income Fund LP, a private fund focused on post-settlement legal finance matters.
BAIF II
Burford Alternative Income Fund II LP, a private fund focused on post-settlement legal finance matters.
BCIM
Burford Capital Investment Management LLC, a wholly owned indirect subsidiary of Burford Capital Limited, serves as the investment advisor of all of our managed funds and is registered under the US Investment Advisers Act of 1940, as amended.
BOF
Burford Opportunity Fund LP, a private fund focused on pre-settlement legal finance matters.
BOF-C
Burford Opportunity Fund C LP, a private fund through which a sovereign wealth fund invests in pre-settlement legal finance matters under the sovereign wealth fund arrangement.
Capital provision assets
We subdivide our capital provision assets into two categories:
“Direct”, which includes all of our capital provision assets that we have originated directly (i.e., not through participation in a fund) from our balance sheet. We also include direct (i.e., not through participation in a fund) complex strategies assets in this category. See note 3 (Supplemental cash flow data) to our condensed consolidated financial statements for additional information.
“Indirect”, which includes the balance sheet’s participations in two of our private funds (i.e., the Strategic Value Fund and the Advantage Fund).
Capital provision income
Income from our portfolio of capital provision assets and related positions.
Carrying value
Amount at which an asset is carried on the balance sheet, reflecting cost and any fair value adjustment.
Claimant
The party who asserts a right or title in a legal proceeding, in particular in arbitration matters.
Claim family
A group of legal finance assets with a related underlying claim shared by a number of different claimants.
Colorado
Colorado Investments Limited, a limited liability company that was created for the secondary sale of some of our entitlement in the YPF-related Petersen matter.
Complex strategies
Encompasses our activities providing capital as a principal in legal- or regulatory-related assets, often securities, debt and other financial assets, where a significant portion of the expected return arises from the outcome of legal or regulatory activity.
Consolidated funds
Certain of our private funds in which, because of our investment in and/or control of such private funds, we are required under US GAAP to consolidate the minority limited partner’s interests in such private funds and include the full financial results of such private funds within our condensed consolidated financial statements. At the date of this Interim Report, BOF-C, the Strategic Value Fund and the Advantage Fund are consolidated funds.
Core legal finance
Provision of capital and expertise, to clients or as a principal, in connection with (i) the underlying asset value of litigation claims and enforcement of settlements, judgments and awards, (ii) the amount paid to law firms as legal fees and (iii) the value of assets affected by litigation.
Defendant
The party against whom a civil action is brought, in particular in litigation matters.
Deployment
Funding provided for an asset, which adds to our invested cost in such asset.
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Definitive commitments
Commitments where we are contractually obligated to fund incremental capital and failure to do so would typically result in adverse contractual consequences (such as a dilution in our returns or the loss of our funded capital in a case).
Discretionary commitments
Commitments where we are not contractually obligated to advance capital and generally would not suffer adverse financial consequences from failing to do so.
Fair value adjustment
The amount of unrealized gain or loss recognized in our profit or loss account in the relevant period and added to or subtracted from, as applicable, asset value on our condensed consolidated statements of financial position.
Judgment debtor
A party against whom there is a final adverse court award.
Judgment enforcement
The activity of using legal and financial strategies to force a judgment debtor to pay an adverse award made by a court.
Legal finance
Our legal finance products and services comprise (i) core legal finance and (ii) alternative strategies.
Legal risk management
Matters where we provide some form of legal risk arrangement, such as an indemnity or insurance for adverse legal costs.
Litigation
We use the term litigation colloquially to refer to any type of matter involved in the litigation, arbitration or regulatory process and the costs and legal fees associated therewith.
Lower risk legal finance
Pre-settlement litigation investments with lower risk and lower expected returns than assets included in our core legal finance portfolio. At the date of this Interim Report, our lower risk legal finance activity occurs primarily in a third-party managed fund (i.e., the Advantage Fund).
LTIP
Burford’s long-term incentive plan for the awards of ordinary shares to employees.
Management fee
The fee earned by us from administering the private funds we manage for third-party investors.
Monetization
The acceleration of a portion of the expected value of a litigation or arbitration matter prior to resolution of such matter, which permits a client to convert an intangible claim or award into tangible cash on a non-recourse basis.
Net realized gain/loss
The sum of realized gains and realized losses.
Non-consolidated funds
Certain of our private funds that we are not required to include within our condensed consolidated financial statements but include within Group-wide data. At the date of this Interim Report, (i) BCIM Partners II, LP, (ii) BCIM Partners III, LP, (iii) BCIM Credit Opportunities, LP, (iv) BOF, (v) BAIF and (vi) BAIF II and any “sidecar” funds are non-consolidated funds.
Performance fee
The share of profits generated from funds which we manage on behalf of third-party limited partnerships. This share of profits is paid as a performance fee when the funds meet certain performance conditions.
Plaintiff
The party who institutes a legal action or claim, in particular in litigation matters.
Portfolio finance
Legal finance assets with multiple paths to realization, such as financing for a pool of litigation claims.
Post-settlement finance
Includes our financing of legal-related assets in situations where litigation has been resolved, such as financing of settlements and law firm receivables. At the date of this Interim Report, our post-settlement finance activity occurs primarily in third-party managed funds (i.e., BAIF and BAIF II).
Privileged information
Confidential information that is protected from disclosure due to the application of a legal privilege or other doctrine, including attorney work product, depending on the laws of the relevant jurisdiction.
Realization
A legal finance asset is realized when the asset is concluded (i.e., when litigation risk has been resolved). A realization will result in us receiving cash or, occasionally, non-cash assets or recognizing a due from settlement receivable, reflecting what we are owed on the asset.
Realized gain or loss
Reflects the total amount of gain or loss generated by a legal finance asset when it is realized, calculated simply as realized proceeds less deployed cost, without regard for any previously recognized fair value adjustment.
Respondent
The party against whom a civil action is brought, in particular in arbitration matters.
Single-case finance
Legal finance assets that are subject to binary legal risk, such as a single filed litigation or arbitration matter with one plaintiff or group of plaintiffs and one defendant or group of defendants.
Strategic Value Fund
BCIM Strategic Value Master Fund, LP is a limited partnership for which BCIM serves as the investment advisor and which invests in certain complex strategies assets. Investors in the Strategic Value Fund include third-party limited partnerships as well as Burford’s balance sheet. Investments in the Strategic Value Fund are recorded as capital provision-indirect assets.
Sovereign wealth fund arrangement
The agreement we have entered into with a sovereign wealth fund pursuant to which it provides funding for a portion of our legal finance assets through BOF-C.
Transfers to realizations
The amount of fair value adjustment previously recognized on an asset, which is subsequently reversed in the period when a realized gain is recognized.
Unrealized gain or loss
Represents the fair value of our assets over or under their funded cost, as determined in accordance with the requirements of the applicable US GAAP standards, for the relevant financial reporting period (condensed consolidated statement of operations and comprehensive income) or cumulatively (condensed consolidated statement of financial position).
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Vintage
Refers to the calendar year in which a legal finance commitment is initially made.
YPF-related assets
Refers to our Petersen and Eton Park legal finance assets, which are two claims relating to Argentina’s nationalization of YPF S.A., the Argentine energy company.
Financial and operational review
The following discussion and analysis of our financial and operational review should be read in conjunction with our condensed consolidated financial statements and the accompanying notes thereto contained elsewhere in this Interim Report. Certain information contained in the following discussion and analysis includes forward-looking statements that involve known and unknown risks, uncertainties and other factors. See “Forward-looking statements”.
The following discussion and analysis also contain a discussion of certain APMs and non-GAAP financial measures that are used by management to monitor our financial position and results of operations. These APMs and non-GAAP financial measures are supplemental and should not be considered in isolation from, or as substitutes for, our condensed consolidated financial position or results of operations as reported under US GAAP. See “Basis of presentation of financial information” for additional information with respect to APMs and non-GAAP financial measures.
In addition, because we report our results of operations under US GAAP in this Interim Report, historical data at and for the six months ended June 30, 2021 included in this Interim Report may differ from the historical data prepared in accordance with the International Financial Reporting Standards (“IFRS”) as previously reported by us. See “Financial and operational review—Conversion to US GAAP” in the Annual Report for additional information with respect to the differences between US GAAP and IFRS.
Economic and market conditions
Covid-19 pandemic
Court systems and other forms of adjudication have largely returned to functionality in the aftermath of the Covid-19 pandemic, but a number of court systems face significant backlogs, delaying adjudication. Moreover, delays in adjudication also tend to lead to delays in case settlements, as parties do not feel pressure to resolve matters. Inevitably, some of our matters (and thus our cash realizations from them) have been and are likely to continue to be slowed by these dynamics. Delay in matters, however, is often profitable for us, as many of our assets have time-based terms which will increase our returns as time passes, so we consider these delays to be the deferral of income rather than its permanent diminution. We have not seen the discontinuance of any matters. Moreover, in jurisdictions with court backlogs because of the Covid-19 pandemic, the impetus to file new litigation may be diminished, unless there is an approaching limitation period, given that the litigation will not be able to move forward swiftly and spending money on the early phases of litigation could thus be postponed.
See “Risk factors—Risks related to our business and industry—Legal, political and economic uncertainty surrounding the effects of the Covid 19 pandemic could adversely affect our business, financial position, results of operations and/or liquidity” in the Annual Report.
Uncorrelated returns
Our returns are driven by judicial activity and are uncorrelated to market conditions or economic activity. The return of economic stress is likely good for us, as we tend to generate business when companies face increased liquidity challenges and other forms of uncertainty.
International sanctions on Russian businesses and individuals
The international sanctions imposed on Russian businesses and individuals continue to impact the legal industry although they have little impact on us. Our legal finance assets in jurisdictions outside Russia or Ukraine but which are against entities that might have an ultimate Russian parent or controller (regardless of sanction status) represented in the aggregate $105 million (or approximately 3.4%) of total carrying value for capital provision assets at June 30, 2022, as compared to $93 million (or approximately 3.2%) of total carrying value for capital provision assets at December 31, 2021, with the increase only occurring due to incremental investment and valuation changes in existing investments. There have been no significant changes or developments with respect to the impact of these international sanctions on our business. See “Financial and Operational Review—Sanctions” in the Annual Report for additional information with respect to these international sanctions.
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Results of operations and financial position
Set forth below is a discussion of our condensed consolidated results of operations for the six months ended June 30, 2022 and 2021 and our condensed consolidated financial position at June 30, 2022 and December 31, 2021, in each case, on a consolidated basis, unless noted otherwise.
See “—Reconciliations—Reconciliations of consolidated financial statements to Burford-only financial statements— Reconciliations of consolidated statements of operations to Burford-only statements of operations” for a reconciliation of our condensed consolidated results of operations for the six months ended June 30, 2022 and 2021 from a consolidated basis to a Burford-only basis and “—Reconciliations—Reconciliations of consolidated financial statements to Burford-only financial statements—Reconciliations of consolidated statements of financial position to Burford-only statements of financial position” for a reconciliation of our condensed consolidated financial position at June 30, 2022 and December 31, 2021 from a consolidated basis to a Burford-only basis.
The table below sets forth our condensed consolidated statements of operations for the six months ended June 30, 2022 and 2021.
| | | | | |
| | For the six months | | ||
| | ended June 30, | | ||
| | 2022 |
| 2021 | |
($ in thousands) |
| (Unaudited) |
| (Unaudited) | Change |
Revenues | | | | | |
Capital provision income | | 110,278 | | 84,428 | 25,850 |
Asset management income | | 5,508 | | 4,329 | 1,179 |
Insurance (loss)/income | | (2,297) | | 799 | (3,096) |
Services income | | 389 | | 682 | (293) |
Marketable securities (loss)/income and bank interest | | (8,971) | | 1,256 | (10,227) |
Gain relating to third-party interests in capital provision assets | | 1,005 | | 395 | 610 |
Total revenues | | 105,912 | | 91,889 | 14,023 |
| | | | | |
Operating expenses | | | | | |
Compensation and benefits | | | | | |
Salaries and benefits | | 17,416 | | 17,633 | (217) |
Annual incentive compensation | | 7,143 | | 6,544 | 599 |
Equity compensation | | 4,869 | | 4,272 | 597 |
Legacy asset recovery incentive compensation including accruals | | 1,690 | | 34,083 | (32,393) |
Long-term incentive compensation including accruals | | 4,672 | | 5,122 | (450) |
General, administrative and other | | 14,735 | | 14,458 | 277 |
Case-related expenditures ineligible for inclusion in asset cost | | 3,663 | | 2,532 | 1,131 |
Total operating expenses | | 54,188 | | 84,644 | (30,456) |
| | | | | |
Operating income | | 51,724 | | 7,245 | 44,479 |
| | | | | |
Other expenses | | | | | |
Finance costs | | 36,561 | | 25,646 | 10,915 |
Loss on debt extinguishment | | 916 | | 1,616 | (700) |
Foreign currency transactions losses | | 3,024 | | 396 | 2,628 |
Total other expenses | | 40,501 | | 27,658 | 12,843 |
| | | | | |
Income/(loss) before income taxes | | 11,223 | | (20,413) | 31,636 |
| | | | | |
(Provision for)/benefit from income taxes | | (7,725) | | 559 | (8,284) |
Net income/(loss) | | 3,498 | | (19,854) | 23,352 |
| | | | | |
Net income attributable to non-controlling interests | | 24,999 | | 8,736 | 16,263 |
Net loss attributable to Burford Capital Limited shareholders | | (21,501) | | (28,590) | 7,089 |
Overview
Burford had a solid first half, with a 31% increase in capital provision income and more than a sixfold increase in operating income along with a meaningful amount of new business. Our net income was impacted by non-cash, unrealized negative impacts associated with our marketable securities and our exposure to non-US currencies and deferred taxes. Our operating expenses fell sharply given the reduced level of expense accruals that were present during the six months ended June 30, 2021, offset somewhat by higher interest expenses given the 6.250% Senior Notes
Burford Capital Interim Report 2022 11
due 2028 (the “2028 Notes”) were outstanding for the full six-month period and the issuance of the 6.875% Senior Notes due 2030 (the “2030 Notes”) in April 2022.
Statement of operations
Capital provision income
Capital provision income increased by 31% to $110 million for the six months ended June 30, 2022, as compared to
$84 million for the six months ended June 30, 2021. Our capital provision income was composed of (i) realized gains of $34 million (June 30, 2021: $87 million, reflecting the impact in that period of the Akhmedov resolution), (ii) fair value adjustments (net of previously recognized unrealized gains transferred to realized gains) of $81 million (June 30, 2021: less than $1 million), reflecting an increase in litigation activity in the courts, and (iii) a non-cash foreign exchange charge of $7 million (June 30, 2021: $2 million) relating to matters denominated in currencies (principally Euros) as to which we do not have a functional currency holding entity, causing those foreign exchange changes to flow through this line item. The increase in unrealized gains suggests a welcome resumption of court activity post-Covid-19 pandemic.
Asset management income
Asset management income increased by 27% to $6 million for the six months ended June 30, 2022, as compared to $4 million for the six months ended June 30, 2021. Management fees were unchanged at $4 million and performance fees, of which there were none for the six months ended June 30, 2021, were $2 million. The increase in asset management income for the six months ended June 30, 2022 was attributable to additional performance fee income recognized with respect to BAIF.
Insurance (loss)/income
The insurance loss position of $2 million for the six months ended June 30, 2022 reflected both an expected decline in revenues from our legacy insurance business in run-off following its many years of excellent contribution, and the interim performance of Burford Worldwide Insurance Limited, our wholly-owned Guernsey insurer that provides insurance for legal cost shifting incurred in pursuing or defending legal proceedings.
Services income
Services income was at less than $1 million for the six months ended June 30, 2022 and 2021. The small decrease from the prior year period was consistent with the continuing migration of our asset recovery business from fee-for-service activity to focus on generating capital provision assets as we transition to a contingent risk model.
Marketable securities (loss)/income and bank interest
We place a portion of our cash with an institutional asset manager which actively trades such cash in short-term marketable securities, generally in the form of money market and fixed income instruments, in an effort to generate yield above that earned on cash and cash equivalents. During the period, we saw considerable volatility in debt markets leading to lower valuations for many of these investments, and we closed the half with non-cash unrealized losses of $9 million due to our fair value treatment of these securities. However, we expect this portfolio to benefit from currently higher yields and the reversal of unrealized losses as securities approach their maturity.
Gain relating to third-party interests in capital provision assets
Gain relating to third-party interests in capital provision assets increased to $1 million for the six months ended June 30, 2022, as compared to less than $1 million for the six months ended June 30, 2021. This immaterial increase reflects differential levels of capital provision asset activity.
Operating expenses
Our operating expenses fell sharply given the presence in the first half of 2021 of legacy asset recovery incentive compensation accruals that were not repeated at the same levels in 2022. We expense our operating expenses as they are incurred instead of capitalizing them as part of our capital provision portfolio. Moreover, we perform virtually all of our asset origination activities internally, using our own employees, as opposed to outsourcing due diligence or legal work. As a result, our operating expenses largely reflect our actual expenditures in cash to operate our business during the period.
12 Burford Capital Interim Report 2022
Compensation and benefits
Compensation and benefits expenses decreased by 47% to $36 million for the six months ended June 30, 2022, as compared to $68 million for the six months ended June 30, 2021. This decrease reflected primarily the legacy asset recovery incentive compensation accruals in the prior period; otherwise, cash compensation expense remained relatively flat period-over-period.
Equity compensation expense was $5 million for the six months ended June 30, 2022 (June 30, 2021: $4 million) reflecting somewhat greater use of LTIP as a compensation tool.
Legacy and long-term incentive compensation expenses were $6 million due to non-cash accruals relating to incremental fair value changes in the period (June 30, 2021: $39 million, of which $34 million related to a large case resolution).
General, administrative and other
General, administrative and other expenses were essentially unchanged from the prior year period at just under $15 million.
Case-related expenditures ineligible for inclusion in asset cost
Case-related expenditures ineligible for inclusion in asset cost increased to $4 million for the six months ended June 30, 2022, as compared to $3 million for the six months ended June 30, 2021. This expense line will inherently vary based on deal structures and case events.
Finance costs
Finance costs increased to $37 million for the six months ended June 30, 2022 (June 30, 2021: $26 million). This increase reflected primarily the increase in our outstanding indebtedness as a result of the issuance of $360 million aggregate principal amount of the 2030 Notes in April 2022 and the full six months of finance costs on the $400 million aggregate principal amount of the 2028 Notes that were issued in April 2021, partially offset by the early redemption in full of the remaining $80 million (£62 million) aggregate principal amount of 6.500% Bonds due 2022 (the “2022 Bonds”) in May 2022.
Loss on debt extinguishment
Loss on debt extinguishment decreased to less than $1 million for the six months ended June 30, 2022 (June 30, 2021: $2 million) reflecting the lower premium paid to redeem the remaining 2022 Bonds during the six months ended June 30, 2022 as compared to the premium paid in connection with the tender offer for the 2022 Bonds during the six months ended June 30, 2021. We chose to redeem the 2022 Bonds given the cash economics were more favorable than allowing the 2022 Bonds to remain outstanding until maturity.
Foreign currency transactions losses
In addition to the non-cash unrealized foreign exchange losses included in the capital provision income discussed under “—Capital provision income”, we also saw non-cash foreign currency transactions losses increase to ($3) million for the six months ended June 30, 2022, as compared to under $1 million for the six months ended June 30, 2021. This increased loss reflected primarily the strength of the US Dollar relative to UK Sterling exchange rates during the six months ended June 30, 2022 in relation to intercompany account balances between subsidiaries with different functional currencies and is wholly non-cash and unrealized.
(Provision for)/benefit from income taxes
There was a provision for income taxes of $8 million for the six months ended June 30, 2022, as compared to a tax benefit of less than $1 million for the six months ended June 30, 2021. This tax expense was primarily due to recording a full valuation allowance for a deferred tax asset relating to interest expense deductions. We paid cash taxes of less than $1 million for the six months ended June 30, 2022 and 2021, respectively.
Net income attributable to non-controlling interests
Net income attributable to non-controlling interests increased to $25 million for the six months ended June 30, 2022, as compared to $9 million for the six months ended June 30, 2021. This increase reflected non-controlling interests’ share of income on capital provision assets, the majority of which relates to increases in fair value of assets held by BOF-C.
Burford Capital Interim Report 2022 13
See note 2 (Summary of significant accounting policies) to our condensed consolidated financial statements and note 2 (Summary of significant accounting policies) to our consolidated financial statements contained in the Annual Report for additional information with respect to our consolidation policies.
Statement of financial position
Cash and cash equivalents and marketable securities
Our liquidity position, already strong at $355 million at December 31, 2021, was even more robust at $479 million at June 30, 2022. Cash and cash equivalents were $353 million and marketable securities were $126 million, as compared to cash and cash equivalents of $180 million and marketable securities of $175 million, at December 31, 2021. This increase in cash and cash equivalents and marketable securities reflected our issuance of the 2030 Notes, partially offset by redeeming the 2022 Bonds and deployments.
Due from settlement of capital provision assets
Due from settlement of capital provision assets decreased by 21% to $68 million at June 30, 2022, as compared to $86 million at December 31, 2021. This decrease in due from settlement of capital provision assets reflected net positive collection of receivables in the normal course of business. Of the $86 million of due from settlement receivables at December 31, 2021, 56% was collected in cash during the six months ended June 30, 2022.
Capital provision assets
Capital provision assets increased by 7% to $3.1 billion at June 30, 2022, as compared to $2.9 billion at December 31, 2021. This increase in capital provision assets is principally due to additional deployments.
Segments
We have two operating business segments, (i) capital provision segment—i.e., the provision of capital to the legal industry or in connection with legal matters, both directly and through investment in our managed funds, and (ii) asset management and other services segment—i.e., the provision of services to the legal industry, including litigation insurance, and one corporate segment, (iii) other corporate. Management considers income/(loss) before income taxes as the measure of segment profitability.
The tables below set forth the components of our income/(loss) before income taxes by segment for the six months ended June 30, 2022 and 2021.
| | | | | | | | |
| | For the six months ended June 30, 2022 | ||||||
| | Capital | | Asset management | | Other | | |
($ in thousands) |
| provision | | and other services | | corporate |
| Total |
Total revenues | | 73,775 | | 15,114 | | (8,977) | | 79,912 |
Total operating expenses | | 26,874 | | 10,482 | | 15,834 | | 53,190 |
Total other expenses | | 33,861 | | 859 | | 5,778 | | 40,498 |
Income/(loss) before income taxes | | 13,040 | | 3,773 | | (30,589) | | (13,776) |
| | | | | | | | |
| | For the six months ended June 30, 2021 | ||||||
| | Capital | | Asset management | | Other | | |
($ in thousands) |
| provision | | and other services | | corporate |
| Total |
Total revenues | | 66,433 | | 13,203 | | 1,255 | | 80,891 |
Total operating expenses | | 74,886 | | 5,363 | | 2,133 | | 82,382 |
Total other expenses | | 24,198 | | 218 | | 3,242 | | 27,658 |
(Loss)/income before income taxes | | (32,651) | | 7,622 | | (4,120) | | (29,149) |
In the capital provision segment, we generated income before income taxes of $13 million for the six months ended June 30, 2022, as compared to a loss before income taxes of $33 million for the six months ended June 30, 2021. This increase reflected primarily the lower legacy asset recovery incentive compensation expense for the six months ended June 30, 2022. In the asset management and other services segment, we had income before income taxes of $4 million for the six months ended June 30, 2022, as compared to $8 million for the six months ended June 30, 2021. This decrease reflected primarily higher segment expenses, partially offset by higher income from BOF-C. In the other corporate segment, loss before income taxes increased to a loss of $31 million for the six months ended June 30, 2022,
14 Burford Capital Interim Report 2022
as compared to $4 million for the six months ended June 30, 2021. This increased loss reflected primarily the marketable securities loss and higher segment expenses.
Cash flows
Set forth below is a discussion of our condensed consolidated cash flows for the six months ended June 30, 2022 and 2021 on a consolidated basis, unless noted otherwise.
The table below sets forth the components of our cash flows for the six months ended June 30, 2022 and 2021.
| | | | |
| | For the six months | ||
| | ended June 30, | ||
($ in thousands) |
| 2022 |
| 2021 |
Net cash (used in) operating activities |
| (140,777) |
| (646,118) |
Net cash (used in) investing activities |
| (52) |
| (187) |
Net cash provided by financing activities |
| 318,173 |
| 514,834 |
Net increase/(decrease) in cash and cash equivalents |
| 177,344 |
| (131,471) |
Net cash used in operating activities
Net cash used in operating activities was $141 million for the six months ended June 30, 2022, as compared to net cash used in operating activities of $646 million for the six months ended June 30, 2021. This decrease in net cash used in operating activities reflected the receipt of net proceeds from marketable securities of $40 million for the six months ended June 30, 2022 as compared to the net funding of $250 million of marketable securities in 2021 and a decrease in funding of capital provision assets for the six months ended June 30, 2022 due to the outsized single case funded in 2021.
The table below sets forth the components of our net cash used in operating activities for the six months ended June 30, 2022 and 2021.
| | | | |
| | For the six months | ||
| | ended June 30, | ||
($ in thousands) |
| 2022 |
| 2021 |
Net cash provided by/(used in) operating activities before funding of operating activities |
| 23,425 | | (18,527) |
Net proceeds/(funding) of marketable securities | | 39,540 | | (249,841) |
Funding of capital provision assets |
| (203,742) | | (377,750) |
Net cash used in operating activities |
| (140,777) | | (646,118) |
Net cash used in investing activities
Net cash used in investing activities was consistent at less than $1 million for the six months ended June 30, 2022 and 2021.
Net cash provided by financing activities
Net cash provided by financing activities was $318 million for the six months ended June 30, 2022, as compared to $515 million for the six months ended June 30, 2021. This decrease in net cash provided by financing activities reflected primarily the redemption of the remaining the 2022 Bonds during the period, coupled with a reduction in third-party net capital contributions.
Debt
We have issued six series of debt securities, five of which remained outstanding at June 30, 2022 and one of which we redeemed in full prior to its scheduled August 2022 maturity during the six months ended June 30, 2022. Three series of our debt securities are listed on the Order Book for Retail Bonds of the London Stock Exchange (the “ORB”) at the date of this Interim Report, and two series of our debt securities were issued through private placement transactions under Rule 144A and Regulation S under the Securities Act of 1933, as amended (the “Securities Act”). See “Equity and debt securities” for additional information with respect to our outstanding debt securities.
The table below sets forth certain information with respect to our debt securities at June 30, 2022 and December 31, 2021. Debt securities denominated in UK Sterling have been converted to US Dollars using GBP/USD exchange rates of $1.2143 at June 30, 2022 and $1.3477 at December 31, 2021.
Burford Capital Interim Report 2022 15
| | | | | | | | | | | | | | | | | | |
| Principal amount | Carrying value (at amortized cost) at | Fair value(1) at | |||||||||||||||
| USD | | Outstanding | | Outstanding | | | | | | | | | | | |||
| equivalent | | at June 30, | | at June 30, | | | | | | | | | | | |||
| face value | | 2022 (in local | | 2022 | | June 30, | | | December 31, | | June 30, | | | December 31, | |||
($ in thousands) | at issuance | | currency) | | (in USD) | | 2022 | | | 2021 | | 2022 | | | 2021 | |||
Burford Capital PLC | | | | | | | | | | | | | | | | | | |
6.500% Bonds due 2022 | $ | 143,176 |
| £ | - | | $ | | $ | - | | $ | 83,396 | $ | - | | $ | 85,560 |
6.125% Bonds due 2024 | $ | 144,020 |
| £ | 100,000 | | $ | 121,430 | $ | 120,919 | | $ | 134,092 | $ | 122,499 | | $ | 140,430 |
5.000% Bonds due 2026 | $ | 225,803 |
| £ | 175,000 | | $ | 212,503 | $ | 211,119 | | $ | 234,153 | $ | 199,391 | | $ | 236,909 |
| | | | | | | | | | | | | | | | | | |
Burford Capital Finance LLC |
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6.125% Bonds due 2025 | $ | 180,000 | | $ | 180,000 | | $ | 180,000 | $ | 178,904 | | $ | 178,728 | $ | 171,144 | | $ | 185,855 |
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Burford Capital Global Finance LLC |
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6.250% Senior Notes due 2028 | $ | 400,000 | | $ | 400,000 | | $ | 400,000 | $ | 392,809 | | $ | 392,188 | $ | 355,772 | | $ | 422,872 |
6.875% Senior Notes due 2030 | $ | 360,000 | | $ | 360,000 | | $ | 360,000 | $ | 349,666 | | | - | $ | 314,593 | | | - |
Total debt |
|
| |
|
| |
|
| $ | 1,253,417 | | $ | 1,022,557 | $ | 1,163,399 | | $ | 1,071,626 |
1. | Our outstanding indebtedness is held at amortized cost on the condensed consolidated financial statements, and these values represent the fair value equivalent amounts. |
We manage our business with relatively low levels of leverage and have well-laddered debt maturities with an overall weighted average maturity in excess of the weighted average life of our legal finance assets. At June 30, 2022, the weighted average maturity of our outstanding debt securities of 5.4 years continued to be longer than the weighted average life of our concluded capital provision-direct assets, weighted by realizations, of 2.4 years. Our debt maturity profile is intended to mitigate any significant single-year refinancing risk.
Going forward, we expect to continue to be an opportunistic issuer of debt securities and may issue new debt securities from time to time to, among other reasons, fund our growth or refinance future debt maturities. In addition, depending on our liquidity position, we may purchase or redeem from time to time a portion of our outstanding debt securities. We redeemed in full the remaining $80 million (£62 million) aggregate principal amount of the 2022 Bonds during the six months ended June 30, 2022 and had previously purchased approximately $33 million (£24 million) aggregate principal amount of the 2022 Bonds through a tender offer during the six months ended June 30, 2021 and $5 million (£4 million) on the open market during the second half of 2021 and 2020. We chose to redeem the 2022 Bonds given the cash economics of our approach were more favorable than allowing the 2022 Bonds to remain outstanding until maturity.
Our debt securities that are listed on the ORB at the date of this Interim Report contain one significant financial covenant, which is a leverage ratio requirement that we maintain a level of consolidated net debt (debt less cash and cash equivalents and marketable securities) that is less than 50% of our consolidated tangible assets (defined as total assets less intangible assets). In addition, the indentures governing the 2028 Notes and the 2030 Notes issued through private placement transactions under Rule 144A and Regulation S under the Securities Act contain certain restrictive covenants that, among others, require us to have a Consolidated Indebtedness to Net Tangible Equity Ratio (as defined in the indenture governing the 2028 Notes or the 2030 Notes, as applicable) of less than 1.50 to 1.00, 1.75 to 1.00 or 2.00 to 1.00, as applicable, to undertake specific actions, such as make restricted payments or permitted investments or incur additional indebtedness. At June 30, 2022, we were in compliance with all of the covenants under the trust deeds and the indentures, as applicable.
With respect to the 2028 Notes, at and for the six months ended June 30, 2022, our Unrestricted Subsidiaries (as defined in the indenture governing the 2028 Notes) had total assets of $553 million, no third-party indebtedness and $31 million of total revenues. With respect to the 2030 Notes, at and for the six months ended June 30, 2022, our Unrestricted Subsidiaries (as defined in the indenture governing the 2030 Notes) had total assets of $572 million, no third-party indebtedness and $32 million of total revenues.
Liquidity
A key part of our financial management strategy involves maintaining significant liquidity. We are a growing business that typically invests in assets with an anticipated medium tenor. As a result, if our new deployments in a given period exceed realizations from prior and current periods’ assets, we will be a user of liquidity as we deploy capital into new legal finance assets. If we do not have sufficient liquidity on hand, we would need to either raise incremental funds or curtail outflows. This dynamic is typical for growing companies. However, we believe that reducing new deployments would not maximize shareholder value in the long term. Instead, we have elected to pursue a growth strategy while at
16 Burford Capital Interim Report 2022
the same time maintaining a strong liquidity position and making use of private investment funds and our strategic capital arrangement with a sovereign wealth fund.
On a consolidated basis, our cash and cash equivalents and marketable securities increased by 35% to $479 million at June 30, 2022, as compared to $355 million at December 31, 2021. This increase in cash and cash equivalents and marketable securities reflected the benefit of the issuance of the 2030 Notes.
The table below sets forth our consolidated cash and cash equivalents and marketable securities at June 30, 2022 and December 31, 2021.
| | | |
| | At | |
($ in thousands) |
| June 30, 2022 | December 31, 2021 |
Cash and cash equivalents | | 353,157 | 180,255 |
Marketable securities | | 125,678 | 175,336 |
Total | | 478,835 | 355,591 |
On a Burford-only basis, our cash and cash equivalents and marketable securities increased by 37% to $430 million at June 30, 2022, as compared to $315 million at December 31, 2021. On a Burford-only basis, cash and cash equivalents were $304 million and marketable securities were $126 million, for a total liquidity position of $430 million, at June 30, 2022, as compared to cash and cash equivalents of $140 million and marketable securities of $175 million, for a total liquidity position of $315 million, at December 31, 2021.
Our marketable securities consist of short-duration and generally investment-grade fixed income assets, the bulk of which are held in separately managed accounts managed by a third-party asset manager which specializes in short-duration and money market investments and trades those positions actively. Our strong liquidity position at June 30, 2022 reflects our preference to maintain liquidity balances since the timing of cash inflows in our business is somewhat unpredictable, and we typically have greater visibility into our deployments, especially those against discretionary new commitments, which we can decide not to pursue at any point. Our liquidity position enables us to continue to deploy capital into the financing of attractive new legal finance assets. However, our current liquidity position reflects our recent fundraising; we do not believe we need to maintain our liquidity at these levels on a regular basis.
We anticipate that our primary sources of funds will be available cash and cash from operations, which includes proceeds from our capital provision assets. We may also issue additional debt securities from time to time. See “—Debt” for additional information with respect to our debt securities. We believe that these sources of funds will be adequate to fund our operations and future growth, satisfy our working capital requirements, meet obligations under our debt securities, pay dividends and meet other liquidity requirements for the foreseeable future.
Cash receipts (non-GAAP financial measure)
Cash receipts provide a measure of the cash that our capital provision and other assets generate during a given period as well as cash from certain other fees and income. See “Basis of presentation of financial information—APMs and non-GAAP financial measures relating to our operating and financial performance—Non-GAAP financial measures” for additional information with respect to our cash receipts.
The following table sets forth the components of our cash receipts from operations and net cash available after general recurring activities for the six months ended June 30, 2022 and 2021 on a Burford-only basis.
Burford Capital Interim Report 2022 17
| | | | |
| | For the six months | ||
| | ended June 30, | ||
($ in millions) |
| 2022 |
| 2021 |
Cash receipts from capital provision-direct | | 82 | | 50 |
Cash receipts from capital provision-indirect | | 6 | | - |
Cash receipts asset management and other services and other corporate cash income | | 12 | | 13 |
Cash receipts from operations |
| 100 | | 63 |
General operating expenses, excluding incentive compensation accruals and costs ineligible to be capitalized |
| (44) | | (43) |
Finance costs |
| (32) | | (20) |
Net cash remaining |
| 24 | | - |
On a Burford-only basis, our cash receipts from operations increased by 57% to $100 million for the six months ended June 30, 2022, as compared to $63 million for the six months ended June 30, 2021. This increase in cash receipts from operations reflected primarily realizations from our capital provision-direct assets, including cash receipts from due from settlement of capital provision assets. We have a consistent history of generating cash receipts and, therefore, have cash available for redeployment.
See “—Reconciliations—Cash receipts reconciliation” for a reconciliation of cash receipts to proceeds from capital provision assets, the most comparable measure calculated in accordance with US GAAP.
Capital expenditures
At June 30, 2022 and December 31, 2021, we had $2 million in carrying value relating to leasehold improvements, fixtures, fittings and equipment, computer software and hardware. Our London office lease will end in June 2023, and we are in the process of securing alternative office space in London. We did not incur any expenses in connection with this anticipated relocation during the six months ended June 30, 2022.
Contractual obligations
See note 22 (Financial commitments and contingent liabilities) to our condensed consolidated financial statements for information with respect to our contractual obligations at June 30, 2022 and December 31, 2021. Note 22 (Financial commitments and contingent liabilities) to our condensed consolidated financial statements does not include our undrawn financing commitments. See “—Portfolio—Undrawn commitments” for information with respect to our undrawn commitments.
Off-balance sheet arrangements
At both June 30, 2022 and December 31, 2021, we had off-balance sheet arrangements relating to legal finance assets with structured entities that aggregate claims from multiple parties in the amount of $6 million. See note 17 (Variable interest entities) to our condensed consolidated financial statements for additional information with respect to structured entities.
Research and development, patents and licenses, etc.
We do not spend material amounts on research and development, nor do we own any patents or licenses.
Dividends
The table below sets forth our dividend payments during the year ended December 31, 2021 and the six months ended June 30, 2022.
| | | |
($ in cents) |
| Cash dividend per share | Record date |
2021 year |
| | |
First half | | 6.25 | November 12, 2021 |
Second half | | 6.25 | May 27, 2022 |
Total for the year ended December 31, 2021 | | 12.50 | |
| | | |
2022 year | | | |
First half | | 6.25 | November 4, 2022 |
18 Burford Capital Interim Report 2022
At the annual general meeting held in May 2022, our shareholders approved a regular final dividend of 6.25¢ per ordinary share that was paid on June 17, 2022 to shareholders of record on May 27, 2022. On August 8, 2022, we declared an interim dividend of 6.25¢ per ordinary share, payable on December 1, 2022, to shareholders of record on November 4, 2022. As a result, the dividend paid in the year ending December 31, 2022 will be 12.50¢ per ordinary share.
We expect to maintain a total annual dividend of 12.50¢ per ordinary share in the future, with one-half payable as an interim dividend and one-half payable as a final dividend. Given the demand for our capital in the legal finance industry and the tax inefficiency of dividend payments, especially to US investors, we do not anticipate regular increases in our level of annual dividends, but rather we expect to review our level of annual dividends with shareholders and the board of directors from time to time.
Portfolio
Overview
We count each of our contractual relationships as an “asset” although many such relationships are composed of multiple underlying litigation matters that are often cross collateralized rather than reliant on the performance of a single matter. At June 30, 2022, our Burford-only portfolio consisted of 190 assets held directly and two other assets held indirectly.
At June 30, 2022, our consolidated portfolio was $4.7 billion, including deployed cost, net unrealized gain and undrawn commitments, while our Group-wide portfolio was $5.5 billion of which $3.5 billion was attributable to Burford-only. See “—Reconciliations—Portfolio reconciliations” for the reconciliations of our portfolio from a consolidated basis to a Group-wide basis.
The tables below set forth the reconciliations of our portfolio on a Burford-only basis to a Group-wide basis at June 30, 2022 and December 31, 2021.
| | | | | | | | |
| | At June 30, 2022 | ||||||
($ in millions) |
| Burford-only |
| Other funds |
| BOF-C |
| Group-wide |
Capital provision-direct assets: | | | | | | | | |
Deployed cost | | 1,318 | | 506 | | 329 | | 2,153 |
Plus: Fair value adjustments | | 937 | | 89 | | 45 | | 1,071 |
Carrying value | | 2,255 | | 595 | | 374 | | 3,224 |
Plus: Undrawn commitments | | 1,217 | | 198 | | 382 | | 1,797 |
Total capital provision-direct assets | | 3,472 | | 793 | | 756 | | 5,021 |
| | | | | | | | |
Capital provision-indirect assets: | | | | | | | | |
Carrying value | | 15 | (1) | 8 | | - | | 23 |
Plus: Undrawn commitments | | 5 | | 25 | | - | | 30 |
Total capital provision-indirect assets | | 20 | | 33 | | - | | 53 |
| | | | | | | | |
Post-settlement: | | | | | | | | |
Deployed cost | | - | | 287 | | - | | 287 |
Plus: Fair value adjustments | | - | | 71 | | - | | 71 |
Carrying value | | - | | 358 | | - | | 358 |
Plus: Undrawn commitments | | - | | 37 | | - | | 37 |
Total post-settlement | | - | | 395 | | - | | 395 |
| | | | | | | | |
Total portfolio | | 3,492 | | 1,221 | | 756 | | 5,469 |
1. | The $15 million carrying value for the Burford-only capital provision-indirect assets does not include an additional $7 million for the Burford-only portion of due from settlement receivable of capital provision assets on concluded assets in the Strategic Value Fund, for a total of $22 million carrying value for Burford-only capital provision-indirect assets as noted in the table under “—Reconciliations—Portfolio reconciliations”. |
Burford Capital Interim Report 2022 19
| | | | | | | | |
| | At December 31, 2021 | ||||||
($ in millions) |
| Burford-only |
| Other funds |
| BOF-C |
| Group-wide |
Capital provision-direct assets: | | | | | | | | |
Deployed cost | | 1,251 | | 508 | | 274 | | 2,033 |
Plus: Fair value adjustments | | 887 | | 82 | | 28 | | 997 |
Carrying value | | 2,138 | | 590 | | 302 | | 3,030 |
Plus: Undrawn commitments | | 1,132 | | 217 | | 359 | | 1,708 |
Total capital provision-direct assets | | 3,270 | | 807 | | 661 | | 4,738 |
| | | | | | | | |
Capital provision-indirect assets: | | | | | | | | |
Carrying value | | 11 | (1) | 2 | | - | | 13 |
Plus: Undrawn commitments | | - | | - | | - | | - |
Total capital provision-indirect assets | | 11 | | 2 | | - | | 13 |
| | | | | | | | |
Post-settlement: | | | | | | | | |
Deployed cost | | - | | 275 | | - | | 275 |
Plus: Fair value adjustments | | - | | 56 | | - | | 56 |
Carrying value | | - | | 331 | | - | | 331 |
Plus: Undrawn commitments | | - | | 12 | | - | | 12 |
Total post-settlement | | - | | 343 | | - | | 343 |
| | | | | | | | |
Total portfolio | | 3,281 | | 1,152 | | 661 | | 5,094 |
1. | The $11 million carrying value for the Burford-only capital provision-indirect assets does not include an additional $10 million for the Burford-only portion of due from settlement receivable of capital provision assets on concluded assets in the Strategic Value Fund, for a total of $21 million carrying value for Burford-only capital provision-indirect assets as noted in the table under “—Reconciliations—Portfolio reconciliations”. |
The Group-wide portfolio grew at a compound annual growth rate of 20% over the four and a half years ending June 30, 2022. The Group-wide portfolio grew by 7% during the six months ended June 30, 2022. On a Burford-only basis, capital provision assets increased by 6% to $3.5 billion at June 30, 2022, as compared to $3.3 billion at December 31, 2021.
Fair value of capital provision assets
We record capital provision assets at initial fair value, which is equivalent to deployed cost. When there is an objective event in the underlying litigation that would cause a change in fair value, we reflect the positive or negative impact of such objective event through a fair value adjustment. For the vast majority of our capital provision assets, the objective events considered under our valuation policy relate to the litigation process. When the objective event is a court ruling, we discount the potential impact of such court ruling commensurate with the remaining litigation risk. We updated our valuation policy during the six months ended June 30, 2022 to further remove discretionary ranges. The policy assigns valuation changes in prescribed percentages based on the type of case (e.g., commercial litigation or patent, geography and case milestone) which could include, among others:
▪ | A significant positive ruling or other objective event prior to any trial court judgment |
▪ | A favorable trial court judgment |
▪ | A favorable judgment on the first appeal |
▪ | The exhaustion of as-of-right appeals |
▪ | In arbitration cases, where there are limited opportunities for appeal, issuance of a tribunal award |
▪ | An objective negative event at various stages in the litigation process |
When an objective milestone described in the valuation policy occurs, we apply the percentage change in valuation prescribed in the valuation policy for that milestone. The move in value, in turn, is based on our deployed costs and our contractual entitlement as follows. When a reduction in fair value is appropriate based on the valuation policy, for example if there is an adverse court ruling, we reduce the deployed cost by the percentage set forth in the valuation policy for the pertinent milestone. When an increase in fair value is appropriate based on the valuation policy, for example if there is a favorable court ruling, we apply the percentage of our expected return set forth in the valuation policy for the pertinent milestone and add that value to our deployed cost. We apply the percentage to our entire return, including any preferred return and any variable return, if a reasonable damages estimate would support sufficient proceeds to pay our return. Where there is a settlement offer or a damages finding or damages are otherwise undisputed, and that amount would be sufficient to pay our entire return, we use that amount instead of an estimate of damages to calculate the adjustment on the assumption that that amount will be available to pay our return. If the
20 Burford Capital Interim Report 2022
available amount (based on our estimate, a settlement offer, a damages finding or undisputed damages) would not be sufficient to pay our entire return, we will apply the appropriate percentage to the partial return we would expect to receive.
The aggregate carrying value of our capital provision assets was $3.1 billion at June 30, 2022. Of those capital provision assets, 23% were held at cost, 37% were valued based on market transactions and 40% were valued based on case milestones. The capital provision assets valued based on market transactions consisted entirely of the YPF-related assets. See “—Fair value of YPF-related assets” for additional information with respect to the fair value of the YPF-related assets. With respect to the 40% of capital provision assets valued based on case milestones, 77% of carrying value represented the cost basis of such capital provision assets and 23% represented the net fair value adjustment. The aggregate carrying value of our capital provision assets was $2.9 billion at December 31, 2021. Of those capital provision assets, 23% were held at cost, 40% were valued based on market transactions and 37% were valued based on case milestones. The capital provision assets valued based on market transactions consisted entirely of the YPF-related assets. With respect to the 37% of capital provision assets valued based on case milestones, 81% of carrying value represented the cost basis of such capital provision assets and 19% represented the net fair value adjustment.
On a Burford-only basis, the aggregate fair value adjustments on our capital provision-direct portfolio, excluding the YPF-related assets, was $212 million, or 14% of the aggregate carrying value excluding the YPF-related assets, at June 30, 2022, as compared to $160 million excluding the YPF-related assets, or 12% of the aggregate carrying value excluding the YPF-related assets, at December 31, 2021.
Fair value of YPF-related assets
The fair value of our YPF-related assets—our financing of the Petersen and Eton Park claims—is reflective of a robust secondary sale of a portion of the Petersen claim in June 2019. This sale was part of a $148 million placement to a number of institutional investors, of which we sold $100 million and other third-party holders sold the remaining portion. Given the size of this sale and the participation of a meaningful number of third-party institutional investors, we concluded that this market evidence should be factored into our valuation process of the YPF-related assets. Less robust trading of portions of the Petersen claim have not, and in the future may not, be factored into our valuation process of the YPF-related assets.
On a Burford-only basis, the carrying value of the YPF-related assets (both Petersen and Eton Park combined) increased to $779 million at June 30, 2022 from $777 million at December 31, 2021, due solely to ongoing legal expense spending in the YPF-related matters. Our cost basis increased by $4 million and our unrealized gain decreased by $2 million to $54 million and $725 million, respectively, because $2 million of the $4 million in costs deployed during the six months ended June 30, 2022 are recoverable. Otherwise, we did not recognize any income on the YPF-related assets for the six months ended June 30, 2022.
The tables below set forth the deployed cost, unrealized gain and carrying value of the components of our total capital provision assets at June 30, 2022 and December 31, 2021 on a Burford-only basis.
| | | | | | |
Burford-only | | At June 30, 2022 | ||||
($ in millions) | | Deployed cost | | Unrealized gain | | Carrying value |
Capital provision-direct assets: | | | | | | |
YPF-related assets | | 54 | | 725 | | 779 |
Other assets | | 1,264 | | 212 | | 1,476 |
Total capital provision-direct assets | | 1,318 | | 937 | | 2,255 |
Capital provision-indirect assets | | 18 | | 4 | | 22 |
Total capital provision assets | | 1,336 | | 941 | | 2,277 |
Burford Capital Interim Report 2022 21
| | | | | | |
| | | | | | |
Burford-only | | At December 31, 2021 | ||||
($ in millions) | | Deployed cost | | Unrealized gain | | Carrying value |
Capital provision-direct assets: | | | | | | |
YPF-related assets | | 50 | | 727 | | 777 |
Other assets | | 1,201 | | 160 | | 1,361 |
Total capital provision-direct assets | | 1,251 | | 887 | | 2,138 |
Capital provision-indirect assets | | 18 | | 3 | | 21 |
Total capital provision assets | | 1,269 | | 890 | | 2,159 |
Gains from capital provision-direct portfolio
On a Burford-only basis, realized gains on the capital provision-direct portfolio decreased by 65% to $27 million for the six months ended June 30, 2022, as compared to $77 million for the six months ended June 30, 2021, given the Akhmedov case success in 2021. We recorded $3 million in realized losses on cases concluded during the six months ended June 30, 2022, as compared to $5 million in realized losses on cases concluded during the six months ended June 30, 2021. As a percentage of average capital provision-direct assets at cost during the period, this represented an annualized 0.5% at June 30, 2022 compared to 0.8% for the year ended December 31, 2021.
On a Burford-only basis, unrealized gains on the capital provision-direct portfolio increased to $58 million for the six months ended June 30, 2022, as compared to $11 million for the six months ended June 30, 2021. This increase in unrealized gains reflects the reopening of courts and the resumption of cases. These unrealized gains were offset by $6 million in Burford-only unrealized gains on the capital provision-direct portfolio from prior periods that were transferred to realized gains during the six months ended June 30, 2022, as assets concluded and became realizations, compared to transfers of previously recognized unrealized gains of $20 million for the six months ended June 30, 2021.
Undrawn commitments
Our portfolio includes amounts deployed as well as commitments that have not been funded and, therefore, are expected to become deployments at some future date. Our undrawn commitments can be divided into two categories: discretionary and definitive. Discretionary commitments are those where we retain a considerable degree of discretion over whether to advance capital and generally would not suffer an adverse financial consequence from failing to do so. Definitive commitments are those commitments where we are contractually obligated to fund incremental capital and failure to do so would typically result in adverse contractual consequences (such as a dilution in our returns or the loss of our funded capital in a case). We have significant visibility into, and control over, our deployments, as a significant portion of our commitments is discretionary. Deployments on discretionary commitments are entirely within our control as we can decline to make the commitment if we do not want to deploy capital at that time. At June 30, 2022, our consolidated undrawn commitments were $1.6 billion, our Burford-only undrawn commitments were $1.2 billion and our Group-wide total undrawn commitments were $1.9 billion.
The tables below set forth the reconciliations of the components of our total undrawn commitments from a Burford-only basis to a Group-wide basis at June 30, 2022 and December 31, 2021.
| | | | | | | | | | |
| At June 30, 2022 | |||||||||
| | | | | | | | | Group- | |
($ in millions) | Burford-only | | Other funds | | BOF-C | | wide | |||
Capital provision-direct | 1,217 | 68% | | 198 | 11% | | 382 | 21% | | 1,797 |
Capital provision-indirect | 5 | 17% | | 25 | 83% | | - | 0% | | 30 |
Post-settlement | - | 0% | | 37 | 100% | | - | 0% | | 37 |
Total undrawn commitments | 1,222 | 66% | | 260 | 14% | | 382 | 20% | | 1,864 |
| | | | | | | | | | |
| At December 31, 2021 | |||||||||
| | | | | | | | | Group- | |
($ in millions) | Burford-only | | Other funds | | BOF-C | | wide | |||
Capital provision-direct | 1,132 | 66% | | 217 | 13% | | 359 | 21% | | 1,708 |
Capital provision-indirect | - | 0% | | - | 0% | | - | 0% | | - |
Post-settlement | - | 0% | | 12 | 100% | | - | 0% | | 12 |
Total undrawn commitments | 1,132 | 66% | | 229 | 13% | | 359 | 21% | | 1,720 |
22 Burford Capital Interim Report 2022
At June 30, 2022, we had $1.2 billion of Burford-only undrawn commitments, which were primarily attributable to the capital provision-direct portfolio. Other undrawn commitments are the responsibility of our private funds and other capital pools, which plan separately and have other sources of liquidity to be able to meet those undrawn commitments, typically by calling capital from their investors. Of the $1.2 billion of Burford-only undrawn commitments at June 30, 2022, $75 million was attributable to legal risk management, none of which we expect to need to fund and none of which can be drawn on any sort of accelerated basis. The remaining $1.1 billion of Burford-only undrawn commitments related to existing legal finance arrangements. As our funding commitments may not be deployed for a variety of reasons, they are considered undrawn. See note 22 (Financial commitments and contingent liabilities) to our condensed consolidated financial statements for additional information with respect to undrawn commitments.
The table below sets forth the components of our total capital provision-direct undrawn commitments at June 30, 2022 and December 31, 2021 on a Burford-only basis.
| | | | | | | | |
Burford-only | | At | ||||||
($ in millions) |
| June 30, 2022 |
| % of total |
| December 31, 2021 | (1) | % of total |
Definitive undrawn commitments |
| 553 |
| 48% | | 523 | | 50% |
Discretionary undrawn commitments |
| 588 |
| 52% | | 527 |
| 50% |
Total legal finance undrawn commitments | | 1,142 | | 100% | | 1,050 | | 100% |
Legal risk undrawn commitments | | 75 | | | | 82 | | |
Total capital provision-direct undrawn commitments | | 1,217 | | | | 1,132 | | |
Capital provision-indirect undrawn commitments | | 5 | | | | - | | |
Total capital provision undrawn commitments |
| 1,222 |
| |
| 1,132 |
| |
1. | The Burford-only undrawn commitment at December 31, 2021 included approximately $63 million of interests in assets that were warehoused for other funds, including a $13 million asset warehoused for BOF-C and a $50 million asset warehoused for the Advantage Fund, which were reflected as capital provision-indirect assets post-transfer. After giving effect to these transfers, Burford-only undrawn commitments for capital provision-direct assets at December 31, 2021 would have been $987 million, of which $460 million were definitive and $527 million were discretionary, as well as $8 million of undrawn commitments in capital provision-indirect assets and $82 million undrawn commitments in legal risk assets. |
See “—Reconciliations—Reconciliations of consolidated financial statements to Burford-only financial statements—Reconciliations of capital provision-direct undrawn commitments” for the reconciliations of the consolidated capital provision-direct definitive and discretionary undrawn commitments and legal risk (definitive) undrawn commitments to Burford-only capital provision-direct definitive and discretionary undrawn commitments and legal risk (definitive) undrawn commitments, in each case, at June 30, 2022 and December 31, 2021.
We believe that we have good visibility into the timing of when definitive commitments will be drawn, partly because many of our agreements structure future draws on an explicit timetable or with reference to case events and partly because we have insight into the timing of individual legal actions. Because of the longer-term nature of such deployments, our aggregate deployments on undrawn commitments remain gradual, with a median over the last four years (which four years include activity for the six months ended June 30, 2022 annualized) of 16% of undrawn commitments at prior period end funded in the following 12 months. In addition, the incidence of settlement means that not all of our commitments will be drawn. Historically, the median deployment in the initial year from commitment was 41%, increasing to 70% by the third year. On average, we have deployed 86% of our commitments on fully and partially concluded matters, although it can take many years to reach that level.
Portfolio concentrations
The claims underlying our capital provision-direct assets are generally diverse, as are our relationships with corporate and law firm clients.
The table below sets forth the respective percentages of our commitments to corporate, law firm and other clients at June 30, 2022 and December 31, 2021 on a Group-wide basis.
| | | | |
| | At | ||
|
| June 30, 2022 |
| December 31, 2021 |
Corporates |
| 54% |
| 56% |
Law firms | | 41% | | 40% |
Other |
| 5% |
| 4% |
At June 30, 2022, our largest commitment to a corporate position on a Group-wide basis was $350 million ($213 million on a Burford-only basis), which accounted for 8% of our Group-wide commitments (8% on a Burford-only basis) and represented hundreds of underlying cases. This commitment has a structure that would make a complete loss of our capital highly unlikely.
Burford Capital Interim Report 2022 23
Our largest relationship with a single law firm consisted of (i) financing arrangements between us and the law firm, where the law firm seeks to monetize the risk that the law firm has taken with some of its clients, (ii) direct financing arrangements with counterparties that elect to hire the law firm where our financing funds the law firm’s legal fees and (iii) direct financing arrangements with counterparties that have hired the law firm but where our financing is used for other corporate purposes than for funding the law firm’s fees. This law firm is one of the 50 largest law firms in the United States based on revenue according to The American Lawyer, with more than 500 lawyers and more than 20 offices around the world. At June 30, 2022, our portfolio of matters with this law firm included over 35 different litigation matters handled by more than 65 different partners in 15 different offices. Taken together, at June 30, 2022, these arrangements accounted for approximately $367 million on a Group-wide basis ($220 million on a Burford-only basis), or 8% of our Group-wide commitments (7% on a Burford-only basis) (December 31, 2021: 9% Group-wide, 9% Burford-only).
Portfolio tenor
The timing of realizations is difficult to forecast and is rarely a matter that we control. The reality of litigation is that a majority of cases settle and pay proceeds in a relatively short period of time, and a minority of cases goes on to adjudication, which takes longer. Adjudication timing is subject to a myriad of factors, including delaying tactics by litigation opponents and court dockets and schedules, and the Covid-19 pandemic has added to this uncertainty. We believe that the Covid-19 delaying of trial dates also has caused a delay in settlement timing, as an impending trial often can be a catalyst for a settlement. We do not believe there is a correlation between asset life and asset quality and generally structure our asset pricing to compensate us if assets take longer to resolve.
We provide extensive data about the weighted average life (“WAL”) of our concluded portfolio; however, this data may not be predictive of the ultimate WAL of our existing portfolio. The WAL of our concluded cases may lengthen over time if the longer-tenor assets in our existing portfolio account for a greater share of future concluded cases. Conversely, if our larger, more recently originated cases conclude relatively quickly, the WAL of our concluded cases could decrease. The partial realization of one of our largest investments is likely to reduce the overall WAL.
In calculating our portfolio WAL, we compute a weighted average of the individual asset WALs. On that basis, we assess the weighted average lives (beginning at the point of average deployment) of the concluded capital provision-direct portfolio, weighted both by deployed cost and realizations. Weighting by deployed cost provides a view on how long on average a dollar of capital is deployed, while weighting by realizations provides a view on how long on average it takes to recover a dollar of return.
The WALs (weighted by deployments and realizations) of the Burford-only concluded portfolio lengthened very modestly at June 30, 2022 to 2.0 years and 2.4 years, respectively, as compared to 1.9 years and 2.3 years at December 31, 2021, respectively.
The table below sets forth the WALs weighted by deployments and realizations of the concluded portfolio at June 30, 2022 and December 31, 2021 on a Burford-only basis.
| | | | |
| | At | ||
(in years) |
| June 30, 2022 |
| December 31, 2021 |
WAL deployments | | 2.0 | | 1.9 |
WAL realizations | | 2.4 | | 2.3 |
Returns on concluded portfolio
At June 30, 2022, concluded assets in our Burford-only capital provision-direct portfolio had generated, on a cumulative basis, an ROIC of 92% and an IRR of 30% since our inception.
The table below sets forth our ROIC, IRR and cumulative realizations since inception at June 30, 2022 and December 31, 2021 on a Burford-only basis.
| | | | |
| | At | ||
($ in millions) |
| June 30, 2022 |
| December 31, 2021 |
ROIC | | 92% | | 93% |
IRR | | 30% | | 30% |
Cumulative realizations | | 1,931 | | 1,861 |
We do not believe it makes sense to exclude our highest-returning assets from our return metrics in a business where we are currently originating new assets with the potential to generate outsized returns. Nonetheless, we have in the
24 Burford Capital Interim Report 2022
past provided our returns data excluding our Petersen realizations and, at June 30, 2022, excluding proceeds from our sales of Petersen participations, our capital provision-direct ROIC since inception would have been 70% and our IRR 24% (December 31, 2021: ROIC: 70% and IRR: 24%).
We do not consider cases to be concluded (and therefore part of these returns on concluded portfolio statistics) until there is no longer any litigation risk remaining. Our returns on concluded portfolio statistics do not include fair value adjustments, either positive or negative. As a result, these return figures do not include the impact, positive or negative, of developments on matters while they remain pending.
Burford Capital Interim Report 2022 25
Summary of capital provision-direct portfolio
The table below sets forth a summary by vintage of every asset that we have funded in our capital provision-direct portfolio at June 30, 2022 since our inception on a Burford-only basis.
| | | | | | | | | | | | | | |
| | At June 30, 2022 | ||||||||||||
| | Number of | | Commitment | Deployed | Realized |
| Concluded (fully and partially) | ||||||
($ in millions) | | assets | | amount(1)(2) | costs(1) | proceeds(1) | | ROIC | | IRR | | WAL – D(3) | | WAL – R(4) |
Concluded |
| 3 | | 12 | 12 | 40 | | 251% | | 32% | | 3.3 | | 4.8 |
Partially realized - concluded |
| — | | — | — | — | | | | | | | | |
Partially realized - ongoing |
| — | | — | — | — | | | | | | | | |
Ongoing |
| — | | — | — | — | | | | | | | | |
2009 Total |
| 3 | | 12 | 12 | 40 | | | | | | | | |
|
| | | | | | | | | | | | | |
Concluded |
| 14 | | 95 | 81 | 183 | | 125% | | 21% | | 3.0 | | 4.5 |
Partially realized - concluded |
| — | | — | — | — | | | | | | | | |
Partially realized - ongoing |
| — | | — | — | — | | | | | | | | |
Ongoing |
| 2 | | 23 | 23 | — | | | | | | | | |
2010 Total |
| 16 | | 118 | 104 | 183 | | | | | | | | |
|
| | | | | | | | | | | | | |
Concluded |
| 12 | | 107 | 79 | 78 | | (2)% | | 0% | | 3.6 | | 2.5 |
Partially realized - concluded |
| — | | — | — | — | | | | | | | | |
Partially realized - ongoing |
| — | | — | — | — | | | | | | | | |
Ongoing |
| 2 | | 16 | 16 | — | | | | | | | | |
2011 Total |
| 14 | | 123 | 95 | 78 | | | | | | | | |
|
| | | | | | | | | | | | | |
Concluded |
| 9 | | 64 | 57 | 116 | | 103% | | 41% | | 2.3 | | 2.1 |
Partially realized - concluded |
| — | | — | — | — | | | | | | | | |
Partially realized - ongoing |
| — | | — | — | — | | | | | | | | |
Ongoing |
| — | | — | — | — | | | | | | | | |
2012 Total |
| 9 | | 64 | 57 | 116 | | | | | | | | |
|
| | | | | | | | | | | | | |
Concluded |
| 10 | | 33 | 32 | 62 | | 93% | | 22% | | 2.8 | | 3.6 |
Partially realized - concluded |
| — | | 6 | 6 | 10 | | | | | | | | |
Partially realized - ongoing |
| 2 | | 3 | — | — | | | | | | | | |
Ongoing |
| — | | — | — | — | | | | | | | | |
2013 Total |
| 12 | | 42 | 38 | 72 | | | | | | | | |
|
| | | | | | | | | | | | | |
Concluded |
| 16 | | 86 | 64 | 98 | | 53% | | 27% | | 2.0 | | 2.0 |
Partially realized - concluded |
| — | | 25 | 25 | 37 | | | | | | | | |
Partially realized - ongoing |
| 5 | | 36 | 29 | — | | | | | | | | |
Ongoing |
| 2 | | 18 | 16 | — | | | | | | | | |
2014 Total |
| 23 | | 165 | 134 | 135 | | | | | | | | |
| | | | | | | | | | | | | | |
Concluded |
| 16 | | 109 | 87 | 112 | | 268% | | 137% | | 1.5 | | 2.7 |
Partially realized - concluded |
| — | | 12 | 9 | 241 | | | | | | | | |
Partially realized - ongoing |
| 3 | | 199 | 87 | — | | | | | | | | |
Ongoing |
| 1 | | 5 | 5 | — | | | | | | | | |
2015 Total |
| 20 | | 325 | 188 | 353 | | | | | | | | |
| | | | | | | | | | | | | | |
Concluded |
| 12 | | 231 | 199 | 277 | | 37% | | 17% | | 1.8 | | 2.1 |
Partially realized - concluded |
| — | | 13 | 13 | 14 | | | | | | | | |
Partially realized - ongoing |
| 8 | | 175 | 65 | — | | | | | | | | |
Ongoing |
| 6 | | 64 | 61 | — | | | | | | | | |
2016 Total |
| 26 | | 483 | 338 | 291 | | | | | | | | |
| | | | | | | | | | | | | | |
Concluded |
| 8 | | 76 | 73 | 117 | | 53% | | 30% | | 1.6 | | 1.9 |
Partially realized - concluded |
| — | | 49 | 47 | 67 | | | | | | | | |
Partially realized - ongoing |
| 6 | | 173 | 97 | — | | | | | | | | |
Ongoing |
| 11 | | 238 | 122 | — | | | | | | | | |
2017 Total |
| 25 | | 536 | 339 | 184 | | | | | | | | |
26 Burford Capital Interim Report 2022
| | | | | | | | | | | | | | |
|
| Number of | | Commitment | Deployed | Realized |
| Concluded (fully and partially) | ||||||
($ in millions) | | assets | | amount(1)(2) | cost(1) | proceeds(1) | | ROIC | | IRR | | WAL – D(3) | | WAL – R(4) |
Concluded |
| 8 | | 66 | 58 | 137 | | 106% | | 45% | | 1.8 | | 1.9 |
Partially realized - concluded |
| — | | 42 | 39 | 63 | | | | | | | | |
Partially realized - ongoing |
| 15 | | 118 | 86 | — | | | | | | | | |
Ongoing |
| 16 | | 197 | 90 | — | | | | | | | | |
2018 Total |
| 39 | | 423 | 273 | 200 | | | | | | | | |
|
| | | | | | | | | | | | | |
Concluded |
| 12 | | 83 | 77 | 202 | | 162% | | 139% | | 1.1 | | 1.1 |
Partially realized - concluded |
| — | | 14 | 13 | 35 | | | | | | | | |
Partially realized - ongoing |
| 10 | | 157 | 86 | — | | | | | | | | |
Ongoing |
| 25 | | 223 | 91 | — | | | | | | | | |
2019 Total |
| 47 | | 477 | 267 | 237 | | | | | | | | |
| | | | | | | | | | | | | | |
Concluded |
| 4 | | 22 | 4 | 4 | | 3% | | 4% | | 0.8 | | 0.9 |
Partially realized - concluded |
| — | | 32 | 32 | 33 | | | | | | | | |
Partially realized - ongoing |
| 3 | | 25 | 25 | — | | | | | | | | |
Ongoing |
| 22 | | 178 | 82 | — | | | | | | | | |
2020 Total |
| 29 | | 257 | 143 | 37 | | | | | | | | |
| | | | | | | | | | | | | | |
Concluded |
| — | | — | — | — | | 245% | | 412% | | 0.8 | | 0.7 |
Partially realized - concluded |
| — | | 1 | 1 | 5 | | | | | | | | |
Partially realized - ongoing |
| 2 | | 17 | 3 | — | | | | | | | | |
Ongoing |
| 35 | | 510 | 315 | — | | | | | | | | |
2021 Total |
| 37 | | 528 | 319 | 5 | | | | | | | | |
|
| | | | | | | | | | | | | |
Concluded |
| — | | — | — | — | | 0% | | 0% | | — | | — |
Partially realized - concluded |
| — | | — | — | — | | | | | | | | |
Partially realized - ongoing |
| — | | — | — | — | | | | | | | | |
Ongoing |
| 14 | | 224 | 37 | — | | | | | | | | |
2022 Total |
| 14 | | 224 | 37 | — | | | | | | | | |
| | | | | | | | | | | | | | |
Total portfolio: |
| | | | | | | | | | | | | |
Concluded |
| 124 | | 984 | 823 | 1,426 | | | | | | | | |
Partially realized – concluded portion |
| 54 | (5) | 194 | 185 | 505 | | | | | | | | |
Total capital provision-direct - concluded portion |
| 178 | | 1,178 | 1,008 | 1,931 | | 92% | | 30% | | 2.0 | | 2.4 |
Ongoing |
| 136 | | 1,696 | 858 | - | | | | | | | | |
Partially realized – ongoing portion |
| 54 | (5) | 903 | 478 | - | | | | | | | | |
Total capital provision-direct - ongoing portion |
| 190 | | 2,599 | 1,336 | - | | | | | | | | |
Total capital provision-direct portfolio |
| 314 | | 3,777 | 2,344 | 1,931 | | | | | | | | |
1. | Amounts in currencies other than US dollars are reported in this table at the foreign exchange rates in effect at the time of the historical transaction, i.e., when the commitment or deployment was made or when proceeds were realized. Amounts related to those transactions (such as unfunded commitments or deployed costs) reflected elsewhere in this “Financial and operational review” or in our condensed consolidated financial statements may be reported based on the foreign exchange rates in effect at the end of the applicable period and, therefore, may differ from the amounts in this table. |
2. | A portion of some ongoing assets’ unfunded commitments are no longer an obligation. This table presents an asset’s gross original commitments, so it does not reflect a reduction in commitment for the portion that is no longer an obligation. This will result in a difference when compared to undrawn commitments in note 22 (Financial commitments and contingent liabilities) to our condensed consolidated financial statements. |
3. | WAL of the vintage weighted by deployments and is inclusive of concluded and partially concluded assets in each vintage. |
4. | WAL of the vintage weighted by realizations and is inclusive of concluded and partially concluded assets in each vintage. |
5. | At June 30, 2022, there were 54 capital provision assets with partial realizations. We repeat the number with partial realizations in total capital provision-direct concluded and total capital provision-direct ongoing. |
Summary of capital provision-indirect portfolio
Capital provision-indirect, the category in our capital provision segment comprising our balance sheet’s participations in one of our private funds, consisted entirely of the Strategic Value Fund through December 31, 2021. The Advantage Fund is included in our capital provision-indirect category at June 30, 2022, and in future periods. The Advantage Fund closed and began deploying capital during the six months ended June 30, 2022. There were no new commitments or deployments made to the Strategic Value Fund in the six months ended June 30, 2002.
Burford Capital Interim Report 2022 27
New commitments
During the period, we restructured our relationship with our sovereign wealth fund partner such that we now take 75% of eligible assets for the Burford balance sheet and the sovereign wealth fund, through BOF-C, takes 25%. That strategically desirable change resulted in an increased uptake by the Burford balance sheet in the period, such that we saw an increase in Burford-only commitments to $295 million (2021: $284 million). Moreover, if one disregards the outsized deal done in the first half of 2021, Burford-only new capital provision direct commitments more than doubled compared to the prior period.
We provide Group-wide new commitment data as a data point for overall activity, but the widely varying profitability of non-Burford balance sheet business makes that data point otherwise irrelevant. For the six months ended June 30, 2022, Group-wide new commitments were $445 million, including $377 million within capital provision-direct and $68 million relating to our post-settlement funds. While those numbers are below the numbers for the six months ended June 30, 2021, that period included a single $277 million matter which was not replicated during the six months ended June 30, 2022. New commitments for capital provision-direct assets for the six months ended June 30, 2021 included a new matter to which we committed and deployed $277 million, comprised of $138 million on our balance sheet and $139 million for the sovereign wealth fund between BOF-C and a sidecar managed by us and with the same ultimate sovereign wealth fund investor as BOF-C. In comparison, our largest deal during the six months ended June 30, 2022 was $125 million. Excluding the outsized deal in 2021, new capital provision-direct commitments increased by 67% period-over-period.
The tables below set forth the reconciliations of the components of our new commitments for the six months ended June 30, 2022 and 2021 from a Burford-only to a Group-wide basis. For accuracy, our new commitments at June 30, 2022 are exclusive of any transfers that occurred due to the warehoused assets as described in the Annual Report.
| | | | | | | | | | |
| For the six months ended June 30, 2022 | |||||||||
| | | | | | | | | Group- | |
($ in millions) | Burford-only | | Other funds | | BOF-C | | wide | |||
Capital provision-direct | 295 | 78% | | 1 | 0% | | 81 | 22% | | 377 |
Capital provision-indirect | - | 0% | | - | 0% | | - | 0% | | - |
Post-settlement | - | 0% | | 68 | 100% | | | 0% | | 68 |
Total new commitments | 295 | 66% | | 69 | 15% | | 81 | 19% | | 445 |
| | | | | | | | | | |
| For the six months ended June 30, 2021 | |||||||||
| | | | | | | | | Group- | |
($ in millions) | Burford-only | | Other funds | | BOF-C | | wide | |||
Capital provision-direct | 284 | 56% | | 101 | 20% | | 118 | 24% | | 503 |
Capital provision-indirect | - | 0% | | - | 0% | | - | 0% | | - |
Post-settlement | - | 0% | | 24 | 100% | | - | 0% | | 24 |
Total new commitments | 284 | 54% | | 125 | 24% | | 118 | 22% | | 527 |
Deployments
On a Group-wide basis, total deployments for the six months ended June 30, 2022 were $260 million, including $197 million within capital provision-direct, compared to $398 million within capital provision-direct for the six months ended June 30, 2021. As noted under “—New commitments”, deployments for the six months ended June 30, 2021 included an outsized deal to which we deployed $277 million, comprised of $138 million on our balance sheet and $139 million for the sovereign wealth fund between BOF-C and a sidecar managed by us and with the same ultimate sovereign wealth fund investor as BOF-C. Excluding the outsized deal in 2021, capital provision-direct deployments increased by 63% period-over-period.
On a Burford-only basis, capital provision-direct deployments were $122 million for the six months ended June 30, 2022, compared to $214 million for the six months ended June 30, 2021. Excluding the outsized deal in 2021, Burford-only capital provision-direct deployments increased by 61% period-over-period.
At June 30, 2022, there exists a law firm portfolio commitment, where we expect a near term deployment in the second half of 2022. The deployment is contractually required subject to the satisfaction of certain funding conditions.
28 Burford Capital Interim Report 2022
Through the Advantage Fund, we have resumed making deployments in our capital provision-indirect portfolio in 2022 totaling $20 million during the six months ended June 30, 2022. All deployments in our capital provision-indirect portfolio during the six months ended June 30, 2022 represented activity in the Advantage Fund, and we continued to refrain from making new deployments in the Strategic Value Fund.
On a Group-wide basis, deployments in our post-settlement strategy increased to $43 million for the six months ended June 30, 2022 from $35 million for the six months ended June 30, 2021; our new post-settlement fund, BAIF II, closed on June 13, 2022.
The tables below set forth the reconciliations of the components of our deployments for the six months ended June 30, 2022 and 2021 from a Burford-only basis to a Group-wide basis.
| | | | | | | | | | |
| For the six months ended June 30, 2022 | |||||||||
| | | | | | | | | Group- | |
($ in millions) | Burford-only | | Other funds | | BOF-C | | wide | |||
Capital provision-direct | 122 | 62% | | 15 | 8% | | 60 | 30% | | 197 |
Capital provision-indirect | 3 | 15% | | 17 | 85% | | - | 0% | | 20 |
Post-settlement | - | 0% | | 43 | 100% | | - | 0% | | 43 |
Total new deployments | 125 | 48% | | 75 | 29% | | 60 | 23% | | 260 |
| | | | | | | | | | |
| For the six months ended June 30, 2021 | |||||||||
| | | | | | | | | Group- | |
($ in millions) | Burford-only | | Other funds | | BOF-C | | wide | |||
Capital provision-direct | 214 | 54% | | 120 | 30% | | 64 | 16% | | 398 |
Capital provision-indirect | 1 | 100% | (1) | - | 0% | | - | 0% | | 1 |
Post-settlement | - | 0% | | 35 | 100% | | - | 0% | | 35 |
Total new deployments | 215 | 50% | | 155 | 36% | | 64 | 14% | | 434 |
1. | Represents capital calls for expenses rather than cash invested into assets. |
See “—Reconciliations—Deployments reconciliations” for the reconciliations of the consolidated deployments to Burford-only deployments for the six months ended June 30, 2022 and 2021.
Realizations
We consider a legal finance asset to be concluded where there is no longer any litigation risk remaining, generally because of an agreed settlement or a final judgment. Upon conclusion, we record the legal finance asset, including both capital and return, as having been realized. At that point, we book the amount due to us for our capital and return as either cash or a due from settlement receivable. Cash from realizations net of any change in due from settlement receivables comprises our cash proceeds for a period.
Realizations were again modest for the six months ended June 30, 2022, still due in part to continuing court delays caused by the Covid-19 pandemic impacting the pace and progression of matters in our portfolio. On a Group-wide basis, capital provision-direct realizations were $107 million across more than 30 different assets for the six months ended June 30, 2022, down from $163 million across more 30 different assets for the six months ended June 30, 2021.
On a Burford-only basis, capital provision-direct realizations were $70 million for the six months ended June 30, 2022 compared to $141 million for the six months ended June 30, 2021. Realizations for the six months ended June 30, 2021 included $103 million related to the Akhmedov judgment enforcement matter on a Group-wide and Burford-only basis.
We were very pleased to see a post-period positive development in one of our larger matters, the $251 million portfolio with equity risk initiated in 2021. This impacted roughly half of the matter and should generate over $50 million in profit on a consolidated basis to our second half performance as things stand presently, generating a projected IRR in excess of 35% on the impacted portion. Given this occurred following June 30, none of this resolution activity was included in our first half numbers, not even in fair value.
The following tables set forth the reconciliations of the components of our realizations for the six months ended June 30, 2022 and 2021 from a Burford-only basis to a Group-wide basis.
Burford Capital Interim Report 2022 29
| | | | | | | | | | |
| For the six months ended June 30, 2022 | |||||||||
| | | | | | | | | Group- | |
($ in millions) | Burford-only | | Other funds | | BOF-C | | wide | |||
Capital provision-direct | 70 | 65% | | 25 | 24% | | 12 | 11% | | 107 |
Capital provision-indirect | 6 | 25% | | 18 | 75% | | - | 0% | | 24 |
Post-settlement | - | 0% | | 38 | 100% | | - | 0% | | 38 |
Total realizations | 76 | 45% | | 81 | 48% | | 12 | 7% | | 169 |
| | | | | | | | | | |
| For the six months ended June 30, 2021 | |||||||||
| | | | | | | | | Group- | |
($ in millions) | Burford-only | | Other funds | | BOF-C | | wide | |||
Capital provision-direct | 141 | 87% | | 16 | 10% | | 6 | 3% | | 163 |
Capital provision-indirect | 26 | 39% | | 41 | 61% | | - | 0% | | 67 |
Post-settlement | - | 0% | | 51 | 100% | | - | 0% | | 51 |
Total realizations | 167 | 60% | | 108 | 38% | | 6 | 2% | | 281 |
Since inception, we have generated $1.9 billion in realizations from concluded or partially concluded assets from Burford-only capital provision-direct assets, which had a deployed cost of $1.0 billion, yielding $923 million in realized gains. At June 30, 2022, we had $1.3 billion (at original exchange rates) in capital deployed in ongoing assets.
We expect to see significant realizations over time; however, period-to-period volatility is characteristic of our business, and the timing of realizations is uncertain. We can neither predict nor control the timing of the generation of returns on our legal finance assets.
See “—Reconciliations—Realizations reconciliations” for the reconciliations of our consolidated realizations to Group-wide realizations for the six months ended June 30, 2022 and 2021 and our consolidated realizations to Burford-only realizations for the six months ended June 30, 2022 and 2021.
Asset management
At June 30, 2022, we operated nine private funds and three “sidecar” funds as an investment adviser registered with, and regulated by, the SEC. At June 30, 2022 and December 31, 2021, our total AUM was $3.4 billion and $2.8 billion, respectively.
Between an initial close in late 2021 and a final close in March 2022, we launched the Advantage Fund with $300 million in external investor commitments plus an additional investment of $60 million from our balance sheet. The Advantage Fund focuses on lower risk, lower return pre-settlement litigation investments than we include in our core legal finance portfolio, targeting matters expected to produce returns in the 12-20% IRR range.
In May 2022, we agreed to extend our arrangement with our sovereign wealth fund strategic partner through December 31, 2023, resulting in the extension of BOF-C’s investment period by one year until that date.
In June 2022, we closed BAIF II, our $350 million new private fund focused on post-settlement investments that is the successor to BAIF I, whose investment period ended in April 2022. BAIF II invests in settled litigation matters, monetizing a claimant’s settlement and other associated legal receivables. BAIF II began deploying capital in June 2022, and its investment period runs until September 11, 2025, with a multi-year harvest period thereafter.
30 Burford Capital Interim Report 2022
The table below sets forth key statistics for each of our private funds at June 30, 2022.
| | | | | | | | | | | | | | | | |
| | | | Investor | | Asset | | Asset | | | | Fee structure(1) | | | |
|
At June 30, 2022 | | | | commitments | | commitments | | deployments | | | | (management/ | | | | Investment |
($ in millions) |
| Strategy |
| closed |
| to date |
| to date |
| AUM |
| performance) |
| Waterfall |
| period (end) |
| | | | | | | | | | | | | | | | |
BCIM Partners II LP (Partners II)(2) | | Litigation finance | | 260 | | 253 | | 181 | | 166 | | Class B: 0%/50% | | European |
| 12/15/2015 |
BCIM Partners III LP (Partners III) | | Litigation finance | | 412 | | 446 | | 314 | | 443 | | 2%/20% | | European |
| 1/1/2020(3) |
Burford Opportunity Fund LP & Burford Opportunity Fund B LP (BOF) | | Litigation finance | | 300 | | 387 | | 255 | | 353 | | 2%/20% | | European |
| 12/31/2021(4) |
BCIM Credit Opportunities LP (COLP) | | Post-settlement | | 488 | | 699 | | 695 | | 438 | | 1% on undrawn/ 2% on funded and 20% incentive | | European |
| 9/30/2019(3) |
Burford Alternative Income Fund LP (BAIF)(2) | | Post-settlement | | 327 | | 672 | | 658 | | 403 | | 1.5%/10% | | European |
| 4/4/2022 |
Burford Alternative Income Fund II LP (BAIF II) | | Post-settlement | | 350 | | 49 | | 23 | | 350 | | 1.5%/12.5% | | European |
| 9/11/2025 |
BCIM Strategic Value Master Fund LP (Strategic Value)(5) | | Complex strategies | | 500 | | 1,199 | | 1,199 | | 32 | | 2%/20% | | American |
| Evergreen |
Burford Advantage Master Fund LP | | Litigation finance | | 360 | | 50 | | 20 | | 361 | | Profit split(7) | | American | | 12/24/2024 |
Burford Opportunity Fund C LP (BOF-C)(2) | | Litigation finance | | 766 | | 868 | | 457 | | 813 | | Expense reimbursement + profit share |
| Hybrid |
| 12/31/2023(6) |
Totals | |
| | 3,763 | | 4,623 | | 3,802 | | 3,359 | |
|
|
|
|
|
1. | Management fees are paid to BCIM for investment management and advisory services provided to our private funds. The management fee rates set forth in the table above are annualized and applied to an asset or commitment base which typically varies between a fund’s investment period and any subsequent periods in the fund term. At June 30, 2022, BCIM Partners II, LP, BCIM Partners III, LP and BCIM Credit Opportunities, LP are no longer earning management fees. Performance fees represent carried interest applied to distributions to a private fund’s limited partners after the return of capital contributions and preferred returns. |
2. | Includes amounts related to “sidecar” funds. |
3. | Ceased commitments to new investments in the fourth quarter of 2018 due to capacity. |
4. | Ceased commitments to new investments in the fourth quarter of 2020 due to capacity. |
5. | Includes amounts related to BCIM SV SMA I, LLC which invests alongside the Strategic Value Fund. |
6. | In May 2022, BOF-C’s investment period was extended by one year through December 31, 2023. |
7. | The Advantage Fund does not have a traditional management and performance fee structure, but instead provides the first 10% of annual simple returns to the fund investors while we retain any excess return. However, if the fund produces super-normal returns for this level of risk, a level of sharing with fund investors would kick in, but we do not expect that to occur. |
On a Burford-only basis, asset management income increased by 45% to $17 million for the six months ended June 30, 2022, as compared to $12 million for the six months ended June 30, 2021. This increase reflected primarily an increase in income from BOF-C, as assets related to BOF-C continued to season during the six months ended June 30, 2022. Management fees decreased to $4 million for the six months ended June 30, 2022, as compared to $5 million for the six months ended June 30, 2021. For the six months ended June 30, 2022, we earned management fees primarily from BAIF and BOF, because we typically earn management fees only during a private fund’s investment period. We recognized performance fee income of $2 million relating to BAIF for the six months ended June 30, 2022 with no comparable performance fee income recognized for the six months ended June 30, 2021.
The table below sets forth the components of the asset management income for the six months ended June 30, 2022 and 2021 on a Burford-only basis.
| | | | |
| | For the six months | ||
| | ended June 30, | ||
($ in thousands) |
| 2022 | | 2021 |
Management fee income | | 3,931 | | 5,402 |
Performance fee income | | 1,795 | | - |
Income from BOF-C | | 11,296 | | 6,320 |
Total Burford-only asset management income | | 17,022 | | 11,722 |
See “—Reconciliations—Reconciliations of consolidated financial statements to Burford-only financial statements—Reconciliations of asset management income” for the reconciliations of our consolidated asset management income to Burford-only asset management income for the six months ended June 30, 2022 and 2021.
Critical accounting estimates
The preparation of our condensed consolidated financial statements in accordance with US GAAP requires our management to make estimates, judgments and assumptions that affect the reported amounts of (i) capital provision assets, (ii) goodwill and (iii) deferred tax assets. Our management bases these estimates and judgments on available information, historical experience and other assumptions that we believe are reasonable under the circumstances.
Burford Capital Interim Report 2022 31
However, these estimates, judgments and assumptions are often subjective and may be impacted negatively based on changing circumstances or changes in our analyses. We believe that our critical accounting policies could potentially produce materially different results if we were to change underlying estimates, judgments and/or assumptions.
See “Financial and operational review—Critical accounting estimates” in the Annual Report for a discussion of our critical accounting policies. See note 2 (Summary of significant accounting policies) to our condensed consolidated financial statements and note 2 (Summary of significant accounting policies) to our consolidated financial statements in the Annual Report for additional information relating to our critical accounting policies and other significant accounting policies.
Reconciliations
Reconciliations of consolidated financial statements to Burford-only financial statements
The tables below set forth the reconciliations of (i) the consolidated statements of operations to Burford-only statements of operations for the six months ended June 30, 2022 and 2021 and (ii) the consolidated statements of financial position to Burford-only statements of financial position at June 30, 2022 and December 31, 2021. The presentation of financial information on a Burford-only basis is intended to provide a view of Burford as a stand-alone business (i.e., eliminating the impact of the managed funds) by furnishing information on a non-GAAP basis that eliminates the effect of consolidating some of the limited partner interests in funds we manage as well as assets held on our balance sheet where we have a partner or minority investor. See “Basis of presentation of financial information—Non-GAAP financial measures relating to our business structure” for additional information with respect to presentation of financial information on a Burford-only basis.
The first column in the tables below sets forth our results of operations on a consolidated basis as reported in our condensed consolidated financial statements. These results of operations include investments in a number of entities that are not wholly owned subsidiaries of Burford Capital Limited and, therefore, contain third-party capital, including the Strategic Value Fund, BOF-C, Colorado and the Advantage Fund. The presentation of our results of operations on a consolidated basis requires a line-by-line consolidation of 100% of each non-wholly owned entity’s assets and liabilities as well as components of income and expense. The portion of the net assets and the associated profit or loss that is attributable to the third-party interests are then presented separately as single line items within the condensed consolidated statements of financial position and the condensed consolidated statements of operations and comprehensive income, respectively. We believe it is helpful to exclude the interests of investors other than Burford in our discussion of our results of operations, and we have therefore, as an alternative presentation, excluded from our presentation of our results of operations the non-Burford portion of the individual assets and liabilities as well as components of income and expense relating to such third-party capital. The reconciliations eliminate the line-by-line consolidation of all of the applicable entities’ individual assets and liabilities required by US GAAP to present Burford’s investment in the non-wholly owned entities and Burford’s share of the profit or loss earned on such investment.
The tables below set forth the elimination adjustments separately for the Strategic Value Fund, BOF-C, Colorado and, if applicable, the Advantage Fund as well as a number of other entities, in which Burford holds a portion of its capital provision assets through special purpose vehicles (an “SPV”) and has minority partners in the SPV, in an additional column titled “Other”. Because Burford controls and owns a significant portion of these SPVs, they are consolidated in our financial statements prepared in accordance with US GAAP. In each case, the elimination adjustments are fully reversing the amounts reported as “Gain relating to third-party interest in capital provision assets” and “Third-party interests in consolidated entities” against the applicable components required in the US GAAP line-by-line consolidation to leave Burford’s gain or loss on its investment in the entities reported in “Capital provision income” and the fair value of its investment in the entities reported in “Capital provision assets”.
32 Burford Capital Interim Report 2022
Reconciliations of consolidated statements of operations to Burford-only statements of operations
The tables below set forth the reconciliations of consolidated statements of operations to Burford-only statements of operations for the six months ended June 30, 2022 and 2021.
| | | | | | | | | | | | | | | |
| | For the six months ended June 30, 2022 | |||||||||||||
| | | | Elimination of third-party interests | | | | ||||||||
| | | | Strategic | | | | | | Advantage | | | | | |
($ in thousands) | | Consolidated | | Value Fund | | BOF-C | | Colorado | | Fund | | Other | | | Burford-only |
Revenues | | | | | | | | | | | | | | | |
Capital provision income | | 110,278 | | (2,277) | | (24,822) | | 1,368 | | (820) | | (9,952) | | | 73,775 |
Asset management income | | 5,508 | | 218 | | 11,296 | | - | | - | | - | | | 17,022 |
Insurance (loss)/income | | (2,297) | | - | | - | | - | | - | | - | | | (2,297) |
Services income | | 389 | | - | | - | | - | | - | | - | | | 389 |
Marketable securities (loss)/income and bank interest | | (8,971) | | - | | - | | - | | - | | (6) | | | (8,977) |
Gain relating to third-party interests in capital provision assets | | 1,005 | | - | | - | | (1,380) | | - | | 375 | | | - |
Total revenues | | 105,912 | | (2,059) | | (13,526) | | (12) | | (820) | | (9,583) | | | 79,912 |
| | | | | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | | | | |
Compensation and benefits | | | | | | | | | | | | | | | |
Salaries and benefits | | 17,416 | | - | | - | | - | | - | | - | | | 17,416 |
Annual incentive compensation | | 7,143 | | - | | - | | - | | - | | - | | | 7,143 |
Equity compensation | | 4,869 | | - | | - | | - | | - | | - | | | 4,869 |
Legacy asset recovery incentive compensation including accruals | | 1,690 | | - | | - | | - | | - | | - | | | 1,690 |
Long-term incentive compensation including accruals | | 4,672 | | - | | - | | - | | - | | - | | | 4,672 |
General, administrative and other | | 14,735 | | (282) | | 62 | | (12) | | (70) | | (105) | | | 14,328 |
Case-related expenditures ineligible for inclusion in asset cost | | 3,663 | | (420) | | - | | - | | (171) | | - | | | 3,072 |
Total operating expenses | | 54,188 | | (702) | | 62 | | (12) | | (241) | | (105) | | | 53,190 |
| | | | | | | | | | | | | | | |
Operating income | | 51,724 | | (1,357) | | (13,588) | | - | | (579) | | (9,478) | | | 26,722 |
| | | | | | | | | | | | | | | |
Other expenses | | | | | | | | | | | | | | | |
Finance costs | | 36,561 | | - | | - | | - | | - | | - | | | 36,561 |
Loss on debt extinguishment | | 916 | | - | | - | | - | | - | | - | | | 916 |
Foreign currency transactions losses | | 3,024 | | - | | - | | - | | - | | (3) | | | 3,021 |
Total other expenses | | 40,501 | | - | | - | | - | | - | | (3) | | | 40,498 |
| | | | | | | | | | | | | | | |
Income/(loss) before income taxes | | 11,223 | | (1,357) | | (13,588) | | - | | (579) | | (9,475) | | | (13,776) |
| | | | | | | | | | | | | | | |
Provision for income taxes | | (7,725) | | - | | - | | - | | - | | - | | | (7,725) |
Net income/(loss) | | 3,498 | | (1,357) | | (13,588) | | - | | (579) | | (9,475) | | | (21,501) |
Burford Capital Interim Report 2022 33
| | | | | | | | | | | | | | |
| | For the six months ended June 30, 2021 | | |||||||||||
| | | | Elimination of third-party interests | | | | | ||||||
| | | | Strategic | | | | | | | | | | |
($ in thousands) | | Consolidated | | Value Fund | | BOF-C | | Colorado | | Other | | | Burford-only | |
Revenues | | | | | | | | | | | | | | |
Capital provision income | | 84,428 | | (4,015) | | (11,762) | | 1,698 | | (3,916) | | | 66,433 | |
Asset management income | | 4,329 | | 1,073 | | 6,320 | | - | | - | | | 11,722 | |
Insurance income | | 799 | | - | | - | | - | | - | | | 799 | |
Services income | | 682 | | - | | - | | - | | - | | | 682 | |
Marketable securities income and bank interest | | 1,256 | | - | | - | | - | | (1) | | | 1,255 | |
Gain relating to third-party interests in capital provision assets | | 395 | | - | | 434 | | (1,698) | | 869 | | | - | |
Total revenues | | 91,889 | | (2,942) | | (5,008) | | - | | (3,048) | | | 80,891 | |
| | | | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | | | |
Compensation and benefits | | | | | | | | | | | | | | |
Salaries and benefits | | 17,633 | | - | | - | | - | | - | | | 17,633 | |
Annual incentive compensation | | 6,544 | | - | | - | | - | | - | | | 6,544 | |
Equity compensation | | 4,272 | | - | | - | | - | | - | | | 4,272 | |
Legacy asset recovery incentive compensation including accruals | | 34,083 | | - | | - | | - | | - | | | 34,083 | |
Long-term incentive compensation including accruals | | 5,122 | | - | | - | | - | | - | | | 5,122 | |
General, administrative and other | | 14,458 | | (308) | | (56) | | - | | (2) | | | 14,092 | |
Case-related expenditures ineligible for inclusion in asset cost | | 2,532 | | (1,896) | | - | | - | | - | | | 636 | |
Total operating expenses | | 84,644 | | (2,204) | | (56) | | - | | (2) | | | 82,382 | |
| | | | | | | | | | | | | | |
Operating income | | 7,245 | | (738) | | (4,952) | | - | | (3,046) | | | (1,491) | |
| | | | | | | | | | | | | | |
Other expenses | | | | | | | | | | | | | | |
Finance costs | | 25,646 | | - | | - | | - | | - | | | 25,646 | |
Loss on debt extinguishment | | 1,616 | | - | | - | | - | | - | | | 1,616 | |
Foreign currency transactions losses | | 396 | ��� | - | | - | | - | | - | | | 396 | |
Total other expenses | | 27,658 | | - | | - | | - | | - | | | 27,658 | |
| | | | | | | | | | | | | | |
Loss before income taxes | | (20,413) | | (738) | | (4,952) | | - | | (3,046) | | - | (29,149) | |
| | | | | | | | | | | | | | |
Benefit from income taxes | | 559 | | - | | - | | - | | - | | | 559 | |
Net loss | | (19,854) | | (738) | | (4,952) | | - | | (3,046) | | | (28,590) | |
34 Burford Capital Interim Report 2022
Reconciliations of consolidated statements of financial position to Burford-only statements of financial position
The tables below set forth the reconciliations of consolidated statements of financial position to Burford-only statements of financial position at June 30, 2022 and December 31, 2021.
| | | | | | | | | | | | | | | |
| | At June 30, 2022 | |||||||||||||
| | | | Elimination of third-party interests | | | | ||||||||
| | | | Strategic | | | | | | Advantage | | | | | |
($ in thousands) | | Consolidated | | Value Fund | | BOF-C | | Colorado | | Fund | | Other | | | Burford-only |
Assets |
|
| |
|
|
| | | | | |
| | |
|
Cash and cash equivalents |
| 353,157 | | (4,800) | | (31,182) | | (25) | | (8,106) | | (4,511) | | | 304,533 |
Marketable securities |
| 125,678 | | - | | - | | - | | - | | - | |
| 125,678 |
Other assets |
| 39,781 | | 75 | | 22,227 | | 106 | | - | | 27 | |
| 62,216 |
Due from settlement of capital provision assets |
| 67,921 | | (13,218) | | - | | - | | - | | (2,340) | |
| 52,363 |
Capital provision assets |
| 3,114,970 | | 5,651 | | (390,778) | | (381,878) | | (7,593) | | (63,716) | |
| 2,276,656 |
Property and equipment |
| 9,748 | | - | | - | | - | | - | | - | |
| 9,748 |
Goodwill |
| 133,919 | | - | | - | | - | | - | | - | |
| 133,919 |
Deferred tax asset |
| 166 | | - | | - | | - | | - | | - | |
| 166 |
Total assets |
| 3,845,340 | | (12,292) | | (399,733) | | (381,797) | | (15,699) | | (70,540) | |
| 2,965,279 |
| | | | | | | | | | | | | | | |
Liabilities |
|
| |
| |
| |
| |
| |
| |
|
|
Debt interest payable |
| 17,035 | | - | | - | | - | | - | | - | |
| 17,035 |
Other liabilities |
| 115,035 | | (255) | | - | | (32) | | (131) | | (653) | |
| 113,964 |
Debt payable |
| 1,253,417 | | - | | - | | - | | - | | - | |
| 1,253,417 |
Financial liabilities relating to third-party interests in capital provision assets |
| 397,581 | | - | | (4,098) | | (381,765) | | - | | (11,718) | |
| - |
Deferred tax liability |
| 30,453 | | - | | - | | - | | - | | - | |
| 30,453 |
Total liabilities |
| 1,813,521 | | (255) | | (4,098) | | (381,797) | | (131) | | (12,371) | |
| 1,414,869 |
Total shareholders' equity |
| 2,031,819 | | (12,037) | | (395,635) | | - | | (15,568) | | (58,169) | |
| 1,550,410 |
| | | | | | | | | | | | | |
| | At December 31, 2021 | |||||||||||
| | | | Elimination of third-party interests | | | | ||||||
| | | | Strategic | | | | | | | | | |
($ in thousands) | | Consolidated | | Value Fund | | BOF-C | | Colorado | | Other | | | Burford-only |
Assets |
|
|
|
|
|
|
| | |
| | |
|
Cash and cash equivalents |
| 180,255 |
| (1,561) |
| (38,983) |
| - | | (33) | | | 139,678 |
Marketable securities |
| 175,336 |
| - |
| - |
| - | | - | |
| 175,336 |
Other assets |
| 35,173 |
| (266) |
| 16,322 |
| 81 | | 26 | |
| 51,336 |
Due from settlement of capital provision assets |
| 86,311 |
| (22,864) |
| - |
| - | | - | |
| 63,447 |
Capital provision assets |
| 2,900,465 |
| 8,706 |
| (306,479) |
| (383,246) | | (59,993) | |
| 2,159,453 |
Property and equipment |
| 13,069 |
| - |
| - |
| - | | - | |
| 13,069 |
Goodwill |
| 134,019 |
| - |
| - |
| - | | - | |
| 134,019 |
Deferred tax asset |
| 78 |
| - |
| - | | - | | - | |
| 78 |
Total assets |
| 3,524,706 |
| (15,985) |
| (329,140) |
| (383,165) | | (60,000) | |
| 2,736,416 |
| | | | | | | | | | | | | |
Liabilities |
|
|
|
|
|
|
| | |
| |
|
|
Debt interest payable |
| 13,918 |
| - |
| - |
| - | | - | |
| 13,918 |
Other liabilities |
| 126,057 |
| (769) |
| - |
| (21) | | (5) | |
| 125,262 |
Debt payable |
| 1,022,557 |
| - |
| - |
| - | | - | |
| 1,022,557 |
Financial liabilities relating to third-party interests in capital provision assets |
| 398,595 |
| - |
| (4,001) |
| (383,144) | | (11,450) | |
| - |
Deferred tax liability |
| 22,889 |
| - |
| - |
| - | | - | |
| 22,889 |
Total liabilities |
| 1,584,016 |
| (769) |
| (4,001) |
| (383,165) | | (11,455) | |
| 1,184,626 |
Total shareholders' equity |
| 1,940,690 |
| (15,216) |
| (325,139) |
| - | | (48,545) | |
| 1,551,790 |
Burford Capital Interim Report 2022 35
Reconciliations of capital provision assets
The tables below set forth the reconciliations of components of the consolidated capital provision assets at the beginning and end of period and unrealized fair value at end of period to Burford-only capital provision-direct and capital provision-indirect assets at the beginning and end of period and unrealized fair value at end of period, in each case, for the six months ended June 30, 2022 and 2021.
| | | | | | | | | | |
|
| For the six months ended June 30, 2022 | ||||||||
| | | | | | | | Burford-only | ||
| | | | Elimination of | | | | Capital | | Capital |
| | | | third-party | | Burford-only | | provision- |
| provision- |
($ in thousands) | | Consolidated | | interests | | total | | direct | | indirect |
At beginning of period |
| 2,900,465 | | (741,087) | | 2,159,378 | | 2,137,817 | | 21,561 |
Deployments |
| 203,742 | | (74,948) | | 128,794 | | 124,506 | | 4,288 |
Realizations |
| (88,446) | | 12,257 | | (76,189) | | (70,610) | | (5,579) |
Income for the period |
| 114,957 | | (34,774) | | 80,183 | | 79,051 | | 1,132 |
Foreign exchange gains/(losses) |
| (15,748) | | 154 | | (15,594) | | (15,594) | | - |
At end of period |
| 3,114,970 | | (838,398) | | 2,276,572 | | 2,255,170 | | 21,402 |
| | | | | | | | | | |
Unrealized fair value at end of period |
| 1,385,375 | | (444,047) | | 941,328 | | 937,500 | | 3,828 |
| | | | | | | | | | |
|
| For the six months ended June 30, 2021 | ||||||||
| | | | | | | | Burford-only | ||
| | | | Elimination of | | | | Capital | | Capital |
| | | | third-party | | Burford-only | | provision- |
| provision- |
($ in thousands) | | Consolidated | | interests | | total | | direct | | indirect |
At beginning of period |
| 2,564,742 |
| (658,551) |
| 1,906,191 |
| 1,862,976 |
| 43,215 |
Deployments |
| 378,784 |
| (162,799) |
| 215,985 |
| 215,071 |
| 914 |
Realizations |
| (213,715) |
| 71,461 |
| (142,254) |
| (142,254) |
| - |
Income for the period |
| (10,000) |
| - |
| (10,000) |
| (10,000) |
| - |
Prepaid proceeds | | 87,190 | | (18,181) | | 69,009 | | 68,218 | | 791 |
Transfer to investment subparticipation | | - |
| 5,156 |
| 5,156 |
| 5,156 |
| - |
Foreign exchange gains/(losses) |
| (4,914) |
| 187 |
| (4,727) |
| (4,727) |
| - |
At end of period |
| 2,802,087 |
| (762,727) |
| 2,039,360 |
| 1,994,440 |
| 44,920 |
| | | | | | | | | | |
Unrealized fair value at end of period |
| 1,317,041 |
| (410,435) |
| 906,606 |
| 905,988 |
| 618 |
Reconciliations of capital provision income
The tables below set forth the reconciliations of components of the consolidated capital provision income to Burford-only capital provision-direct and capital provision-indirect income for the six months ended June 30, 2022 and 2021.
| | | | | | | | | | |
| | For the six months ended June 30, 2022 | ||||||||
| | | | | | | | Burford-only | ||
| | | | Elimination of | | | | Capital | | Capital |
| | | | third-party | | Burford-only | | provision- |
| provision- |
($ in thousands) | | Consolidated | | interests | | total | | direct | | indirect |
Realized gains/(losses) relative to cost |
| 34,040 | | (6,565) | | 27,475 | | 26,601 | | 874 |
Previous unrealized (gains)/losses transferred to realized gains/(losses) |
| (5,965) | | (874) | | (6,839) | | (5,965) | | (874) |
Fair value adjustment during the period |
| 86,882 | | (27,335) | | 59,547 | | 58,415 | | 1,132 |
Income on capital provision assets |
| 114,957 | | (34,774) | | 80,183 | | 79,051 | | 1,132 |
Interest and other income | | 1,888 | | (1,888) | | - | | - | | - |
Foreign exchange losses |
| (6,567) | | 281 | | (6,286) | | (6,286) | | - |
Loss on investment subparticipation | | - | | (122) | | (122) | | (122) | | |
Total capital provision income |
| 110,278 |
| (36,503) |
| 73,775 |
| 72,643 |
| 1,132 |
36 Burford Capital Interim Report 2022
| | | | | | | | | | |
| | For the six months ended June 30, 2021 | ||||||||
| | |
|
|
|
|
| Burford-only | ||
| | | | Elimination of | | | | Capital | | Capital |
| | | | third-party | | Burford-only | | provision- |
| provision- |
($ in thousands) | | Consolidated | | interests | | total | | direct | | indirect |
Realized gains/(losses) relative to cost |
| 87,048 |
| (9,572) |
| 77,476 |
| 77,476 |
| - |
Previous unrealized (gains)/losses transferred to realized gains/(losses) |
| (20,188) |
| 147 |
| (20,041) |
| (20,041) |
| - |
Fair value adjustments during the period |
| 20,330 |
| (8,756) |
| 11,574 |
| 10,783 |
| 791 |
Income on capital provision assets |
| 87,190 |
| (18,181) |
| 69,009 |
| 68,218 |
| 791 |
Impairment of other asset |
| (500) |
| - |
| (500) |
| (500) |
| - |
Foreign exchange gains/(losses) |
| (2,262) |
| 186 |
| (2,076) |
| (2,076) |
| - |
Total capital provision income |
| 84,428 |
| (17,995) |
| 66,433 |
| 65,642 |
| 791 |
Reconciliations of due from settlement of capital provision assets
The tables below set forth the reconciliations of components of the consolidated due from settlement of capital provision assets at the beginning and end of period to Burford-only due from settlement of capital provision-direct and capital provision-indirect assets at the beginning and end of period for the six months ended June 30, 2022 and 2021.
| | | | | | | | | | |
| | For the six months ended June 30, 2022 | ||||||||
| | | | | | | | Burford-only | ||
| | | | Elimination of | | | | Capital | | Capital |
| | | | third-party | | | | provision- |
| provision- |
($ in thousands) | | Consolidated | | interests | | Burford-only | | direct | | indirect |
At beginning of period | | 86,311 | | (22,864) | | 63,447 | | 63,447 | | - |
Transfer of realizations from capital provision assets | | 88,446 | | (12,257) | | 76,189 | | 70,610 | | 5,579 |
Interest and other income | | 1,888 | | (1,888) | | - | | - | | - |
Proceeds received |
| (108,541) | | 21,451 | | (87,090) | | (81,511) | | (5,579) |
Foreign exchange gain/(losses) | | (183) | | - | | (183) | | (183) | | - |
At end of period |
| 67,921 |
| (15,558) |
| 52,363 |
| 52,363 |
| - |
| | | | | | | | | | |
| | For the six months ended June 30, 2021 | ||||||||
| | | | | | | | Burford-only | ||
| | | | Elimination of | | | | Capital | | Capital |
| | | | third-party | | | | provision- |
| provision- |
($ in thousands) | | Consolidated | | interests | | Burford-only | | direct | | indirect |
At beginning of period | | 30,708 | | - | | 30,708 | | 30,708 | | - |
Transfer of realizations from capital provision assets | | 213,715 | | (71,461) | | 142,254 | | 142,254 | | - |
Proceeds received |
| (45,204) |
| 5,216 |
| (39,988) |
| (39,988) |
| - |
Assets received in-kind |
| (3,290) |
| 2,256 |
| (1,034) |
| (1,034) |
| - |
Foreign exchange losses | | (532) | | - | | (532) | | (532) | | - |
At end of period |
| 195,397 |
| (63,989) |
| 131,408 |
| 131,408 |
| - |
| | | | | | | | | | |
Reconciliations of asset management income
The tables below set forth the reconciliations of components of the consolidated asset management income to Burford-only asset management income for the six months ended June 30, 2022 and 2021.
| | | | | | |
| | For the six months ended June 30, 2022 | ||||
| | | | Elimination of | | |
| | | | third-party | | |
($ in thousands) | | Consolidated | | interests | | Burford-only |
Management fee income |
| 3,713 | | 218 | | 3,931 |
Performance fee income |
| 1,795 | | - | | 1,795 |
Income from BOF-C |
| - | | 11,296 | | 11,296 |
Total asset management income |
| 5,508 | | 11,514 | | 17,022 |
Burford Capital Interim Report 2022 37
| | | | | | |
| | For the six months ended June 30, 2021 | ||||
| | | | Elimination of | | |
| | | | third-party | | |
($ in thousands) | | Consolidated | | interests | | Burford-only |
Management fee income | | 4,329 | | 1,073 | | 5,402 |
Income from BOF-C |
| - | | 6,320 | | 6,320 |
Total asset management income |
| 4,329 | | 7,393 | | 11,722 |
Reconciliations of capital provision-direct undrawn commitments
The tables below set forth the reconciliations of the consolidated capital provision-direct definitive and discretionary undrawn commitments and legal risk (definitive) undrawn commitments to Burford-only capital provision-direct definitive and discretionary undrawn commitments and legal risk (definitive) undrawn commitments, in each case, at June 30, 2022 and December 31, 2021.
| | | | | | |
| | At June 30, 2022 | ||||
| | | | Elimination of | | |
| | | | third-party | | |
($ in thousands) | | Consolidated | | interests | | Burford-only |
Definitive | | 752,475 | | (199,102) | | 553,373 |
Discretionary | | 767,017 | | (178,589) | | 588,428 |
Total legal finance undrawn commitments | | 1,519,492 | | (377,691) | | 1,141,801 |
Legal risk (definitive) | | 80,555 | | (5,731) | | 74,824 |
Total capital provision-direct undrawn commitments | | 1,600,047 | | (383,422) | | 1,216,625 |
Capital provision-indirect undrawn commitments | | 29,584 | | (24,667) | | 4,917 |
Total capital provision undrawn commitments | | 1,629,631 | | (408,089) | | 1,221,542 |
| | | | | | |
| | At December 31, 2021 | ||||
| | | | Elimination of | | |
| | | | third-party | | |
($ in thousands) | | Consolidated | | interests | | Burford-only(1) |
Definitive | | 703,417 | | (180,591) | | 522,826 |
Discretionary | | 701,107 | | (173,684) | | 527,423 |
Total legal finance undrawn commitments | | 1,404,524 | | (354,275) | | 1,050,249 |
Legal risk (definitive) | | 88,260 | | (6,233) | | 82,027 |
Total capital provision undrawn commitments | | 1,492,784 | | (360,508) | | 1,132,276 |
1. | The Burford-only undrawn commitment at December 31, 2021 included approximately $63 million of interests in assets that were warehoused for other funds, including a $13 million asset warehoused for BOF-C and a $50 million asset warehoused for the Advantage Fund, which were reflected as capital provision-indirect assets post-transfer. After giving effect to these transfers, Burford-only undrawn commitments for capital provision-direct assets at December 31, 2021 would have been $987 million, of which $460 million were definitive and $527 million were discretionary, as well as $8 million of undrawn commitments in capital provision-indirect assets and $82 million undrawn commitments in legal risk assets. |
38 Burford Capital Interim Report 2022
Cash receipts reconciliations
The tables below set forth the reconciliations of cash receipts to proceeds from capital provision assets, the most comparable measure calculated in accordance with US GAAP, for the six months ended June 30, 2022 and 2021. See “Basis of presentation of financial information—APMs and non-GAAP financial measures relating to our operating and financial performance—Non-GAAP financial measures” for additional information with respect to cash receipts.
| | | | | | | | |
For the six months ended June 30, 2022 | ||||||||
($ in thousands) |
| |
|
|
|
|
| Comment |
Consolidated proceeds received: |
|
| | | |
| |
|
Proceeds from capital provision assets |
| 108,541 | | | |
| | Line item "proceeds from capital provision assets" in the condensed consolidated statements of cash flows |
Less: Elimination of third-party interests |
| (21,451) | | | |
| | "Proceeds received" in the table under "reconciliations— reconciliations of due from settlement of capital provision assets" |
Burford-only total |
| 87,090 | | | |
| | “Burford-only—proceeds received” in the table under "—reconciliations—reconciliations of due from settlement of capital provision assets" |
Proceeds received: |
| | | | |
| |
|
Capital provision-direct |
| 81,511 | | | |
| | “Burford-only—capital provision-direct—proceeds received” in the table under "—reconciliations—reconciliations of due from settlement of capital provision assets" |
Capital provision-indirect |
| 5,579 | | | |
| | “Burford-only—capital provision-indirect—proceeds received” in the table under "—reconciliations—reconciliations of due from settlement of capital provision assets" |
Asset management income |
| 5,508 | | | |
| | Line item "Total asset management income" in note 8 (asset management income) to the condensed consolidated financial statements |
Plus: Eliminated income from funds | | 11,514 | | | | | | "Total asset management income" in the table under reconciliations— reconciliation of condensed consolidated statements of operations |
Less: Increase in receivable |
| (6,806) | | | |
| | Non-cash portion of Burford-only asset management income |
Asset recovery cash receipts | | 577 | | | | | | Line item "proceeds from asset recovery fee for services" in condensed consolidated statements of cash flows |
Marketable security interest and dividend cash income | | 967 | | | | | | Line item "interest and dividend income" in Note 11 (marketable securities) to the condensed consolidated financial statements |
Insurance cash receipts | | 413 | | | | | | Burford-only income statement, adjusted by the decrease in receivables |
Other corporate | | 191 | | | | | | Burford-only income statement, adjusted by the decrease in receivable |
Asset management and other services and other corporate cash income |
| 12,364 | | | |
| | "Cash receipts from operations" in the table under "Financial and operational review— cash receipts (non-GAAP financial measure)" |
Cash receipts |
| 99,454 | | | |
| | "Cash receipts from operations" in the table under "Financial and operational review—cash receipts (non-GAAP financial measure)" |
Burford Capital Interim Report 2022 39
| | | | | | | | |
For the six months ended June 30, 2021 | ||||||||
($ in thousands) |
| |
|
|
|
|
| Comment |
Consolidated proceeds received: |
|
| | | |
| |
|
Proceeds from capital provision assets |
| 45,204 | | | |
| | Line item "Proceeds from capital provision assets" in condensed consolidated statements of cash flows |
Less: Elimination of third-party interests |
| (5,216) | | | |
| | "Proceeds received" in the table under reconciliations— reconciliations of due from settlement of capital provision assets" |
Burford-only total |
| 39,988 | | | |
| | “Burford-only— proceeds received” in the table under "—Reconciliations—Reconciliations of due from settlement of capital provision assets" |
Proceeds received: |
|
| | | |
| |
|
Capital provision-direct |
| 39,988 | | | |
| | “Burford-only—Capital provision-direct—Proceeds received” in the table under "—Reconciliations—Reconciliations of due from settlement of capital provision assets" |
Prepaid proceeds | | 10,000 | | | | | | “Prepaid proceeds” in the table under "—Reconciliations—Reconciliations of capital provision assets" |
Adjusted capital provision-direct proceeds: |
| 49,988 | | | |
| | "Cash receipts from capital provision-direct" in the table under FOR section Cash receipts |
Capital provision-indirect |
| - | | | |
| | “Burford-only—Capital provision-indirect—Proceeds received” in the table under "—Reconciliations—Reconciliations of due from settlement of capital provision assets" |
Asset management income |
| 4,329 | | | |
| | Line item "Total asset management income" in note 8 (asset management income) to the condensed consolidated financial statements |
Plus: Eliminated income from funds | | 7,393 | | | | | | "Total asset management income" in the table under reconciliations— reconciliation of condensed consolidated statements of operations |
Less: Increase in receivable |
| (2,340) | | | |
| | Non-cash portion |
Cash from asset recovery services |
| 1,619 | | | |
| | Line item "proceeds from asset recovery fee for services" in condensed consolidated statements of cash flows |
Insurance income |
| 1,102 | | | |
| | Burford-only income statement, adjusted by the decrease in receivable |
Cash management and bank interest |
| 1,128 | | | |
| | Burford-only income statement, adjusted for FV movement from FS note 11 |
Asset management and other services and other corporate cash income |
| 13,231 | | | |
| | "Cash receipts from operations" in the table under "Financial and operational review— cash receipts (non-GAAP financial measure)" |
Cash receipts |
| 63,219 | | | |
| | "Cash receipts from operations" in the table under "Financial and operational review—cash receipts (non-GAAP financial measure)" |
Portfolio reconciliations
Consolidated portfolio to Group-wide portfolio reconciliations
The tables below set forth the reconciliations of consolidated portfolio to Group-wide portfolio at June 30, 2022 and December 31, 2021.
| | | | | | | | | | | |
| | At June 30, 2022 | |||||||||
| | | | Capital | | | | | | | |
| | | | provision- | | Post- | | | | | |
| | | | direct | | settlement | | | | | |
| | | | Non- | | Non- | | | | | |
| | | | consolidated | | consolidated | | Third-party | | | |
($ in millions) |
| Consolidated |
| funds(1) |
| funds(1) |
| interests | | Group-wide | |
Deployed cost | | 1,730 | (2) | 472 | | 280 | | (21) | | 2,461 | |
Plus: Fair value adjustments | | 1,385 | (4) | 69 | | 67 | | (377) | | 1,144 | |
Carrying value |
| 3,115 | (4) | 541 |
| 347 | | (398) | | 3,605 |
|
Plus: Undrawn commitments |
| 1,630 | (5) | 197 |
| 37 | | — | | 1,864 |
|
Total |
| 4,745 | (6) | 738 | | 384 | | (398) | | 5,469 | (3) |
1. | Amounts represent the non-consolidated managed funds. |
2. | Derived by subtracting fair value adjustments from carrying value at period end. |
3. | Table under "—Portfolio—Overview". |
4. | Note 6 (Capital provision assets) to our condensed consolidated financial statements. |
5. | Amounts in this table represent the sum of total undrawn commitments for capital provision and legal risk set forth in note 22 (Financial commitments and contingent liabilities) to our condensed consolidated financial statements. Undrawn commitments are considered off-balance sheet arrangements under US GAAP. |
6. | Amount represents a non-GAAP figure. |
40 Burford Capital Interim Report 2022
| | | | | | | | | | | |
| | At December 31, 2021 | |||||||||
| | | | Capital | | | | | | | |
| | | | provision- | | Post- | | | | | |
| | | | direct | | settlement | | | | | |
| | | | Non- | | Non- | | | | | |
| | | | consolidated | | consolidated | | Third-party | | | |
($ in millions) |
| Consolidated |
| funds(1) |
| funds(1) |
| interests | | Group-wide | |
Deployed cost | | 1,594 | (2) | 480 | | 268 | | (21) | | 2,321 | |
Plus: Fair value adjustments | | 1,306 | (4) | 73 | | 52 | | (378) | | 1,053 | |
Carrying value |
| 2,900 | (4) | 553 |
| 320 | | (399) | | 3,374 |
|
Plus: Undrawn commitments |
| 1,493 | (5) | 215 |
| 12 | | — | | 1,720 |
|
Total |
| 4,393 | (6) | 768 | | 332 | | (399) | | 5,094 | (3) |
1. | Amounts represent the non-consolidated managed funds. |
2. | Derived by subtracting fair value adjustments from carrying value at period end. |
3. | Table under "—Portfolio—Overview". |
4. | Note 6 (Capital provision assets) to our condensed consolidated financial statements. |
5. | Amounts in this table represent the sum of total undrawn commitments for capital provision and legal risk set forth in note 22 (Financial commitments and contingent liabilities) to our condensed consolidated financial statements. Undrawn commitments are considered off-balance sheet arrangements under US GAAP. |
6. | Amount represents a non-GAAP figure. |
Consolidated portfolio to Group-wide capital provision-direct and capital provision-indirect portfolios
The tables below set forth the reconciliations of consolidated portfolio to Group-wide capital provision-direct and capital provision-indirect portfolios at June 30, 2022 and December 31, 2021. [The column titled “Other funds” in the tables under “—Portfolio—Overview” includes certain consolidated and non-consolidated funds, which are presented in separate columns in the tables below.] When the consolidated funds are added to the “Burford-only” and “BOF-C” columns in the tables under “—Portfolio—Overview”, the sum corresponds to the consolidated amounts reported in note 6 (Capital provision assets) to our condensed consolidated financial statements. Furthermore, when the non-consolidated funds are added to this sum, the total sum represents our Group-wide portfolio amounts, which include both consolidated and non-consolidated funds. The amounts of undrawn commitments in the tables under “—Portfolio—Overview” correspond to the amounts reported in note 22 (Financial commitments and contingent liabilities) to our condensed consolidated financial statements.
| | | | | | | | | | | | | | |
| At June 30, 2022 | |||||||||||||
| | | Capital provision-direct |
| Capital provision-indirect | |||||||||
| | | | | | | | Third-party | | | | | | |
| | | | | Consolidated | | | interests in | | | Strategic | | Advantage | |
($ in millions) | Consolidated | | Burford-only |
| funds(1) | BOF-C |
| Colorado | Total |
| Value Fund |
| Fund | Total |
Deployed cost | 1,730 | (2) | 1,318 | (3) | 41 | 329 | (3) | 21 | 1,709 | | 11 | | 10 | 21 |
Plus: Fair value adjustments | 1,385 | (4) | 937 | (3) | 24 | 45 | (3) | 377 | 1,383 |
| 2 |
| - | 2 |
Carrying value | 3,115 | (4) | 2,255 | (3) | 65 | 374 | (3) | 398 | 3,092 |
| 13 | (3) | 10 | 23 |
Plus: Undrawn commitments | 1,630 | (5) | 1,217 | (3) | 1 | 382 | (3) | - | 1,600 | (5) | - |
| 30 | 30 |
Total | 4,745 | (6) | 3,472 | (3) | 66 | 756 | (3) | 398 | 4,692 |
| 13 | (3) | 40 | 53 |
1. | The sum of the amounts in the “Capital provision-direct—Consolidated funds” column in the table above and the “Capital provision-direct—Non-consolidated funds” column in the table under “—Consolidated portfolio to Group-wide portfolio reconciliations” is equal to the amounts in the “Other funds” column of the “Capital provision-direct assets” section in the table under “—Portfolio—Overview”. |
2. | Derived by subtracting fair value adjustments from carrying value at period end. |
3. | Table under "—Portfolio—Overview". |
4. | Note 6 (Capital provision assets) to our condensed consolidated financial statements. |
5. | Amounts in this table represent the sum of total undrawn commitments for capital provision and legal risk set forth in note 22 (Financial commitments and contingent liabilities) to our condensed consolidated financial statements. Undrawn commitments are considered off-balance sheet arrangements under US GAAP. |
6. | Amount represents a non-GAAP figure. |
Burford Capital Interim Report 2022 41
| | | | | | | | | | | | | |
| At December 31, 2021 | ||||||||||||
| | | Capital provision-direct | �� | Capital provision-indirect | ||||||||
| | | | | | | | Third-party | | | | | |
| | | | | Consolidated | | | interests in | | | Strategic | | |
($ in millions) | Consolidated | | Burford-only |
| funds(1) | BOF-C |
| Colorado | Total |
| Value Fund |
| Total |
Deployed cost | 1,594 | (2) | 1,251 | (3) | 37 | 274 | (3) | 21 | 1,583 | | 11 | | 11 |
Plus: Fair value adjustments | 1,306 | (4) | 887 | (3) | 11 | 28 | (3) | 378 | 1,304 |
| 2 |
| 2 |
Carrying value | 2,900 | (4) | 2,138 | (3) | 48 | 302 | (3) | 399 | 2,887 |
| 13 | (3) | 13 |
Plus: Undrawn commitments | 1,493 | (5) | 1,132 | (3) | 2 | 359 | (3) | - | 1,493 | (5) | - |
| - |
Total | 4,393 | (6) | 3,270 | (3) | 50 | 661 | (3) | 399 | 4,380 |
| 13 | (3) | 13 |
1. | The sum of the amounts in the “Capital provision-direct—Consolidated funds” column in the table above and the “Capital provision-direct—Non-consolidated funds” column in the table under “—Consolidated portfolio to Group-wide portfolio reconciliations” is equal to the amounts in the “Other funds” column of the “Capital provision-direct assets” section in the table under “—Portfolio—Overview”. |
2. | Derived by subtracting fair value adjustments from carrying value at period end. |
3. | Note 6 (Capital provision assets) to our condensed consolidated financial statements. |
4. | Amounts in this table represent the sum of total undrawn commitments for capital provision and legal risk set forth in note 22 (Financial commitments and contingent liabilities) to our condensed consolidated financial statements. Undrawn commitments are considered off-balance sheet arrangements under US GAAP. |
5. | Amount represents a non-GAAP figure. |
Consolidated total undrawn commitments to Burford-only and Group-wide total undrawn commitments reconciliations
The tables below set forth the reconciliations of the components of consolidated total undrawn commitments to Burford-only and Group-wide total undrawn commitments, in each case, at June 30, 2022 and December 31, 2021.
| | | | | | | | | | | | |
| | At June 30, 2022 | ||||||||||
| | | | Elimination of | | | | | | | | |
| | | | third-party | | | | | | | | |
($ in millions) |
| Consolidated |
| interests |
| Burford-only |
| Other funds |
| BOF-C |
| Group-wide |
Capital provision-direct: | | | | | |
| |
| |
| |
|
Legal finance | | 1,520 | | (378) | | 1,142 | | 181 | | 376 | | 1,699 |
Legal risk management | | 80 | | (5) | | 75 | | 17 | | 6 | | 98 |
Capital provision-indirect: | |
|
|
| |
| |
| |
| |
|
Strategic Value Fund | | - | | - | | - | | - | | - | | - |
Advantage Fund | | 30 | | (25) | | 5 | | 25 | ��� | - | | 30 |
Post-settlement: | | | | | | | |
| |
| |
|
Post-settlement funds | | - | | - | | - | | 37 | | - | | 37 |
Total undrawn commitments | | 1,630 | | (408) | | 1,222 | | 260 | | 382 | | 1,864 |
| | | | | | | | | | | | |
| | At December 31, 2021 | ||||||||||
| | | | Elimination of | | | | | | | | |
| | | | third-party | | | | | | | | |
($ in millions) |
| Consolidated |
| interests |
| Burford-only |
| Other funds |
| BOF-C |
| Group-wide |
Capital provision-direct: | |
|
|
| |
| |
| |
| |
|
Legal finance | | 1,405 | | (355) | | 1,050 | (1) | 199 | | 353 | | 1,602 |
Legal risk management | | 88 | | (6) | | 82 | | 18 | | 6 | | 106 |
Capital provision-indirect: | |
|
|
| |
| |
| |
| |
|
Strategic Value Fund | | - | | - | | - | | - | | - | | - |
Post-settlement: | |
| |
| |
| |
| |
| |
|
Post-settlement funds | | - | | - | | - | | 12 | | - | | 12 |
Total undrawn commitments | | 1,493 | | (361) | | 1,132 | (1) | 229 | | 359 | | 1,720 |
1. | The Burford-only undrawn commitment figure for 2021 includes approximately $63 million interests in commitments that were warehoused for our funds at December 31, 2021, including a $13 million commitment warehoused for BOF-C and a $50 million asset warehoused for the Advantage Fund. The undrawn commitment table reflects the allocation in place at December 31, 2021, and does not reflect the transfer to other funds at December 31, 2021, which occurred in early 2022. After giving effect to these transfers, Burford-only undrawn commitments for capital provision-direct assets at December 31, 2021, would have been $1,069. |
See “Basis of presentation of financial information—APMs and non-GAAP financial measures relating to our operating and financial performance—APMs” and “Certain terms used in this Interim Report” for additional information with respect to certain terms useful for the understanding of our portfolio and undrawn commitments information and “—Portfolio” for additional information with respect to our portfolio and undrawn commitments.
42 Burford Capital Interim Report 2022
Deployments reconciliations
The tables below set forth the reconciliations of the components of consolidated deployments to Burford-only deployments for the six months ended June 30, 2022 and 2021.
| | | | | | | | |
For the six months ended June 30, 2022 | ||||||||
($ in thousands) |
| |
|
|
|
|
| Comment |
Condensed consolidated cash flows: |
|
| |
| | | |
|
New funding of capital provision assets |
| 203,742 | |
| | | | Line item "funding of capital provision assets" in the condensed consolidated statements of cash flows |
Plus: Elimination of third-party interests |
| (74,948) | |
| | | | "Deployments" in the table under reconciliations— reconciliations of capital provision assets" |
| | | | | | | | |
Burford-only total deployments |
| 128,794 | |
| | | | "Burford-only—deployments” in the table under "—reconciliations—reconciliations of capital provision assets" |
Deployments: |
| | |
| | | |
|
Capital provision-direct |
| 124,506 | |
| | | | “Burford-only— capital provision-direct—deployments” in the table under "—reconciliations—reconciliations of capital provision assets" |
Less: Reported deployments held at fund level | | (1,968) | | | | | | Burford-only capital deployed but not yet invested |
less: Advantage Fund-type deal transferred out | | (408) | | | | | | Transferred out Advantage Fund-type deal to the Advantage Fund |
Capital provision-direct deployments |
| 122,130 | |
| | | | "Burford-only— capital provision-direct" in the table under "financial and operating review — deployments" |
Capital provision-indirect |
| 4,288 | |
| | | | “Burford-only— capital provision-indirect—deployments” in the table under "—reconciliations—reconciliations of capital provision assets" |
Less: Reported deployments held at fund level | | (888) | | | | | | Burford-only capital deployed to fund level but not yet invested |
Adjusted capital provision-indirect deployments |
| 3,400 | |
| | | | "Burford-only— capital provision-indirect" in the table under "financial and operating review — deployments" |
Total balance sheet deployments |
| 125,530 | |
| | | | "Burford-only—total new deployments" in the table under "financial and operating review— deployments" |
| | | | | | | | |
For the six months ended June 30, 2021 | ||||||||
($ in thousands) |
| |
|
|
|
|
| Comment |
Condensed consolidated cash flows: |
| | |
| | | |
|
New funding of capital provision assets |
| 378,784 | |
| | | | "Deployments" in the table under reconciliations— reconciliations of capital provision assets" |
Plus: Elimination of third-party interests |
| (162,799) | |
| | | | "Deployments" in the table under reconciliations— reconciliations of capital provision assets" |
| | | | | | | | |
Burford-only total deployments |
| 215,985 | |
| | | | "Burford-only—deployments” in the table under "—reconciliations—reconciliations of capital provision assets" |
Deployments: |
| | |
| | | | |
Capital provision-direct |
| 215,071 | |
| | | | “Burford-only— capital provision-direct—deployments” in the table under "—reconciliations—reconciliations of capital provision assets" |
Less: Distributed in-kind asset | | (1,034) | | | | | | Line item "contributions paid in-kind" in the supplemental disclosures to the condensed consolidated statements of cash flows |
Capital provision-direct deployments: |
| 214,037 | |
| | | | "Burford-only— capital provision-direct" in the table under "financial and operating review — deployments" |
Capital provision-indirect |
| 914 | |
| | | | "Burford-only— capital provision-indirect" in the table under "financial and operating review — deployments" |
Total balance sheet deployments |
| 214,951 | |
| | | | "Burford-only—total new deployments" in the table under "financial and operating review— deployments" |
See “Basis of presentation of financial information—APMs and non-GAAP financial measures relating to our operating and financial performance—APMs” and “Certain terms used in this Interim Report” for additional information with respect to certain terms useful for the understanding of our deployments information and “—Deployments” for additional information with respect to our deployments.
Burford Capital Interim Report 2022 43
Realizations reconciliations
The table below sets forth the reconciliation of our consolidated realizations to Group-wide realizations for the six months ended June 30, 2022 and 2021.
| | | | |
| | For the six months | ||
| | ended June 30, | ||
($ in millions) |
| 2022 |
| 2021 |
Consolidated realizations | | 88 | (1) | 214 |
Capital provision non-consolidated funds | | 43 | | 16 |
Post-settlement non-consolidated funds | | 38 | | 51 |
Group-wide realizations | | 169 | | 281 |
1. | See note 6 (Capital provision assets) to our condensed consolidated financial statements. |
The tables below set forth the reconciliations of the components of consolidated realizations to Burford-only realizations for the six months ended June 30, 2022 and 2021.
| | | | | | | | |
For the six months ended June 30, 2022 | ||||||||
($ in thousands) |
| |
|
|
|
|
| Comment |
Consolidated realizations: |
|
| | | |
| |
|
Capital provision assets |
| 88,446 | | | |
| | "Realizations" in note 6 (capital provision assets) to the condensed consolidated financial statements |
Less: Elimination of third-party interests |
| (12,257) | | | |
| | "Realizations" in the table under reconciliations— reconciliations of capital provision assets" |
Burford-only total realizations |
| 76,189 | | | |
| | "Burford-only—realizations” in the table under "—reconciliations—reconciliations of capital provision assets" |
|
| | | | |
| |
|
Capital provision-direct realizations |
| 70,610 | | | |
| | “Burford-only Capital provision-direct—Realizations” in the table under "—Data reconciliations—Capital provision assets" |
Less: Advantage Fund-type deal transferred out | | (408) | | | | | | Transferred out Advantage Fund-type deal to the Advantage Fund |
Capital provision-direct realizations |
| 70,202 | | | |
| | "Burford-only— capital provision-direct" in the table under "financial and operating review — deployments" |
Capital provision-indirect realizations |
| 5,579 | | | |
| | “Burford-only— capital provision-indirect—deployments” in the table under "—reconciliations—reconciliations of capital provision assets" |
Plus: 2022 reported realizations held at fund level and not yet distributed | | 520 | | | | | | Proceeds held at the fund level pending distribution |
Adjusted capital provision-indirect realizations |
| 6,099 | | | |
| | "Burford-only— capital provision-indirect" in the table under "financial and operating review — realizations" |
Total balance sheet realizations |
| 76,301 | | | |
| | "Burford-only—total new realizations" in the table under "financial and operating review— realizations" |
| | | | | | | | |
For the six months ended June 30, 2021 | ||||||||
($ in thousands) |
| |
|
|
|
|
| Comment |
Consolidated realizations: |
|
| | | |
| |
|
Capital provision assets |
| 213,715 | | | |
| | "Realizations" in note 6 (capital provision assets) to the condensed consolidated financial statements |
Less: Elimination of third-party interests |
| (71,461) | | | |
| | "Realizations" in the table under reconciliations— reconciliations of capital provision assets" |
Burford-only total realizations |
| 142,254 | | | |
| | "Burford-only—realizations” in the table under "—reconciliations—reconciliations of capital provision assets" |
Capital provision-direct realizations |
| 142,254 | | | |
| | “Burford-only Capital provision-direct—Realizations” in the table under "—Data reconciliations—Capital provision assets" |
Less: Distributed in-kind asset | | (1,034) | | | |
| | Line item "contributions paid in-kind" in the supplemental disclosures to the condensed consolidated statements of cash flows |
Capital provision-direct realizations |
| 141,220 | | | |
| | "Burford-only— capital provision-direct" in the table under "financial and operating review — deployments" |
Capital provision-indirect realizations |
| — | | | |
| | Note 6 (Capital provision assets) to condensed consolidated financial statements |
Plus: Burford-only portion of due from settlement receivable on concluded asset in the SV fund |
| 26,061 | | | |
| | Burford-only portion of due from settlement receivable on concluded asset in the SV fund |
Adjusted capital provision-indirect realizations |
| 26,061 | | | |
| | "Burford-only— capital provision-indirect" in the table under "financial and operating review — realizations" |
Total balance sheet realizations |
| 167,281 | | | |
| | "Burford-only—total new realizations" in the table under "financial and operating review— realizations" |
44 Burford Capital Interim Report 2022
See “Basis of presentation of financial information—APMs and non-GAAP financial measures relating to our operating and financial performance—APMs” and “Certain terms used in this Interim Report” for additional information with respect to certain terms useful for the understanding of our realizations information and “—Realizations” for additional information with respect to our realizations.
Tangible book value attributable to Burford Capital Limited per ordinary share reconciliations
The tables below set forth the reconciliations of tangible book value attributable to Burford Capital Limited per ordinary share to total Burford Capital Limited equity, the most comparable measure calculated in accordance with US GAAP, at June 30, 2022 and December 31, 2021. See “Basis of presentation of financial information—APMs and non-GAAP financial measures relating to our operating and financial performance—Non-GAAP financial measures” for additional information with respect to tangible book value attributable to Burford Capital Limited per ordinary share.
| | | | |
At June 30, 2022 | ||||
($ in thousands, except share data) |
| |
| Comment |
Total Burford Capital Limited equity |
| 1,550,410 |
| Condensed consolidated statements of financial position |
less: Goodwill | | (133,919) | | Condensed consolidated statements of financial position |
Tangible book value attributable to Burford Capital Limited | | 1,416,491 | | |
| | | | |
Basic ordinary shares outstanding | | 218,581,877 | | Condensed consolidated statements of financial position |
| | | | |
Tangible book value attributable to Burford Capital Limited per ordinary share | | 6.48 | | Tangible book value attributable to Burford Capital Limited divided by basic weighted average ordinary shares outstanding |
| | | | |
At December 31, 2021 | ||||
($ in thousands, except share data) |
| |
| Comment |
Total Burford Capital Limited equity |
| 1,551,790 |
| Condensed consolidated statements of financial position |
less: Goodwill | | (134,019) | | Condensed consolidated statements of financial position |
Tangible book value attributable to Burford Capital Limited | | 1,417,771 | | |
| | | | |
Basic ordinary shares outstanding | | 219,049,877 | | Condensed consolidated statements of financial position |
| | | | |
Tangible book value attributable to Burford Capital Limited per ordinary share | | 6.47 | | Tangible book value attributable to Burford Capital Limited divided by basic weighted average ordinary shares outstanding |
Burford Capital Interim Report 2022 45
| | |
| Condensed consolidated interim financial statements (unaudited) | |
| Contents | |
| 47 | Condensed consolidated statements of operations for the six months ended June 30, 2022 and 2021 |
| 48 | |
| 49 | Condensed consolidated statements of financial position at June 30, 2022 and December 31, 2021 |
| 50 | Condensed consolidated statements of cash flows for the six months ended June 30, 2022 and 2021 |
| 52 | |
| 53 | Notes to the condensed consolidated interim financial statements |
46 Burford Capital Interim Report 2022
Condensed consolidated statements of operations
| | | | | | |
| | | | For the six months | ||
| | | | ended June 30, | ||
|
| |
| 2022 |
| 2021 |
($ in thousands, except share data) | | Notes | | (Unaudited) | | (Unaudited) |
Revenues | |
| |
| |
|
Capital provision income | | 6 | | 110,278 | | 84,428 |
Asset management income | | 8 | | 5,508 | | 4,329 |
Insurance (loss)/income | | 9 | | (2,297) | | 799 |
Services income | |
| | 389 | | 682 |
Marketable securities (loss)/income and bank interest | | 11 | | (8,971) | | 1,256 |
Gain relating to third-party interests in capital provision assets | | | | 1,005 | | 395 |
Total revenues | |
| | 105,912 | | 91,889 |
| | | | | | |
Operating expenses | |
| | | | |
Compensation and benefits | |
| | | | |
Salaries and benefits | |
| | 17,416 | | 17,633 |
Annual incentive compensation | |
| | 7,143 | | 6,544 |
Equity compensation | |
| | 4,869 | | 4,272 |
Legacy asset recovery incentive compensation including accruals | |
| | 1,690 | | 34,083 |
Long-term incentive compensation including accruals | |
| | 4,672 | | 5,122 |
General, administrative and other | |
| | 14,735 | | 14,458 |
Case-related expenditures ineligible for inclusion in asset cost | |
| | 3,663 | | 2,532 |
Total operating expenses | |
| | 54,188 | | 84,644 |
| | | | | | |
Operating income | |
| | 51,724 | | 7,245 |
| | | | | | |
Other expenses | |
| |
| |
|
Finance costs | | 14 | | 36,561 | | 25,646 |
Loss on debt extinguishment | | | | 916 | | 1,616 |
Foreign currency transactions losses | |
| | 3,024 | | 396 |
Total other expenses | |
| | 40,501 | | 27,658 |
| | | | | | |
Income/(loss) before income taxes | |
| | 11,223 | | (20,413) |
| | | | | | |
(Provision for)/benefit from income taxes | | 4 | | (7,725) | | 559 |
Net income/(loss) | | | | 3,498 | | (19,854) |
| | | | | | |
Net income attributable to non-controlling interests | | | | 24,999 | | 8,736 |
Net loss attributable to Burford Capital Limited shareholders | |
| | (21,501) | | (28,590) |
| | | | | | |
Net loss attributable to Burford Capital Limited per ordinary share | |
| |
| |
|
Basic | | 21 | | (0.10) | | (0.13) |
Diluted | | 21 | | (0.10) | | (0.13) |
| | | | | | |
Weighted average ordinary shares outstanding | |
| |
| |
|
Basic | | 21 | | 218,935,492 | | 219,049,877 |
Diluted | | 21 | | 218,935,492 | | 219,049,877 |
| | | | | | |
See accompanying notes to the condensed consolidated interim financial statements.
Burford Capital Interim Report 2022 47
Condensed consolidated statements of comprehensive income
| | | | | | |
| | | | For the six months | ||
| | | | ended June 30, | ||
|
| |
| 2022 |
| 2021 |
($ in thousands) | | Notes | | (Unaudited) | | (Unaudited) |
| | | | | | |
Net income/(loss) | |
| | 3,498 | | (19,854) |
Other comprehensive income/(loss) | | | | | | |
Foreign currency translation adjustment | | | | 35,343 | | (9,466) |
Comprehensive income/(loss) | | | | 38,841 | | (29,320) |
| | | | | | |
Less: Comprehensive income attributable to non-controlling interests | |
| | 24,999 | | 8,736 |
Comprehensive income/(loss) attributable to Burford Capital Limited shareholders | |
| | 13,842 | | (38,056) |
See accompanying notes to the condensed consolidated interim financial statements.
48 Burford Capital Interim Report 2022
Condensed consolidated statements of financial position
| | | | | | |
| | | | At | ||
| | | | June 30, | | December 31, |
|
| |
| 2022 |
| 2021 |
($ in thousands) | | Notes | | (Unaudited) | | (Audited) |
Assets | | | | | | |
Cash and cash equivalents | | | | 353,157 | | 180,255 |
Marketable securities | | 11 | | 125,678 | | 175,336 |
Other assets | | 12 | | 39,781 | | 35,173 |
Due from settlement of capital provision assets | | 7 | | 67,921 | | 86,311 |
Capital provision assets | | 6 | | 3,114,970 | | 2,900,465 |
Property and equipment | | 10 | | 9,748 | | 13,069 |
Goodwill | | 15 | | 133,919 | | 134,019 |
Deferred tax asset | | 4 | | 166 | | 78 |
Total assets | | | | 3,845,340 | | 3,524,706 |
| | | | | | |
Liabilities | | | | | | |
Debt interest payable | | 14 | | 17,035 | | 13,918 |
Other liabilities | | 13 | | 115,035 | | 126,057 |
Debt payable | | 14 | | 1,253,417 | | 1,022,557 |
Financial liabilities relating to third-party interests in capital provision assets | | | | 397,581 | | 398,595 |
Deferred tax liability | | 4 | | 30,453 | | 22,889 |
Total liabilities | | | | 1,813,521 | | 1,584,016 |
| | | | | | |
Commitments and contingencies | | 22 | | | | |
| | | | | | |
Shareholders' equity | | | | | | |
Ordinary shares, no par value; unlimited shares authorized; 219,049,877 ordinary shares issued and 218,581,877 ordinary shares outstanding at June 30, 2022 and 219,049,877 ordinary shares issued and outstanding at December 31, 2021 | | 19 | | 598,813 | | 598,813 |
Additional paid-in capital | | | | 25,328 | | 26,366 |
Accumulated other comprehensive income | | | | 39,451 | | 4,108 |
Treasury shares of 468,000 at $8.01 cost | | 19 | | (3,749) | | - |
Retained earnings | | | | 890,567 | | 922,503 |
Total Burford Capital Limited equity | | | | 1,550,410 | | 1,551,790 |
Non-controlling interests | | | | 481,409 | | 388,900 |
Total shareholders' equity | | | | 2,031,819 | | 1,940,690 |
Total liabilities and shareholders' equity | | | | 3,845,340 | | 3,524,706 |
See accompanying notes to the condensed consolidated interim financial statements.
The condensed consolidated interim financial statements on pages 47 to 77 of this Interim Report were approved by the board of directors on August 9, 2022 and were signed on its behalf by:
/s/ Charles Parkinson
Charles Parkinson
Director
August 9, 2022
Burford Capital Interim Report 2022 49
Condensed consolidated statements of cash flows
| | | | | | | |
| | | | For the six months | | ||
| | | | ended June 30, | | ||
|
| |
| 2022 |
| 2021 | |
($ in thousands) | | Notes | | (Unaudited) | | (Unaudited) | |
Cash flows from operating activities: | |
| |
| |
| |
Net (loss)/income | |
| | 3,498 | | (19,854) | |
| |
| | | |
| |
Adjustments to reconcile net (loss)/income to net cash provided by/(used in) operating activities: | |
| | | |
| |
Income on capital provision assets | | 6 | | (114,957) | | (87,190) | |
Interest and other income from capital provision assets | | 6 | | (1,888) | | - | |
Asset recovery fee for services income | |
| | (389) | | (682) | |
Loss/(income) on marketable securities | | | | 9,814 | | (430) | |
Decrease/(increase) in other assets | |
| | (4,912) | | (1,099) | |
Increase/(decrease) in other liabilities | | | | 10,681 | | 28,359 | |
Amortization and depreciation of debt issuance costs and property and equipment | | | | 2,003 | | 511 | |
Deferred tax expense/(benefit) | | | | (8,109) | | (1,096) | |
Share-based compensation | | | | 3,593 | | 3,967 | |
Other non-cash, including exchange rate movement | |
| | 15,987 | | 2,596 | |
Proceeds from capital provision assets | | 3 | | 108,541 | | 45,204 | |
Prepaid proceeds | | | | - | | 10,000 | |
Proceeds from asset recovery fee for services | | | | 577 | | 1,619 | |
Net decrease/(increase) on financial liability to third-party investment | | | | (1,014) | | (432) | |
Net cash provided by/(used in) operating activities before funding of operating activities | | | | 23,425 | | (18,527) | |
| |
| | | | | |
Funding of operating activities | |
| | | | | |
Net proceeds/(funding) of marketable securities | | 11 | | 39,540 | | (249,841) | |
Funding of capital provision assets | | 3 | | (203,742) | | (377,750) | |
Net cash used in operating activities | | | | (140,777) | | (646,118) | |
| | | | | | | |
Cash flows from investing activities: | | | | | | | |
Purchases of property and equipment | | | | (52) | | (187) | |
Net cash used in investing activities | | | | (52) | | (187) | |
| | | | | | | |
Cash flows from financing activities: | | | | | | | |
Acquisition of ordinary shares to meet share-based payment obligations | | | | (1,395) | | (1,141) | |
Issuance of debt, net of original issue discount | | 14 | | 357,271 | | 400,000 | |
Debt issuance costs | | | | (7,882) | | (7,797) | |
Redemption of debt | | | | (79,911) | | (33,687) | |
Dividends paid on ordinary shares | | | | (13,671) | | (27,381) | |
Payments for treasury stock purchases | | | | (3,749) | | - | |
Third-party net capital contribution | | | | 67,510 | | 184,840 | |
Net cash provided by/(used in) financing activities | | | | 318,173 | | 514,834 | |
| | | | | | | |
Net increase/(decrease) in cash and cash equivalents | | | | 177,344 | | (131,471) | |
| | | | | | | |
The table below sets forth the changes in cash and cash equivalents at the beginning and end of the relevant reporting periods.
| | | | | | | |
| | | | For the six months | | ||
| | | | ended June 30, | | ||
|
| |
| 2022 | | 2021 |
|
($ in thousands) | | Notes | | (Unaudited) | | (Unaudited) | |
Cash and cash equivalents at beginning of period | | | | 180,255 | | 322,085 | |
Increase/(decrease) in cash and cash equivalents | | | | 177,344 | | (131,471) | |
Effect of exchange rate changes on cash and cash equivalents | | | | (4,442) | | 160 | |
Cash and cash equivalents at end of period | | | | 353,157 | | 190,774 | |
50 Burford Capital Interim Report 2022
Condensed consolidated interim statements of cash flows
continued
The table below sets forth supplemental disclosures to our statement of consolidated cash flows.
| | | | | | | |
| | | | For the six months | | ||
| | | | ended June 30, | | ||
| | | | 2022 | | 2021 | |
($ in thousands) |
| |
| (Unaudited) | | (Unaudited) |
|
Cash received from interest and dividend income | | | | 1,035 | | 1,128 | |
Cash paid for debt interest | | | | (31,564) | | (19,736) | |
Cash received from income tax refund | | | | 774 | | - | |
Cash paid for income taxes | | | | (636) | | (547) | |
Assets received in-kind(1) | | | | - | | 3,290 | |
Contributions paid in-kind(1) | | | | - | | (1,034) | |
1. | A consolidated entity, in which Burford had a limited partnership interest, liquidated during the six months ended June 30, 2021 and distributed in-kind a capital provision asset in the amount of ($3,290), of which ($1,034) were held directly by Burford and the remaining ($2,256) were held by other limited partners of the liquidated entity. |
See accompanying notes to the condensed consolidated interim financial statements.
Burford Capital Interim Report 2022 51
Condensed consolidated statements of changes in equity
| | | | | | | | | | | | | |
| | For the six months ended June 30, 2022 (unaudited) | |||||||||||
| | Shares | | Amount | | | | | | | |||
| | | | | | | | | | Accumulated | | | |
| | Number of | | Number of | | | | Additional | | other | Total Burford | Non- | Total |
($ in thousands, | | Ordinary | | Treasury | | Ordinary | Treasury | paid-in | Retained | comprehensive | Capital Limited | controlling | shareholders’ |
except share data) |
| shares | | shares | | shares | shares | capital | earnings | income/(loss) | equity | interests | equity |
At beginning of period | | 219,049,877 | | - | | 598,813 | - | 26,366 | 922,503 | 4,108 | 1,551,790 | 388,900 | 1,940,690 |
Net (loss)/income | | - | | - | | - | - | - | (21,501) | - | (21,501) | 24,999 | 3,498 |
Foreign currency translation adjustment | | - | | - | | - | - | - | - | 35,343 | 35,343 | - | 35,343 |
Ordinary shares repurchased and held in treasury | | - | | (468,000) | | - | (3,749) | - | - | - | (3,749) | - | (3,749) |
Ordinary shares purchased by the Burford Capital Limited Employee Benefit Trust | | - | | - | | - | - | (1,395) | - | - | (1,395) | - | (1,395) |
Ordinary shares distributed by the Burford Capital Limited Employee Benefit Trust | | - | | - | | - | - | - | (1,276) | - | (1,276) | - | (1,276) |
Transfer LTIP awards on vesting | | - | | - | | - | - | (4,512) | 4,512 | - | - | - | - |
Share-based compensation | | - | | - | | - | - | 4,869 | - | - | 4,869 | - | 4,869 |
Dividends paid | | - | | - | | - | - | - | (13,671) | - | (13,671) | - | (13,671) |
Net contributions | | - | | - | | - | - | - | - | - | - | 67,510 | 67,510 |
At end of period | | 219,049,877 | | (468,000) | | 598,813 | (3,749) | 25,328 | 890,567 | 39,451 | 1,550,410 | 481,409 | 2,031,819 |
| | | | | | | | | | | | |
| | For the six months ended June 30, 2021 (unaudited) | | |||||||||
| | Shares | | Amount | | | | | | | | |
| | | | | | | | | Accumulated | | | |
| | Number of | | | | Additional | | | other | Total Burford | | Total |
($ in thousands, except | | ordinary | | Ordinary | | paid-in | | Retained | comprehensive | Capital Limited | Non-controlling | shareholders’ |
share data) |
| shares | | shares | | capital | | earnings | income/(loss) | equity | interests | equity |
At beginning of period | | 219,049,877 | | 598,813 | | 22,529 | | 1,034,319 | 6,551 | 1,662,212 | 243,282 | 1,905,494 |
Net (loss)/income | | - | | - | | - | | (28,590) | - | (28,590) | 8,736 | (19,854) |
Foreign currency translation adjustment | | - | | - | | - | | - | (9,466) | (9,466) | - | (9,466) |
Ordinary shares purchased by the Burford Capital Limited Employee Benefit Trust | | - | | - | | (1,141) | | - | - | (1,141) | - | (1,141) |
Ordinary shares distributed by the Burford Capital Limited Employee Benefit Trust | | - | | - | | - | | (323) | - | (323) | - | (323) |
Transfer LTIP awards on vesting | | - | | - | | (1,902) | | 1,902 | - | - | - | - |
Share-based compensation | | - | | - | | 4,290 | | - | - | 4,290 | - | 4,290 |
Dividends paid | | - | | - | | - | | (27,381) | - | (27,381) | - | (27,381) |
Net contributions | | - | | - | | - | | - | - | - | 187,883 | 187,883 |
At end of period | | 219,049,877 | | 598,813 | | 23,776 | | 979,927 | (2,915) | 1,599,601 | 439,901 | 2,039,502 |
See accompanying notes to the condensed consolidated interim financial statements.
52 Burford Capital Interim Report 2022
Notes to the condensed consolidated interim financial statements
Burford Capital Limited (the “Company”) and its consolidated subsidiaries (collectively with the Company, the “Group”) provide legal finance products and services, comprising (i) core legal finance and (ii) alternative strategies, and are engaged in the asset management business.
The Company was incorporated as a company limited by shares under the Companies (Guernsey) Law, 2008, as amended (the “Guernsey Companies Law”), on September 11, 2009. The Company has a single class of ordinary shares, which commenced trading on AIM in October 2009 and on the New York Stock Exchange in October 2020, in each case, under the symbol “BUR”. The Company’s subsidiaries have issued bonds that are traded on the Main Market of the London Stock Exchange and unlisted bonds in private placement transactions pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended.
2. Summary of significant accounting policies
Basis of presentation
The Company’s unaudited condensed consolidated interim financial statements at and for the six months ended June 30, 2022 have been prepared in accordance with US GAAP and reflect all adjustments of a normal, recurring nature that are, in the opinion of management, necessary for the fair presentation of the results for the interim period. The Company’s previously unaudited reported condensed consolidated financial statements at and for the six months ended June 30, 2021 were prepared in accordance with IFRS and, therefore, the comparative data at and for the six months ended June 30, 2021 contained in this Interim Report may differ from the historical data previously prepared in accordance with IFRS and included in the Company’s prior reports. See “Financial and operational review—Conversion to US GAAP” in the Annual Report for additional information with respect to the differences between US GAAP and the IFRS. Certain disclosures included in the consolidated financial statements at and for the year ended December 31, 2021 included in the Annual Report have been condensed in, or omitted from, the unaudited condensed consolidated financial statements at and for the six months ended June 30, 2022 included in this Interim Report. The unaudited condensed consolidated financial statements at and for the six months ended June 30, 2022 should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto for the year ended December 31, 2021 included in the Annual Report. The results for the six months ended June 30, 2022 are not necessarily indicative of the results for the full year.
Use of estimates
The preparation of the Company’s condensed consolidated financial statements requires management to make estimates that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amount of revenues and expenses during the reporting periods. Such estimates include, among other things, the valuation of capital provision assets and other financial instruments, the measurement of deferred tax balances (including valuation allowances) and the accounting for goodwill. Actual results could differ from those estimates, and such differences could be material.
Consolidation
The condensed consolidated financial statements include the accounts of (i) the Company, (ii) its wholly owned or majority-owned subsidiaries, (iii) the consolidated entities that are considered to be variable interest entities (“VIEs”) and for which the Company is considered the primary beneficiary and (iv) certain entities that are not considered VIEs but that the Company controls through a majority voting interest.
In connection with investment funds and other related entities where the Group does not own 100% of the relevant entity, the Group makes judgments about whether it is required to consolidate such entities by applying the factors set forth in US GAAP for VIEs or voting interest entities under Accounting Standards Codification 810—Consolidation.
VIEs are entities that, by design, either (i) lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties, (ii) have equity investors that (A) do not have the ability to make significant decisions relating to the entity’s operations through voting rights, (B) do not have the obligation to absorb the expected losses or (C) do not have the right to receive the residual returns of the entity or (iii) have equity investors’ voting rights that are not proportional to the economics, and substantially all of the activities of the entity
Burford Capital Interim Report 2022 53
Notes to the condensed consolidated interim financial statements
continued
either involve or are conducted on behalf of an investor that has disproportionately few voting rights. An entity is deemed to be the primary beneficiary of the VIE if such entity has both (i) the power to direct the activities that most significantly impact the VIE’s economic performance and (ii) the right to receive benefits from the VIE or the obligation to absorb losses of the VIE that could be significant to the VIE.
In determining whether the Group is the primary beneficiary of a VIE, the Group considers both qualitative and quantitative factors regarding the nature, size and form of its involvement with the VIE, such as its role establishing the VIE and its ongoing rights and responsibilities, the design of the VIE, its economic interests, servicing fees and servicing responsibilities and certain other factors. The Group performs ongoing reassessments to evaluate whether changes in the entity’s capital structure or changes in the nature of its involvement with the entity result in a change to the VIE designation or a change to its consolidation conclusion.
The most significant judgments relate to the assessment of the Group’s exposure or rights to variable returns in BOF-C, the Strategic Value Fund, the Advantage Fund and Colorado. The Group has assessed that its economic interest in the income generated from BOF-C and its investment as a limited partner in the Strategic Value Fund and the Advantage Fund, coupled with its power over the relevant activities as the fund manager, require the consolidation of BOF-C, the Strategic Value Fund and the Advantage Fund in the condensed consolidated financial statements. Similarly, the Group has assessed that its shareholding in Colorado, coupled with its power over the relevant activities of Colorado through contractual agreements, requires the consolidation of Colorado in the condensed consolidated financial statements.
The Group is deemed to have a controlling financial interest in VIEs in which it is the primary beneficiary and in other entities in which it owns more than 50% of the outstanding voting shares and other shareholders do not have substantive rights to participate in management.
For entities the Group controls but does not wholly own, the Group generally records a non-controlling interest within shareholders’ equity for the portion of the entity’s equity attributed to the non-controlling ownership interests. Accordingly, third-party share of net income or losses relating to non-controlling interests in consolidated entities is treated as a reduction or increase, respectively, of net income in the condensed consolidated statements of operations and comprehensive income. With respect to Colorado, an entity the Group controls but does not wholly own, the Group records a financial liability within financial liabilities related to third-party interests in capital provision assets for the portion of the entity’s equity held by third parties. The third-party share of income or losses is included in gain relating to third-party interests in capital provision assets in the condensed consolidated statements of operations and comprehensive income. All significant intercompany balances, transactions and unrealized gains and losses on such transactions are eliminated in consolidation.
Covid-19 pandemic and global economic market conditions
The Covid-19 pandemic and restrictions on certain non-essential businesses have caused disruption in the United States and global economies. Although an economic recovery is partially underway, it continues to be gradual, uneven and characterized by meaningful dispersion across sectors and regions. The estimates and assumptions underlying the condensed consolidated financial statements at and for the six months ended June 30, 2022 are based on the information available at June 30, 2022, including judgments about the financial markets and economic conditions which may change over time. As a result of the Russian Federation’s invasion of Ukraine in February 2022 (the “Ukraine War”), various nations, including the United States, have instituted economic sanctions and other responsive measures, which have resulted in an increase level of global economic and political uncertainty. At and for the six months ended June 30, 2022, the effects of the Ukraine War have not had a material impact on the condensed consolidated interim financial statements.
Recently issued or adopted accounting pronouncements
There have been no recently issued or adopted accounting pronouncements that had a material impact on the condensed consolidated financial statements at and for the six months ended June 30, 2022 and related disclosures.
54 Burford Capital Interim Report 2022
Notes to the condensed consolidated interim financial statements
continued
3. Supplemental cash flow data
The tables below set forth supplemental information with respect to the cash inflows and outflows for capital provision-direct and capital provision-indirect assets for the six months ended June 30, 2022 and 2021.
| | | | | | |
For the six months ended June 30, 2022 |
| Capital provision- |
| Capital provision- |
| |
($ in thousands) | | direct assets |
| indirect assets | | Total |
Proceeds | | 84,979 | | 23,562 | | 108,541 |
Increase in payable for capital provision assets | | 412 | | - | | 412 |
Funding | | (183,566) | | (20,176) | | (203,742) |
| | | | | | |
For the six months ended June 30, 2021 |
| Capital provision- |
| Capital provision- |
| |
($ in thousands) | | direct assets |
| indirect assets | | Total |
Proceeds |
| 45,204 |
| - |
| 45,204 |
Prepaid proceeds | | 10,000 | | - | | 10,000 |
Decrease in payable for capital provision assets |
| (256) |
| - |
| (256) |
Funding |
| (377,750) |
| - |
| (377,750) |
Capital provision-direct assets represent those assets in which the Group has provided financing directly to a client or to fund a principal position in a legal finance asset. BOF-C is included in capital provision-direct assets because the Group does not invest any capital in BOF-C. Capital provision-indirect assets represent those assets in which the Group’s capital is provided through a fund as a limited partner contribution. At June 30, 2022, the Group had increased deployments in capital provision-indirect assets through the Advantage Fund, which closed during the six months ended June 30, 2022, whereas at June 30, 2021, capital provision-indirect assets consisted entirely of assets held through the Strategic Value Fund.
4. Income taxes
The Company qualifies for exemption from income tax in Guernsey under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989, as amended. This exemption has to be applied for annually and has been applied for, and granted, with respect to the year ending December 31, 2022.
The Company’s operating subsidiaries in Australia, Ireland, Singapore, the United Kingdom and the United States are subject to taxation in such jurisdictions as determined in accordance with relevant tax legislation. In certain cases, an operating subsidiary of the Company may elect a transaction structure that could be subject to income tax in a country related to the transaction creating the capital provision asset.
The effective tax rates were a 69% tax expense and a 3% tax benefit for the six months ended June 30, 2022 and 2021, respectively. The tax expense was primarily due to recording a full valuation allowance for a deferred tax asset relating to interest expense deductions. The effective tax rate also differs from the statutory tax rate as taxable profits and losses arising in various jurisdictions are taxed at different rates.
Gross deferred tax assets and liabilities were $44 million and $45 million, respectively at June 30, 2022 and $37 million and $39 million, respectively, at December 31, 2021. In addition, the Company has recorded valuation allowances of $29 million and $21 million at June 30, 2022 and December 31, 2021, respectively, which results in an overall net deferred tax liability position for the Company of $30 million and $23 million at June 30, 2022 and December 31, 2021, respectively. The valuation allowance primarily related to foreign and state net operating loss carryforwards, interest expense and other deferred tax assets. The Company has performed an assessment of positive and negative evidence, including the nature, frequency, and severity of cumulative financial reporting losses in recent years, the future reversal of existing temporary differences, predictability of future taxable income exclusive of reversing temporary differences of the character necessary to realize the asset, relevant carryforward periods, taxable income in carry-back years if carry-back is permitted under tax law, and prudent and feasible tax planning strategies that would be implemented, if necessary, to protect against the loss of the deferred tax asset that would otherwise expire. Although realization is not assured, based on the Company’s assessment, the Company has concluded that it is more likely than not that the remaining gross deferred tax asset will be realized and, as such, no additional valuation allowance has been provided.
Notes to the condensed consolidated interim financial statements
continued
5. Segment reporting
Management considers that there are two operating business segments and a corporate segment: (i) capital provision, which comprises provision of capital to the legal industry or in connection with legal matters, both directly and through investment in the Group’s managed funds; (ii) asset management and other services, which includes the provision of services to the legal industry, including litigation insurance; and (iii) other corporate. Management considers income/(loss) before income taxes as the measure of segment profitability.
The tables below set forth financial data for the Group’s reportable business segments for the six months ended June 30, 2022 and 2021.
| | | | | | | |
| | For the six months ended June 30, 2022 | |||||
| | | | | | Reconciliation | |
| | | Asset |
| Total | Adjustment for | |
| | Capital | management and | Other | segments | third-party | Total |
($ in thousands) |
| provision | other services | corporate | (Burford-only) | interests(1) | consolidated |
Capital provision income |
| 73,775 | - | - | 73,775 | 36,503 | 110,278 |
Management fee income |
| - | 3,931 | - | 3,931 | (218) | 3,713 |
Performance fee income | | - | 1,795 | - | 1,795 | - | 1,795 |
Income from BOF-C |
| - | 11,296 | - | 11,296 | (11,296) | - |
Other services income |
| - | (1,908) | (8,977) | (10,885) | 6 | (10,879) |
Gain relating to third-party interests in capital provision assets | | - | - | - | - | 1,005 | 1,005 |
Total revenues* |
| 73,775 | 15,114 | (8,977) | 79,912 | 26,000 | 105,912 |
|
| | | | | | |
Operating expenses |
| 26,874 | 10,482 | 15,834 | 53,190 | 998 | 54,188 |
| | | | | | | |
Other expenses |
| | | | | | |
Finance costs |
| 33,033 | 838 | 2,690 | 36,561 | - | 36,561 |
Loss on debt extinguishment | | 828 | 21 | 67 | 916 | - | 916 |
Foreign currency transactions losses |
| - | - | 3,021 | 3,021 | 3 | 3,024 |
Total other expenses | | 33,861 | 859 | 5,778 | 40,498 | 3 | 40,501 |
| | | | | | | |
Income/(loss) before income taxes |
| 13,040 | 3,773 | (30,589) | (13,776) | 24,999 | 11,223 |
*Includes the following revenue from contracts with customers for services transferred over time |
| - | 15,114 | - | 15,114 | - | 15,114 |
(1) |
1. | Adjusted for third-party interests in non-wholly owned consolidated entities which include BOF-C, the Strategic Value Fund, the Advantage Fund, Colorado and several other entities in which Burford holds investments and there is a third-party partner in, or owner of, those entities. |
| | | | | | | |
56 Burford Capital Interim Report 2022
Notes to the condensed consolidated interim financial statements
continued
| | | | | | | |
| | For the six months ended June 30, 2021 | |||||
| | | | | | Reconciliation | |
| | | Asset |
| Total | Adjustment for | |
| | Capital | management and | Other | segments | third-party | Total |
($ in thousands) |
| provision | other services | corporate | (Burford-only) | interests(1) | consolidated |
Capital provision income |
| 66,433 | - | - | 66,433 | 17,995 | 84,428 |
Management fee income |
| - | 5,402 | - | 5,402 | (1,073) | 4,329 |
Income from BOF-C |
| - | 6,320 | - | 6,320 | (6,320) | - |
Other services income |
| - | 1,481 | 1,255 | 2,736 | 1 | 2,737 |
Gain relating to third-party interests in capital provision assets | | - | - | - | - | 395 | 395 |
Total revenues* |
| 66,433 | 13,203 | 1,255 | 80,891 | 10,998 | 91,889 |
|
| | | | | | |
Operating expenses |
| 74,886 | 5,363 | 2,133 | 82,382 | 2,262 | 84,644 |
| | | | | | | |
Other expenses |
| | | | | | |
Finance costs |
| 22,764 | 205 | 2,677 | 25,646 | - | 25,646 |
Loss on debt extinguishment | | 1,434 | 13 | 169 | 1,616 | - | 1,616 |
Foreign currency transactions losses |
| - | - | 396 | 396 | - | 396 |
Total other expenses | | 24,198 | 218 | 3,242 | 27,658 | - | 27,658 |
| | | | | | | |
(Loss)/income before income taxes |
| (32,651) | 7,622 | (4,120) | (29,149) | 8,736 | (20,413) |
*Includes the following revenue from contracts with customers for services transferred over time |
| - | 13,203 | - | 13,203 | - | 13,203 |
1. | Adjusted for third-party interests in non-wholly owned consolidated entities which include BOF-C, the Strategic Value Fund, Colorado and several other entities in which Burford holds investments and there is a third-party partner in, or owner of, those entities. |
The tables below set forth the Group’s assets and liabilities by reporting segment at June 30, 2022 and December 31, 2021.
| | | | | | | |
|
| At June 30, 2022 | |||||
| | | | | | Reconciliation | |
| | | Asset |
| Total | Adjustment for | |
| | Capital | management and | Other | segments | third-party | Total |
($ in thousands) | | provision | other services | corporate | (Burford-only) | interests(1) | consolidated |
Assets: | | |
|
| |
| |
Cash and cash equivalents |
| 204,794 | 9,965 | 89,774 | 304,533 | 48,624 | 353,157 |
Marketable securities |
| - | - | 125,678 | 125,678 | - | 125,678 |
Due from settlement of capital provision assets |
| 52,363 | - | - | 52,363 | 15,558 | 67,921 |
Capital provision assets |
| 2,276,656 | - | - | 2,276,656 | 838,314 | 3,114,970 |
Other | | 145,318 | 57,967 | 2,764 | 206,049 | (22,435) | 183,614 |
Total assets |
| 2,679,131 | 67,932 | 218,216 | 2,965,279 | 880,061 | 3,845,340 |
| | | | | | | |
Liabilities: |
| | | | | | |
Debt interest payable | | 15,391 | 391 | 1,253 | 17,035 | - | 17,035 |
Debt payable |
| 1,132,463 | 28,715 | 92,239 | 1,253,417 | - | 1,253,417 |
Financial liabilities relating to third-party interests in capital provision assets |
| - | - | - | - | 397,581 | 397,581 |
Other |
| 106,293 | 28,035 | 10,088 | 144,417 | 1,071 | 145,488 |
Total liabilities |
| 1,254,147 | 57,141 | 103,580 | 1,414,869 | 398,652 | 1,813,521 |
1. | Adjusted for third-party interests in non-wholly owned consolidated entities which include BOF-C, the Strategic Value Fund, Colorado and several other entities in which Burford holds investments and there is a third-party partner in, or owner of, those entities. |
Burford Capital Interim Report 2022 57
Notes to the condensed consolidated interim financial statements
continued
| | | | | | | |
| | At December 31, 2021 | |||||
| | | | | | Reconciliation | |
| | | Asset |
| Total | Adjustment for | |
| | Capital | management and | Other | segments | third-party | Total |
($ in thousands) | | provision | other services | corporate | (Burford-only) | interests(1) | consolidated |
Assets: | | |
|
| |
| |
Cash and cash equivalents |
| 90,497 | 9,446 | 39,735 | 139,678 | 40,577 | 180,255 |
Marketable securities |
| - | - | 175,336 | 175,336 | - | 175,336 |
Due from settlement of capital provision assets |
| 63,447 | - | - | 63,447 | 22,864 | 86,311 |
Capital provision assets |
| 2,159,453 | - | - | 2,159,453 | 741,012 | 2,900,465 |
Other | | 137,913 | 53,997 | 6,592 | 198,502 | (16,163) | 182,339 |
Total assets |
| 2,451,310 | 63,443 | 221,663 | 2,736,416 | 788,290 | 3,524,706 |
| | | | | | | |
Liabilities: |
|
|
|
|
| | |
Debt interest payable | | 12,468 | 323 | 1,127 | 13,918 | - | 13,918 |
Debt payable |
| 916,017 | 23,708 | 82,832 | 1,022,557 | - | 1,022,557 |
Financial liabilities relating to third-party interests in capital provision assets |
| - | - | - | - | 398,595 | 398,595 |
Other |
| 100,622 | 26,719 | 20,810 | 148,151 | 795 | 148,946 |
Total liabilities |
| 1,029,107 | 50,750 | 104,769 | 1,184,626 | 399,390 | 1,584,016 |
1. | Adjusted for third-party interests in non-wholly owned consolidated entities which include BOF-C, the Strategic Value Fund, Colorado and several other entities in which Burford holds investments and there is a third-party partner in, or owner of, those entities. |
6. Capital provision assets
Capital provision assets are financial assets held at fair value through profit or loss that relate to the provision of capital in connection with legal finance. Capital provision-direct assets represent those assets in which the Group has provided financing directly to a client or to fund a principal position in a legal finance asset. BOF-C is included in capital provision-direct assets because the Group does not invest any capital in BOF-C. Capital provision-indirect assets represent those assets in which the Group’s capital is provided through a fund as a limited partner contribution. At June 30, 2022, the Group had increased deployments in capital provision-indirect assets through the Advantage Fund, which closed during the six months ended June 30, 2022, whereas at June 30, 2021, capital provision-indirect assets consisted entirely of assets held through the Strategic Value Fund.
The table below sets forth the changes in capital provision assets at the beginning and end of the relevant reporting periods.
| | | | |
| | For the six months | ||
| | ended June 30, | ||
($ in thousands) |
| 2022 |
| 2021 |
At beginning of period | | 2,900,465 | | 2,564,742 |
Deployments | | 203,742 | | 378,784 |
Realizations |
| (88,446) |
| (213,715) |
Prepaid proceeds | | - | | (10,000) |
Income for the period |
| 114,957 |
| 87,190 |
Foreign exchange losses |
| (15,748) |
| (4,914) |
At end of period |
| 3,114,970 |
| 2,802,087 |
| | | | |
Capital provision-direct assets |
| 3,091,625 |
| 2,776,105 |
Capital provision-indirect assets |
| 23,345 |
| 25,982 |
Total capital provision assets | | 3,114,970 | | 2,802,087 |
| | | | |
Unrealized fair value at end of period | | 1,385,375 | | 1,317,041 |
58 Burford Capital Interim Report 2022
Notes to the condensed consolidated interim financial statements
continued
The table below sets forth the components of the capital provision income for the six months ended June 30, 2022 and 2021.
| | | | |
| | For the six months | ||
| | ended June 30, | ||
($ in thousands) |
| 2022 |
| 2021 |
Realized gains/(losses) relative to cost |
| 34,040 |
| 87,048 |
Previous unrealized (gains)/losses transferred to realized gains/(losses) |
| (5,965) |
| (20,188) |
Fair value adjustment during the period |
| 86,882 |
| 20,330 |
Income on capital provision assets |
| 114,957 |
| 87,190 |
Interest and other income | | 1,888 | | - |
Impairment of other asset | | - | | (500) |
Foreign exchange gains/(losses) | | (6,567) | | (2,262) |
Total capital provision income as reported on the consolidated statements of operations |
| 110,278 |
| 84,428 |
Foreign exchange gains/(losses) on capital provision assets are reported in either capital provision income or foreign currency transactions gains/(losses) in the condensed consolidated statements of operations. Exchange differences arising from non-US Dollar denominated capital provision assets held by US Dollar functional currency entities are recognized in capital provision income in the condensed consolidated statements of operations. All other foreign exchange translation differences arising from capital provision assets held by non-US Dollar functional currency entities are recognized in other comprehensive income in the consolidated statements of comprehensive income.
The Group generally relies on objective events and privileged information, which along with other information, may be used to determine its asset valuations. As a result, the Group is precluded from disclosing individual asset valuations publicly. However, the Group’s sale of a part of its entitlement to proceeds in the YPF-related Petersen matter during the year ended December 31, 2019 was uniquely of such a size and breadth (including third-party sales organized by the Group’s financial adviser as part of the same transaction, resulting in the total sale of 15% of the entitlement to proceeds) that it was appropriate to use the sale price alone, without consideration of privileged information, to set the Group’s valuation of its YPF-related assets during the year ended December 31, 2019, which remained the same during the six months ended June 30, 2022 and 2021. The carrying value of the YPF-related assets (both Petersen and Eton Park combined) on the Group’s consolidated balance sheet was $1.2 billion with $1.1 billion of unrealized gains at June 30, 2022 and December 31, 2021, respectively. There have been no transfers of unrealized to realized gains, so the fair value adjustment remains $1.1 billion at June 30, 2022.
On a consolidated basis, the capital provision-indirect assets represent equity securities and related claims in the Strategic Value Fund and litigation finance assets in the Advantage Fund.
7. Due from settlement of capital provision assets
Amounts due from settlement of assets relate to the recovery of capital provision assets that have successfully concluded and where there is no longer any litigation risk remaining. The settlement terms and duration vary by capital provision asset. The majority of settlement balances are received shortly after the period end in which the capital provision assets have concluded, and all settlement balances are generally expected to be received within 12 months after the capital provision assets have concluded.
Burford Capital Interim Report 2022 59
Notes to the condensed consolidated interim financial statements
continued
The table below sets forth the changes in due from settlement of capital provision assets and the breakdown between current and non-current due from settlement of capital provision assets at the beginning and end of the relevant reporting periods.
| | | | |
|
| For the six months | ||
| | ended June 30, | ||
($ in thousands) | | 2022 |
| 2021 |
At beginning of period |
| 86,311 |
| 30,708 |
Transfer of realizations from capital provision assets |
| 88,446 |
| 213,715 |
Interest and other income |
| 1,888 |
| - |
Proceeds received |
| (108,541) |
| (45,204) |
Assets received in-kind |
| - |
| (3,290) |
Foreign exchange gains/(losses) | | (183) | | (532) |
At end of period |
| 67,921 |
| 195,397 |
| | | | |
Current assets | | 64,171 |
| 191,647 |
Non-current assets |
| 3,750 |
| 3,750 |
Total due from settlement of capital provision assets |
| 67,921 |
| 195,397 |
8. Asset management income
The Group receives regular management fees on its managed funds, calculated as a percentage of capital committed by the fund investors or as a percentage of capital committed by the fund, depending on the status of the fund. In addition, the Group receives performance fees from the managed funds. The Group’s managed funds (other than BOF-C, the Strategic Value Fund and the Advantage Fund) use a so-called “European” structure for the payment of performance fees, whereby the manager is not paid any performance fees until fund investors have had their entire capital investment repaid. This contrasts with a so-called “American” structure for the payment of performance fees, whereby the performance fees are paid on profitable resolutions as they occur. The impact of the “European” structure is to delay the receipt of the performance fees. As a result, while many fund assets have already successfully and profitably concluded, few of the related performance fees have been paid to the Group. Performance fees are recognized when a reliable estimate of the performance fee can be made, and it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur.
The table below sets forth the components of the asset management income for the six months ended June 30, 2022 and 2021.
| | | | |
| | For the six months | ||
| | ended June 30, | ||
($ in thousands) |
| 2022 |
| 2021 |
Management fee income |
| 3,713 |
| 4,329 |
Performance fee income |
| 1,795 |
| - |
Total asset management income |
| 5,508 |
| 4,329 |
9. Liabilities and income from insurance contracts
The tables below set forth the balances related to the Group’s insurance activity at June 30, 2022 and December 31, 2021.
| | | | | | |
| | At June 30, 2022 | ||||
($ in thousands) | | Gross | | Reinsurance | | Net |
Unearned premiums |
| 6,058 | | (6,054) | | 4 |
Claims incurred but not reported reserves |
| 17,247 | | (12,870) | | 4,377 |
Total |
| 23,305 | | (18,924) | | 4,381 |
| | | | | | |
| | At December 31, 2021 | ||||
($ in thousands) | | Gross | | Reinsurance | | Net |
Unearned premiums |
| 10,138 | | (8,315) | | 1,823 |
Claims incurred but not reported reserves |
| 4,292 | | (3,410) | | 882 |
Total |
| 14,430 |
| (11,725) |
| 2,705 |
60 Burford Capital Interim Report 2022
Notes to the condensed consolidated interim financial statements
continued
The table below sets forth the components of total insurance income for the six months ended June 30, 2022 and 2021.
| | | | |
| | For the six months | ||
| | ended June 30, | ||
($ in thousands) | | 2022 |
| 2021 |
Gross premiums written | | - | | 2,118 |
Gross ceded reinsurance premiums |
| (2,022) |
| (1,672) |
Change in net unearned premiums |
| 825 |
| (157) |
Net premiums earned |
| (1,197) |
| 289 |
Change in insurance claims reserves |
| (1,721) |
| (279) |
Net income on insurance contracts |
| (2,918) |
| 10 |
Insurance underwriting commissions |
| 621 |
| 186 |
Insurance administrator commissions |
| - |
| 603 |
Total insurance income |
| (2,297) |
| 799 |
There were no claims reported during the six months ended June 30, 2022 and 2021 or outstanding loss reserve relating to reported claims at June 30, 2022 and December 31, 2021.
10. Property and equipment
The table below sets forth the components of property and equipment and property and equipment, net of accumulated depreciation, at June 30, 2022 and December 31, 2021.
| | | | |
| | For the period ended | ||
| | June 30, | | December 31, |
($ in thousands) |
| 2022 |
| 2021 |
Leasehold improvements | | 2,620 | | 2,620 |
Fixtures, fittings and equipment | | 3,024 | | 3,024 |
Computer hardware and software | | 339 | | 287 |
Right-of-use assets (property leases) |
| 15,163 | | 15,163 |
Property and equipment |
| 21,146 |
| 21,094 |
Accumulated depreciation |
| (11,398) |
| (8,025) |
Property and equipment, net |
| 9,748 |
| 13,069 |
11. Marketable securities
The table below sets forth the changes in marketable securities at the beginning and end of the relevant reporting periods.
| | | | |
| | For the six months | ||
| | ended June 30, | ||
($ in thousands) |
| 2022 |
| 2021 |
At beginning of period |
| 175,336 | | 16,594 |
Purchases |
| 39,621 | | 485,440 |
Proceeds on disposal |
| (79,161) |
| (235,599) |
Net realized gains/(losses) on disposal |
| (1,142) |
| (167) |
Fair value movement |
| (8,987) |
| 295 |
Change in accrued interest |
| 315 |
| 302 |
Foreign exchange gains/(losses) |
| (304) |
| 26 |
At end of period |
| 125,678 |
| 266,891 |
Burford Capital Interim Report 2022 61
Notes to the condensed consolidated interim financial statements
continued
The table below sets forth the components of the total marketable securities income and bank interest for the six months ended June 30, 2022 and 2021.
| | | | |
| | For the six months | ||
| | ended June 30, | ||
($ in thousands) |
| 2022 |
| 2021 |
Net realized gains/(losses) on disposal |
| (1,142) |
| (167) |
Changes in fair value |
| (8,987) |
| 295 |
Interest and dividend income |
| 967 |
| 1,123 |
Bank interest income |
| 191 |
| 5 |
Total marketable securities income and bank interest |
| (8,971) |
| 1,256 |
12. Other assets
The table below sets forth the components of total other assets at June 30, 2022 and December 31, 2021.
| | | | |
| | At | ||
| | June 30, | | December 31, |
($ in thousands) |
| 2022 |
| 2021 |
Reinsurance assets |
| 18,924 | | 11,725 |
Prepayments |
| 906 |
| 1,192 |
Tax receivables |
| 1,685 |
| 2,161 |
Other receivables |
| 18,266 |
| 20,095 |
Total other assets |
| 39,781 |
| 35,173 |
13. Other liabilities
The table below sets forth the components of total other liabilities at June 30, 2022 and December 31, 2021.
| | | | |
|
| At | ||
| | June 30, | | December 31, |
($ in thousands) | | 2022 |
| 2021 |
Audit fees payable | | 2,951 | | 3,372 |
Payable for capital provision assets | | 412 | | - |
General expenses payable | | 25,238 | | 42,474 |
Lease liabilities | | 8,983 | | 11,896 |
Insurance liabilities | | 23,305 | | 14,430 |
Long-term incentive compensation including accruals | | 44,708 | | 41,270 |
Legacy asset recovery incentive compensation including accruals | | 9,438 | | 12,615 |
Total other liabilities | | 115,035 | | 126,057 |
The table below sets forth the changes in lease liabilities at the beginning and end of the relevant reporting periods.
| | | | |
| | For the period ended | ||
| | June 30, | | December 31, |
($ in thousands) |
| 2022 |
| 2021 |
At beginning of period |
| 11,896 | | 13,520 |
Disposals |
| - |
| - |
Interest expense on lease liabilities |
| (1,440) |
| 864 |
Payments on lease liabilities |
| (1,206) |
| (2,456) |
Exchange differences |
| (267) |
| (32) |
At end of period |
| 8,983 |
| 11,896 |
14. Debt issued
The table below sets forth certain information with respect to the Group’s indebtedness outstanding at June 30, 2022 and December 31, 2021. The table below sets forth certain information with respect to our debt securities at June 30, 2022 and December 31, 2021. Debt securities denominated in UK Sterling have been converted to US Dollars using GBP/USD exchange rates of $1.2143 at June 30, 2022 and $1.3477 at December 31, 2021.
62 Burford Capital Interim Report 2022
Notes to the condensed consolidated interim financial statements
continued
| | | | | | | | | | | | | | | | | | |
| Principal amount | Carrying value (at amortized cost) at | Fair value(1) at | |||||||||||||||
| USD | | Outstanding | | Outstanding | | | | | | | | | | | |||
| equivalent | | at June 30, | | at June 30, | | | | | | | | | | | |||
| face value | | 2022 (in local | | 2022 | | June 30, | | | December 31, | | June 30, | | | December 31, | |||
($ in thousands) | at issuance | | currency) | | (in USD) | | 2022 | | | 2021 | | 2022 | | | 2021 | |||
Burford Capital PLC | | | | | | | | | | | | | | | | | | |
6.500% Bonds due 2022 | $ | 143,176 |
| £ | - | | $ | | $ | - | | $ | 83,396 | $ | - | | $ | 85,560 |
6.125% Bonds due 2024 | $ | 144,020 |
| £ | 100,000 | | $ | 121,430 | $ | 120,919 | | $ | 134,092 | $ | 122,499 | | $ | 140,430 |
5.000% Bonds due 2026 | $ | 225,803 |
| £ | 175,000 | | $ | 212,503 | $ | 211,119 | | $ | 234,153 | $ | 199,391 | | $ | 236,909 |
| | | | | | | | | | | | | | | | | | |
Burford Capital Finance LLC |
|
|
| |
| |
|
|
| | |
| |
| | |
| |
6.125% Bonds due 2025 | $ | 180,000 | | $ | 180,000 | | $ | 180,000 | $ | 178,904 | | $ | 178,728 | $ | 171,144 | | $ | 185,855 |
| | | | | | | | | | | | | | | | | | |
Burford Capital Global Finance LLC |
|
| |
|
| |
|
|
| | |
| |
| | |
| |
6.250% Senior Notes due 2028 | $ | 400,000 | | $ | 400,000 | | $ | 400,000 | $ | 392,809 | | $ | 392,188 | $ | 355,772 | | $ | 422,872 |
6.875% Senior Notes due 2030 | $ | 360,000 | | $ | 360,000 | | $ | 360,000 | $ | 349,666 | | | - | $ | 314,593 | | | - |
Total debt |
|
| |
|
| |
|
| $ | 1,253,417 | | $ | 1,022,557 | $ | 1,163,399 | | $ | 1,071,626 |
1. | The Group’s outstanding indebtedness is held at amortized cost on the condensed consolidated financial statements and these values represent the fair value equivalent amounts. |
The table below sets forth a summary of the changes in the outstanding indebtedness due to cash flows and non-cash changes at the beginning and end of the relevant reporting periods.
| | | | |
| | For the period ended | ||
($ in thousands) |
| June 30, 2022 |
| June 30, 2021 |
At beginning of period | | 1,036,476 | | 677,370 |
Debt issued, net of original issue discount | | 357,271 | | 400,000 |
Debt issuance costs | | (7,882) | | (7,797) |
Finance costs | | 36,561 | | 25,646 |
Interest paid | | (31,564) | | (19,736) |
Foreign exchange (gain)/loss | | (40,499) | | 6,345 |
Debt extinguishment | | (79,911) | | (33,687) |
At end of period | | 1,270,452 | | 1,048,141 |
| |
| |
|
Debt issued | | 1,253,417 | | 1,034,233 |
Debt interest payable | | 17,035 | | 13,908 |
Total debt issued | | 1,270,452 | | 1,048,141 |
The table below sets forth unamortized issuance costs of the outstanding indebtedness at June 30, 2022 and December 31, 2021.
| | |
| At | |
| June 30, | December 31, |
($ in thousands) | 2022 | 2021 |
6.500% Bonds due 2022 | - | 199 |
6.125% Bonds due 2024 | 511 | 678 |
6.125% Bonds due 2025 | 1,096 | 1,272 |
5.000% Bonds due 2026 | 1,384 | 1,695 |
6.250% Senior Notes due 2028 | 7,191 | 7,812 |
6.875% Senior Notes due 2030 | 7,677 | - |
The table below sets forth the components of total finance costs of the outstanding indebtedness for the six months ended June 30, 2022 and 2021.
| | | | |
| | For the six months | ||
| | ended June 30, | ||
(S in thousands) |
| 2022 | | 2021 |
Debt interest expense |
| 35,010 |
| 24,784 |
Debt issuance costs incurred as finance costs |
| 1,551 |
| 862 |
Total finance costs |
| 36,561 |
| 25,646 |
Burford Capital Interim Report 2022 63
Notes to the condensed consolidated interim financial statements
continued
Issuance of 2030 Notes
On April 11, 2022, Burford Capital Global Finance LLC issued $360 million aggregate principal amount of 6.875% senior notes due 2030 (the “2030 Notes”). The 2030 Notes have an interest rate of 6.875% payable semi-annually in arrears on April 15 and October 15 of each year, commencing on October 15, 2022.
The 2030 Notes were issued under an indenture by and among Burford Capital Global Finance LLC, as issuer, Burford Capital Limited, as parent guarantor, the other guarantors party thereto from time to time and U.S. Bank Trust Company, National Association, as trustee. The 2030 Notes (i) are senior unsecured obligations of Burford Capital Global Finance LLC, (ii) rank equal in right of payment with all existing and future unsecured indebtedness of Burford Capital Global Finance LLC that is not expressly subordinated in right of payment to the 2030 Notes, and are senior in right of payment to all existing and future indebtedness of Burford Capital Global Finance LLC expressly subordinated in right of payment to the 2030 Notes and (iii) are fully and unconditionally guaranteed on a senior and unsecured basis by Burford Capital Limited, Burford Capital Finance LLC and Burford Capital PLC. Each restricted subsidiary of Burford Capital Limited (other than Burford Capital Global Finance LLC) that (i) incurs or guarantees any indebtedness under the notes outstanding at the issue date of the 2030 Notes or (ii) incurs other indebtedness for borrowed money or guarantees other indebtedness for borrowed money of Burford Capital Global Finance LLC or any guarantor of the 2030 Notes in an aggregate principal amount in excess of $5 million, is required to guarantee the 2030 Notes.
Burford Capital Global Finance LLC may redeem some or all of the 2030 Notes on or after April 15, 2025 at the redemption prices set forth in the indenture governing the 2030 Notes, plus accrued and unpaid interest. Burford Capital Global Finance LLC may redeem some or all of the 2030 Notes at any time before April 15, 2025, at a redemption price equal to 100% of the aggregate principal amount of the 2030 Notes redeemed, plus a make-whole premium and accrued and unpaid interest. In addition, prior to April 15, 2025, Burford Capital Global Finance LLC may redeem at its option up to 40% of the aggregate principal amount of the 2030 Notes with the proceeds of certain equity offerings at the redemption price set forth in the indenture governing the 2030 Notes, provided that at least 50% of the aggregate principal amount of the 2030 Notes remains outstanding. Furthermore, Burford Capital Global Finance LLC will be required to make an offer to repurchase all of the 2030 Notes upon the occurrence of certain events constituting a Change of Control Triggering Event (as defined in the indenture governing the 2030 Notes) at a price equal to 101% of the principal amount of the 2030 Notes, plus accrued and unpaid interest. If Burford Capital Global Finance LLC sells certain assets and the net cash proceeds are not applied as permitted under the indenture governing the 2030 Notes, Burford Capital Global Finance LLC may be required to use such proceeds to offer to purchase some of the 2030 Notes at 100% of the aggregate principal amount of the 2030 Notes repurchased, plus accrued and unpaid interest.
The indenture governing the 2030 Notes contains certain customary covenants, including restrictions on the ability of Burford Capital Limited and its restricted subsidiaries to (i) incur or guarantee additional indebtedness, (ii) pay cash dividends or make other cash distributions in respect of, or repurchase or redeem, capital stock or make other restricted payments (including restricted investments), (iii) create or incur certain liens, (iv) merge or consolidate with another company or sell all or substantially all of their assets and (v) enter into transactions with affiliates. The 2030 Notes are governed by the laws of the State of New York.
Redemption of 2022 Bonds
On May 25, 2022, Burford Capital PLC redeemed in full the remaining aggregate outstanding principal amount of the 6.500% bonds due 2022 (the “2022 Bonds”) at a redemption price of 101.050% per £100 principal amount of the 2022 Bonds, plus any accrued but unpaid interest on the 2022 Bonds up to (but excluding) the redemption date.
64 Burford Capital Interim Report 2022
Notes to the condensed consolidated interim financial statements
continued
15. Goodwill
Goodwill arises on the acquisition of subsidiaries and represents the excess of the purchase consideration over the fair value of the Group’s share of the assets acquired and the liabilities assumed on the acquisition date. The Group’s goodwill primarily relates to the acquisition of BCIM Holdings LLC on December 14, 2016.
The tables below set forth the allocation of the carrying value of goodwill to each of the Group’s operating business segments at the beginning and end of the relevant reporting periods.
| | | | | | | | |
| | For the six months ended June 30, 2022 | ||||||
| | | | Asset | | | | |
| | | | management | | | | |
| | Capital | | and other | | Other | | |
($ in thousands) |
| provision |
| services |
| corporate | �� | Total |
At beginning of period | | 107,991 | | 25,020 | | 1,008 | | 134,019 |
Foreign exchange losses | | - | | - | | (100) | | (100) |
At end of period | | 107,991 | | 25,020 | | 908 | | 133,919 |
| | | | | | | | |
| | For the six months ended June 30, 2021 | ||||||
| | | | Asset | | | | |
| | | | management | | | | |
| | Capital | | and other | | Other | | |
($ in thousands) | | provision | | services | | corporate | | Total |
At beginning of period |
| 107,991 |
| 25,020 |
| 1,021 |
| 134,032 |
Foreign exchange gains |
| - |
| - |
| 13 |
| 13 |
At end of period |
| 107,991 |
| 25,020 |
| 1,034 |
| 134,045 |
Management has determined there was no evidence of goodwill impairment at June 30, 2022 and December 31, 2021, respectively.
Burford Capital Interim Report 2022 65
Notes to the condensed consolidated interim financial statements
continued
16. Fair value of assets and liabilities
Valuation methodology
The table below sets forth the fair value of financial instruments grouped by the fair value level at June 30, 2022.
| | | | | | | | |
| | At June 30, 2022 | ||||||
($ in thousands) | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: |
|
|
|
|
| |
|
|
Capital provision assets | | | | | | | | |
Derivative financial assets | | | | | | | | |
Single case | | - | | - | | 669,355 | | 669,355 |
Portfolio | | - | | - | | 1,654,434 | | 1,654,434 |
Portfolio with equity risk | | - | | - | | 208,715 | | 208,715 |
Legal risk management | | - | | - | | 2,874 | | 2,874 |
Non-derivative financial assets | | | | | | | | |
Joint ventures and equity method investments | | - | | - | | 155,489 | | 155,489 |
Single case with equity risk | | 11,899 | | - | | - | | 11,899 |
Other |
| - | | - | | - |
| - |
Assets of consolidated investment companies |
| | | | | | | |
Complex strategies (Strategic Value Fund) | | - | | - | | 12,657 | | 12,657 |
Litigation finance (BOF-C) | | 11,899 | | - | | 376,960 | | 388,859 |
Litigation finance (Advantage fund) |
| - | | - | | 10,688 |
| 10,688 |
Due from settlement of capital provision assets | | - | | - | | 67,921 | | 67,921 |
Marketable securities | | | | | | | | |
Asset-backed securities | | - | | 30,859 | | - | | 30,859 |
Corporate bonds | | - | | 81,992 | | - | | 81,992 |
Mutual funds | | 7,111 | | - | | - | | 7,111 |
US treasuries and commercial paper | | 2,598 | | - | | - | | 2,598 |
Government Bonds | | - | | 3,118 | | - | | 3,118 |
Total assets |
| 33,507 |
| 115,969 |
| 3,159,093 |
| 3,308,569 |
| | | | | | | | |
Liabilities: | | | | | | | | |
Financial liabilities related to third-party interests in capital provision assets | | - | | - | | 397,581 | | 397,581 |
Total liabilities |
| - | | - | | 397,581 | | 397,581 |
Net total |
| 33,507 | | 115,969 | | 2,761,512 | | 2,910,988 |
The Group has elected the fair value option for certain equity method investments, marketable securities, due from settlements of capital provision assets and financial liabilities relating to third-party interests in capital provision assets in order to provide a consistent fair value measurement approach for all capital provision related activity. Interest and dividend income on these assets are recognized as income when they are earned. There were no gains or losses recognized in the condensed consolidated statements of comprehensive income with respect to these assets and liabilities.
The key risk and sensitivity across all of the capital provision assets relates to the underlying litigation associated with each case that is underwritten and financed. The sensitivity to this Level 3 input is therefore considered to be similar across the different types of capital provision assets and is expressed as a portfolio-wide stress.
66 Burford Capital Interim Report 2022
Notes to the condensed consolidated interim financial statements
continued
The table below sets forth the fair value of financial instruments grouped by the fair value level at December 31, 2021.
| | | | | | | | |
| | At December 31, 2021 | ||||||
($ in thousands) | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: |
|
|
|
|
| |
|
|
Capital provision assets | | | | | | | | |
Derivative financial instruments | | | | | | | | |
Single case | | - | | - | | 617,088 | | 617,088 |
Portfolio | | - | | - | | 1,618,963 | | 1,618,963 |
Portfolio with equity risk | | - | | - | | 200,484 | | 200,484 |
Legal risk management | | - | | - | | 2,550 | | 2,550 |
Non-derivative financial assets | | | | | | | | |
Joint ventures and equity method investments | | - | | - | | 139,964 | | 139,964 |
Other |
| - | | - | | 2,083 |
| 2,083 |
Assets of consolidated investment companies |
| | | | | | | |
Complex strategies (Strategic Value Fund) | | - | | - | | 12,855 | | 12,855 |
Litigation finance (BOF-C) |
| - | | - | | 306,478 |
| 306,478 |
Due from settlement of capital provision assets | | - | | - | | 86,311 | | 86,311 |
Marketable securities | | | | | | | | |
Asset-backed securities | | - | | 56,285 | | - | | 56,285 |
Corporate bonds | | - | | 84,003 | | - | | 84,003 |
Mutual funds | | 10,636 | | 8,912 | | - | | 19,548 |
US treasuries and commercial paper | | 15,500 | | - | | - | | 15,500 |
Total assets |
| 26,136 |
| 149,200 |
| 2,986,776 |
| 3,162,112 |
| | | | | | | | |
Liabilities: | | | | | | | | |
Financial liabilities related to third-party interests in capital provision assets | | - | | - | | 398,595 | | 398,595 |
Total liabilities |
| - |
| - | | 398,595 |
| 398,595 |
Net total |
| 26,136 |
| 149,200 |
| 2,588,181 |
| 2,763,517 |
Movements in Level 3 fair value assets and liabilities
The table below sets forth the analysis of the movements in the level 3 financial assets and liabilities for the six months ended June 30, 2022.
| | | | | | | | | | | | | | | | |
| | For the six months ended June 30, 2022 | ||||||||||||||
| | | | | | Transfers | | | | | | | | Foreign | | At |
| | At beginning | | Transfers | | between | | | | | | Income for | | exchange | | end of |
($ in thousands) | | of period | | into level 3 | | types | | Deployments | | Realizations | | the period | | gains/(losses) | | period |
Single case | | 617,088 | | - | | - | | 55,935 | | (17,545) | | 19,823 | | (5,946) | | 669,355 |
Portfolio | | 1,618,963 | | - | | - | | 49,367 | | (47,495) | | 37,240 | | (3,641) | | 1,654,434 |
Portfolio with equity risk | | 200,484 | | - | | - | | 184 | | - | | 8,047 | | - | | 208,715 |
Legal risk management | | 2,550 | | - | | - | | 130 | | - | | 408 | | (214) | | 2,874 |
Joint ventures and equity method investments | | 139,964 | | - | | - | | 2,665 | | (5,388) | | 23,767 | | (5,519) | | 155,489 |
Complex strategies (Strategic Value Fund) | | 12,855 | | - | | - | | 184 | | (1,847) | | 1,465 | | - | | 12,657 |
Litigation finance (BOF-C) | | 306,478 | | - | | - | | 46,887 | | (3,469) | | 27,064 | | - | | 376,960 |
Litigation finance (Advantage Fund) | | - | | - | | - | | 20,400 | | (10,619) | | 907 | | - | | 10,688 |
Other | | 2,083 | | - | | - | | - | | (2,083) | | - | | - | | - |
Total capital provision assets | | 2,900,465 | | - | | - | | 175,752 | | (88,446) | | 118,721 | | (15,320) | | 3,091,172 |
Due from settlement of capital provision assets | | 86,311 | | - | | - | | 88,446 | | (108,541) | | 1,888 | | (183) | | 67,921 |
Total level 3 assets | | 2,986,776 | | - | | - | | 264,198 | | (196,987) | | 120,609 | | (15,503) | | 3,159,093 |
Financial liabilities for third-party interests in capital provision assets | | 398,595 | | - | | - | | 29 | | (38) | | (1,005) | | - | | 397,581 |
Total level 3 liabilities | | 398,595 | | - | | - | | 29 | | (38) | | (1,005) | | - | | 397,581 |
Burford Capital Interim Report 2022 67
Notes to the condensed consolidated interim financial statements
continued
The table below sets forth the analysis of the movements in the level 3 financial assets and liabilities for the six months ended June 30, 2021.
| | | | | | | | | | | | | | | | |
| | For the six months ended June 30, 2021 | ||||||||||||||
| | | | | | Transfers | | | | | | | | Foreign | | At |
| | At beginning | | Transfers | | between | | | | | | Income for | | exchange | | end of |
($ in thousands) | | of period | | into level 3 | | types | | Deployments | | Realizations | | the period | | gains/(losses) | | period |
Single case | | 594,502 | | - | | (1,949) | | 47,946 | | (131,920) | | 63,638 | | 879 | | 573,096 |
Portfolio | | 1,581,794 | | - | | 1,949 | | 27,459 | | (21,766) | | 6,485 | | (1,426) | | 1,594,495 |
Legal risk management | | 2,213 | | - | | - | | 156 | | - | | 100 | | (78) | | 2,391 |
Portfolio with equity risk | | - | | - | | - | | 137,587 | | - | | - | | - | | 137,587 |
Joint ventures and equity method investments | | 130,557 | | - | | - | | 2,337 | | (824) | | 399 | | (4,289) | | 128,180 |
Other | | 2,083 | | - | | - | | - | | - | | - | | - | | 2,083 |
Complex strategies | | 85,166 | | - | | - | | - | | (63,990) | | 4,806 | | - | | 25,982 |
Litigation finance (BOF-C) | | 168,427 | | - | | - | | 163,299 | | (5,215) | | 11,762 | | - | | 338,273 |
Total capital provision assets | | 2,564,742 | | - | | - | | 378,784 | | (223,715) | | 87,190 | | (4,914) | | 2,802,087 |
Due from settlement of capital provision assets | | 30,708 | | | | | | 213,715 | | (48,494) | | | | (532) | | 195,397 |
Total level 3 assets | | 2,595,450 | | - | | - | | 592,499 | | (272,209) | | 87,190 | | (5,446) | | 2,997,484 |
Financial liabilities for third-party interests in capital provision assets | | 400,660 | | | | | | - | | (37) | | (395) | | - | | 400,228 |
Total level 3 liabilities | | 400,660 | | - | | - | | - | | (37) | | (395) | | - | | 400,228 |
All transfers into and out of Level 3 are recognized as if they have taken place at the beginning of each reporting period. There were no transfers into Level 3 during the six months ended June 30, 2022 and 2021.
Sensitivity of Level 3 valuations
For the vast majority of the Group’s legal finance assets, valuation relates to objective events in the litigation process. If there have been no objective events, the Group typically assesses the fair value of its legal finance assets to be equivalent to the cost of the assets in line with its valuation policy and the absence of an objective event impacting valuation assessment. The valuation policy assigns valuation changes based on these objective milestones. When an objective milestone described in the valuation policy occurs, we apply the percentage change in valuation prescribed in the valuation policy for that milestone. The move in value, in turn, is based on our deployed costs and our contractual entitlement as follows. When a reduction in fair value is appropriate based on the valuation policy, for example if there is an adverse court ruling, we reduce the deployed cost by the percentage set forth in the valuation policy for the pertinent milestone. When an increase in fair value is appropriate based on the valuation policy, for example if there is a favorable court ruling, we apply the percentage of our expected return set forth in the valuation policy for the pertinent milestone and add that value to our deployed cost. We apply the percentage to our entire return, including any preferred return and any variable return, if a reasonable damages estimate would support sufficient proceeds to pay our return. Where there is a settlement offer or a damages finding or damages are otherwise undisputed, and that amount would be sufficient to pay our entire return, we use that amount instead of an estimate of damages to calculate the adjustment on the assumption that that amount will be available to pay our return. If the available amount (based on our estimate, a settlement offer, a damages finding or undisputed damages) would not be sufficient to pay our entire return, we will apply the appropriate percentage to the partial return we would expect to receive.
The valuation policy discounts the impact of the objective events commensurate with the remaining litigation risk, including both the likelihood of a positive outcome and the time required to reach that outcome. Because the Group’s legal finance assets are typically relatively short in tenor (two to three years), no additional discounting explicitly for the time value of money is usually applied. Instead, the potential impact of timing is encompassed in the applicable value range. In a small number of instances, the Group has the benefit of a secondary sale of a portion of an asset. When that occurs, the market evidence is factored into the valuation process, and results on portfolios with multiple fair value factors are presented based on whether the portfolios are in an overall positive or negative fair value position. The more robust the market testing of value is, the more weight that is accorded to the market price.
68 Burford Capital Interim Report 2022
Notes to the condensed consolidated interim financial statements
continued
The tables below set forth a stratification of the Group’s capital provision-direct and capital provision-indirect Level 3 assets into different categories of fair valuation factors (reflecting the objective litigation events) that underlie the valuation of those assets and the carrying value, cost and unrealized gain of the Group’s capital provision-direct and capital provision-indirect Level 3 assets, in each case, at June 30, 2022 and December 31, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | At June 30, 2022 | | ||||||||||||||||||||||
| | Positive fair value adjustments | | | Negative fair value adjustments | | |||||||||||||||||||
| | | | | | | | | | Weighted | | | | | | | | | | | Weighted | | |||
| | Total | | | | Aggregate | | | | average | (1) | Total | | | Aggregate | | | | | | average | (2) | |||
| Unobservable | carrying | | | | fair value | | | | fair value | | carrying | | | fair value | | | | | | fair value | | |||
($ in thousands) | inputs | value | | Cost | | adjustments |
| Range | | adjustment % | (3) | value | | Cost | adjustments | | | Range |
| | adjustment % | (4) | |||
Market transactions(5) | Litigation risk | | 1,160,840 | | | 61,143 | | | 1,099,697 | | NA | (6) | NA | (6) | - | | - | - | | | NA | (6) | | NA | (6) |
Ruling or other objective pre-trial event | Litigation risk | | 344,089 | | | 263,346 | | | 80,743 | | 10% to 40% | | 21% | | 9,157 | | 12,243 | (3,086) | | | -10% to -47% | | | (25)% | |
Trial court judgment or tribunal award | Litigation risk | | 127,813 | | | 76,522 | | | 51,291 | | 50% to 60% | | 59% | | 3,941 | | 9,853 | (5,912) | | | -60% to -60% | | | (60)% | |
Appeal judgment | Litigation risk | | 121,668 | | | 61,344 | | | 60,324 | | 20% to 60% | | 52% | | - | | 2,403 | (2,403) | | | -100% to -100% | | | (100)% | |
Settlements | Litigation risk | | 105,796 | | | 52,037 | | | 53,759 | | 40% to 80% | | 78% | | 9,694 | | 23,680 | (13,986) | | | -4% to -67% | | | (59)% | |
Held at cost | Litigation risk | | 676,327 | | | 676,327 | | | - | | 0% | | 0% | | - | | - | - | | | 0% | (6) | | 0% | (6) |
Portfolios with multiple | Litigation risk | | 229,561 | | | 134,820 | | | 94,741 | | -100% to 80% | | 49% | | 31,218 | | 59,341 | (28,123) | | | -40% to -100% | | | (75)% | |
Priced at cost plus accrued interest | Litigation risk | | 23,345 | | | 21,458 | | | 1,887 | | NA | (6) | NA | (6) | - | | - | - | | | NA | (6) | | NA | (6) |
Discounted cash flow | Discount rate | | - | | | - | | | - | | 0% | | 0% | | 244,849 | | 250,797 | (5,948) | | | 17.2% | | | 17.2% | |
Discounted cash flow | Resolution timing | | - | | | - | | | - | | 0% | | 0% | | - | | - | - | | | 3 to 63 months | | | 28 months | |
Discounted cash flow | Conversion ratio | | - | | | - | | | - | | 0% | | 0% | | - | | - | - | | | 5.4 | | | 5.4 | |
Other | Litigation risk | | 2,874 | | | - | | | 2,874 | | 100% to 100% | | 100% | | - | | 2,826 | (2,826) | | | -100% to -100% | | | (100)% | |
Total capital provision assets |
| | 2,792,313 |
| | 1,346,997 |
| | 1,445,316 |
|
|
|
|
| 298,859 |
| 361,143 | (62,284) | |
|
|
|
|
| |
Due from settlement of capital provision assets | | | 67,921 | | | 67,921 | | | - | | | | | | - | | - | - | | | | | | | |
Total level 3 assets |
| | 2,860,234 |
| | 1,414,918 |
| | 1,445,316 |
|
|
|
|
| 298,859 |
| 361,143 | (62,284) | |
|
|
|
|
| |
1. | Weighted by fair value of asset. |
2. | Weighted by cost of asset. |
3. | As percentage of expected recovery above cost. |
4. | As percentage of cost |
5. | Although market transactions are a significant input into the valuation of these assets, the nature of these market transactions and the influence of other factors on valuation causes these assets to be characterized as Level 3 rather than Levels 1 or 2. |
6. | Not valued based on a percentage of expected recovery. |
7. | Portfolios where the underlying cases have multiple FV factors: If a portfolio’s cases have only one FV factor, the portfolio is categorized with that factor. FV adjustment statistics for portfolios represent the weighted average, maximum and minimum adjustments for the underlying cases in those portfolios. |
| | | | | | |
|
| At June 30, 2022 | ||||
($ in thousands) | | Cost |
| Unrealized gain |
| Carrying value |
Capital provision-direct | | 1,686,682 | | 1,381,145 | | 3,067,827 |
Capital provision-indirect | | 21,458 | | 1,887 | | 23,345 |
Total capital provision level 3 assets | | 1,708,140 | | 1,383,032 | | 3,091,172 |
Burford Capital Interim Report 2022 69
Notes to the condensed consolidated interim financial statements
continued
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | At December 31, 2021 | | ||||||||||||||||||||||
| | Positive fair value adjustments | | | Negative fair value adjustments | | |||||||||||||||||||
| | | | | | | | | | Weighted | | | | | | | | | | | Weighted | | |||
| | Total | | | | Aggregate | | | | average | (1) | Total | | | Aggregate | | | | | | average | (2) | |||
| Unobservable | carrying | | | | fair value | | | | fair value | | carrying | | | fair value | | | | | | fair value | | |||
($ in thousands) | inputs | value | | Cost | | adjustments |
| Range | | adjustment % | (3) | value | | Cost | adjustments | | | Range |
| | adjustment % | (4) | |||
Market transactions(5) | Litigation risk | | 1,160,354 | | | 57,128 | | | 1,103,226 | | NA | (6) | NA | (6) | - | | - | - | | | NA | (6) | | NA | (6) |
Ruling or other objective pre-trial event | Litigation risk | | 243,301 | | | 206,166 | | | 37,135 | | 10% to 30% | | 16% | | 6,253 | | 9,804 | (3,551) | | | -32% to -60% | | | (36)% | |
Trial court judgment or tribunal award | Litigation risk | | 146,126 | | | 66,337 | | | 79,789 | | 50% to 60% | | 51% | | 196 | | 980 | (784) | | | -80% to -80% | | | (80)% | |
Appeal judgment | Litigation risk | | 27,329 | | | 18,677 | | | 8,652 | | 20% to 60% | | 24% | | - | | 2,403 | (2,403) | | | -100% to -100% | | | (100)% | |
Settlements | Litigation risk | | 90,216 | | | 59,022 | | | 31,194 | | 10% to 80% | | 41% | | 9,653 | | 23,898 | (14,245) | | | -9% to -70% | | | (62)% | |
Held at cost | Litigation risk | | 668,484 | | | 668,484 | | | - | | 0% | | 0% | | - | | - | - | | | 0% | | | 0% | |
Portfolios with multiple | Litigation risk | | 289,179 | | | 199,221 | | | 89,958 | | -100% to 80% | | 53% | | 8,261 | | 16,732 | (8,471) | | | -60% to -79% | | | (63)% | |
Priced at cost plus accrued interest | Litigation risk | | 12,855 | | | 11,156 | | | 1,699 | | NA | (6) | NA | (6) | - | | - | - | | | NA | (6) | | NA | (6) |
Discounted cash flow | Discount rate | | | | | | | | | | 0% | | 0% | | 235,212 | | 250,797 | (15,585) | | | 12.9% | | | 12.9% | |
Discounted cash flow | Resolution timing | | | | | | | | | | 0% | | 0% | | - | | - | - | | | 9 to 69 months | | | 38 months | |
Discounted cash flow | Conversion ratio | | | | | | | | | | 0% | | 0% | | - | | - | - | | | 5.4 | | | 5.4 | |
Other | Litigation risk | | 2,551 | | | - | | | 2,551 | | 100% to 100% | | 100% | | 495 | | 3,280 | (2,785) | | | -85% to -85% | | | (85)% | |
Total capital provision assets |
| | 2,640,395 |
| | 1,286,191 |
| | 1,354,204 |
|
|
|
|
| 260,070 |
| 307,894 | (47,824) | |
| |
|
|
| |
Due from settlement of capital provision assets | | | 86,311 | | | 86,311 | | | | | | | | | | | | | | | | | | | |
Total level 3 assets |
| | 2,726,706 |
| | 1,372,502 |
| | 1,354,204 |
|
|
|
|
| 260,070 |
| 307,894 | (47,824) | |
|
|
|
|
| |
Note: The comparative data in the December 31, 2021 table above has been amended to correct for immaterial classification differences.
1. | Weighted by fair value of asset. |
2. | Weighted by cost of asset. |
3. | As percentage of expected recovery above cost. |
4. | As percentage of cost |
5. | Although market transactions are a significant input into the valuation of these assets, the nature of these market transactions and the influence of other factors on valuation causes these assets to be characterized as Level 3 rather than Levels 1 or 2. |
6. | Not valued based on a percentage of expected recovery. |
7. | Portfolios where the underlying cases have multiple FV factors: If a portfolio’s cases have only one FV factor, the portfolio is categorized with that factor. FV adjustment statistics for portfolios represent the weighted average, maximum and minimum adjustments for the underlying cases in those portfolios. |
| | | | | | |
|
| At December 31, 2021 | ||||
($ in thousands) | | Cost |
| Unrealized gain |
| Carrying value |
Capital provision-direct |
| 1,582,929 | | 1,304,681 | | 2,887,610 |
Capital provision-indirect |
| 11,156 | | 1,699 | | 12,855 |
Total capital provision level 3 assets |
| 1,594,085 |
| 1,306,380 |
| 2,900,465 |
Following origination, the Group engages in a review of each capital provision asset’s fair value in connection with the preparation of the condensed consolidated financial statements. Should the value of those instruments have been 10% higher or lower than provided for in the Group’s fair value estimation, while all other variables remained constant, the Group’s income and net assets would have increased or decreased, respectively, by $276 million at June 30, 2022 and $259 million at December 31, 2021. The sensitivity impact has been provided on a pre-tax basis on both income and net assets as the Group considers the fluctuation in the Group’s effective tax rate from period to period could indicate changes in sensitivity not driven by the valuation that are difficult to follow and detract from the comparability of this information.
Reasonably possible alternative assumptions
The determination of fair value for capital provision assets, derivative financial liabilities and asset subparticipations involves significant judgments and estimates. While the potential range of outcomes for the assets is wide, the Group’s fair value estimation is its best assessment of the current fair value of each asset or liability. Such estimate is
70 Burford Capital Interim Report 2022
Notes to the condensed consolidated interim financial statements
continued
inherently subjective, being based largely on an assessment of how individual events have changed the possible outcomes of the asset and their relative probabilities and hence the extent to which the fair value has altered. The aggregate of the fair values selected falls within a wide range of reasonably possible estimates. In the Group’s opinion, there is no useful alternative valuation that would better quantify the market risk inherent in the portfolio and there are no inputs or variables to which the values of the assets are correlated.
17. Variable interest entities
Consolidated VIEs
Pursuant to US GAAP consolidation guidance, the Group consolidates certain VIEs for which it is considered the primary beneficiary, either directly or indirectly, through a consolidated entity or affiliate. See note 2 (Summary of significant accounting policies—Consolidation) to the Group’s condensed consolidated financial statements for additional information with respect to the Group’s consolidation.
Consolidated VIEs include entities relating to the Group’s investment funds (BOF-C, the Strategic Value Fund and the Advantage Fund), investment vehicles for sale and resale of the participation interests (Colorado) and acquisition of interests in secured promissory notes (Forest Hills Investments LLC).
The purpose of the investment funds is to provide strategy specific investment opportunities for investors in exchange for management- and performance-based fees. The investment strategies of the funds differ by product, but the fundamental risks are similar, including loss of invested capital and loss of management- and performance-based fees.
Colorado is an exempted company established to receive a portion of the Group’s interest in the YPF-related Petersen claims and provide a vehicle for the sale and resale of the participation interests.
The Group, together with BCIM Partners III, LP and BCIM Credit Opportunities, LP acquired interest in certain secured promissory notes through Forest Hills Investments LLC. The secured promissory notes are legal finance investments with proceeds payable out of two underlying litigation matters. This structure provides for the sharing of the economics, interest payments and settlement cash flows among the Group, BCIM Partners III, LP and BCIM Credit Opportunities, LP.
The Group provides revolving credit facilities to certain managed funds for capital calls as required. These revolving credit facilities are entirely discretionary insofar as the Group is not obligated to provide funding under the revolving credit facilities. There was no amount outstanding under the revolving credit facilities at June 30, 2022 and December 31, 2021, respectively.
The table below sets forth assets and liabilities of the consolidated VIEs at June 30, 2022 and December 31, 2021.
| | | | |
| | At | ||
| | June 30, | | December 31, |
($ in thousands) | | 2022 | | 2021 |
Total assets | | 952,244 | | 887,719 |
Total liabilities | | (4,128) | | (5,199) |
The table below sets forth the total revenue and certain information relating to cash flows of the consolidated VIEs for the six months ended June 30, 2022 and 2021.
| | | | |
| | For the six months | ||
| | ended June 30, | ||
($ in thousands) | | 2022 | | 2021 |
Total revenue | | 26,354 | | 13,363 |
Cash flows: | ��� | | | |
(Proceeds) | | 4,935 | | (7,303) |
Funding | | 62,848 | | 163,697 |
Cash balance | | 67,441 | | 52,086 |
Unconsolidated VIEs
The Group’s maximum exposure to loss from the unconsolidated VIEs is the sum of capital provision assets, fee receivables, accrued income and loans to the unconsolidated VIEs and was $22 million at June 30, 2022 and $23 million at December 31, 2021.
Burford Capital Interim Report 2022 71
Notes to the condensed consolidated interim financial statements
continued
The table below sets forth the Group’s maximum exposure to loss due to its involvement with the unconsolidated VIEs at June 30, 2022 and December 31, 2021.
| | | | |
| | At | ||
| | June 30, | | December 31, |
($ in thousands) | | 2022 | | 2021 |
Total on-balance sheet exposure | | 16,077 | | 16,355 |
Off-balance sheet - undrawn commitments | | 5,890 | | 6,378 |
Maximum exposure to loss | | 21,967 |
| 22,733 |
18. Joint ventures and associate investments
The Group holds certain of its capital provision assets through joint ventures that are accounted for at fair value through profit or loss. See note 16 (Fair value of assets and liabilities) to the Group’s condensed consolidated financial statements for additional information with respect to the Group’s valuation of its capital provision assets. The total fair value of the Group’s interest in such joint ventures was $153 million at June 30, 2022 and $138 million at December 31, 2021 and was included in capital provision assets in the consolidated statement of financial position. The total fair value of the Group’s interest in companies with associate investments was $2 million at June 30, 2022 and $2 million at December 31, 2021 and was included in capital provision assets in the consolidated statement of financial position. None of these joint ventures or equity method investments is individually material to the Group, and there are no significant restrictions on the ability of the joint ventures to make cash distributions or repayment of advances to the Group.
The Group’s share of commitments for these joint ventures and associate investments was $41 million and $15 million, respectively, at June 30, 2022 and $85 million and $16 million respectively, at December 31, 2021 and was included in the commitment amounts relating to asset agreements. See note 22 (Financial commitments and contingent liabilities) to the Group’s condensed consolidated financial statements for additional information with respect to the Group’s commitments and contingencies.
19. Shareholders’ equity
Shareholder rights and dividends
All of the Company’s issued and outstanding ordinary shares are fully paid. Holders of the Company’s ordinary shares do not have conversion or redemption rights. There are no provisions in the Company’s memorandum of incorporation or articles of incorporation discriminating against a shareholder as a result of such shareholder’s ownership of a particular number of the Company’s ordinary shares.
Each holder of the Company’s ordinary shares who is present in person (including any corporation by its duly authorized representative) or by proxy at a general meeting will have one vote on a show of hands and, on a poll, if present in person or by proxy, will have one vote for every ordinary share held by such holder. Ordinary resolutions require approval by a simple majority of the votes at a general meeting at which a quorum is present.
The Board may provide for classes of shares other than ordinary shares, including series of preferred shares. If any preferred shares are issued, the rights, preferences and privileges of the Company’s ordinary shares will be subject to, and may be adversely affected by, the rights of holders of the Company’s preferred shares.
The rights attached to any class of shares may be varied only with the consent in writing of the holders of a majority of the issued shares of such class or with the sanction of an ordinary resolution passed by a majority of the votes cast at a separate meeting of the holders of the shares of such class.
If the Company is liquidated, the liquidator may, with the authority of a special resolution, divide among the shareholders, in the form specified, the whole or any part of the Company’s assets. For such purpose, the liquidator may set the value of any assets and determine how the division will be carried out between the shareholders or different classes of shareholders.
The Company's memorandum of incorporation and articles of incorporation do not impose limitations on the rights of persons to own the Company's securities, including rights of non-resident or foreign shareholders to hold or exercise voting rights with respect to the Company’s securities.
72 Burford Capital Interim Report 2022
Notes to the condensed consolidated interim financial statements
continued
There are no provisions in the Company’s memorandum of incorporation or articles of incorporation that would have the effect of delaying, deferring or preventing a change in control of the Company and that would operate only with respect to a merger, acquisition or corporate restructuring involving the Company or any of its subsidiaries.
Dividends
Dividends on the Company’s issued and outstanding ordinary shares are payable at the discretion of the Company’s board of directors. Each year, once the prior year’s results of operation are known, the Company’s board of directors reviews the Company’s profits, cash generation and cash needs and recommends a dividend level to shareholders for consideration at the Company’s annual general meeting. The Company may declare dividends by ordinary resolution at a general meeting in accordance with the respective rights of any class of shares. No dividend may exceed the amount recommended by the Company’s board of directors. Subject to the provisions of the Guernsey Companies Law, the Company’s board of directors may, if it thinks fit, from time to time pay interim dividends if it appears to the Company’s board of directors they are justified by the assets of the Company. Subject to rights which may attach to any other class of shares, holders of the Company’s ordinary shares are entitled to receive ratably all dividends, if any, that are declared. Dividends may be paid in any currency that the Company’s board of directors determines. The declaration and payment of dividends and distributions, if any, is subject to the discretion of the Board and the requirements of Guernsey law (including, among others, satisfaction of a statutory solvency test). The timing and amount of any dividends or distributions declared depends on, among others, the Company’s cash flows from operations and available liquidity, its earnings and financial position and any applicable contractual restrictions. Any dividend that has not been claimed after a period of 12 years from the date it became due for payment will, if the Company’s board of directors so resolves, be forfeited.
The table below sets forth dividends and their respective record dates for the years ended December 31, 2022 and 2021.
| | | |
($ in cents) |
| Cash dividend per share | Record date |
2021 year |
| | |
First half | | 6.25 | November 12, 2021 |
Second half | | 6.25 | May 27, 2022 |
Total for the year ended December 31, 2021 | | 12.50 | |
| | | |
2022 year | | | |
First half | | 6.25 | November 4, 2022 |
Burford Capital Limited Employee Benefit Trust
The Burford Capital Limited Employee Benefit Trust was established to assist in the Group’s administration of the LTIP. While the Group does not have legal ownership of the Burford Capital Limited Employee Benefit Trust and the Group’s ability to influence the actions of the Burford Capital Limited Employee Benefit Trust is limited by the trust deed, the Burford Capital Limited Employee Benefit Trust is treated as being controlled by the Group for accounting purposes and, therefore, is consolidated. Shares held in the Burford Capital Limited Employee Benefit Trust at the period end are included in issued shares.
Treasury shares
During the six months ended June 30, 2022, the Company purchased a total of 468,000 ordinary shares on the open market in connection with the Company’s future obligations under the Burford employee deferred compensation plan. The Company did not purchase any ordinary shares in connection with the Burford employee deferred compensation plan during the six months ended June 30, 2021. All of the ordinary shares were purchased on the London Stock Exchange throughout the month of May 2022 at an average price of £6.33 ($8.01) per share. The result of these purchases was an increase of $4 million in the treasury balance in the condensed consolidated statement of changes in equity for the six months ended June 30, 2022. These ordinary shares remained in issue and reduced the outstanding number of ordinary shares at June 30, 2022.
Contingent share capital
The acquisition of BCIM Holdings LLC in December 2016 included $15,000,000 of contingent equity consideration. In calculating the fair value of the contingent equity consideration, a discount of 10% was applied for non-performance risk, hence the contingent equity consideration was valued at $13,500,000 at the acquisition date. 2,461,682 ordinary shares will be issued after BCIM Holdings LLC’s investment funds contribute more than $100 million in performance fee
Burford Capital Interim Report 2022 73
Notes to the condensed consolidated interim financial statements
continued
income (and, in certain instances, fee income from new funds or other capital provision income) to the Group. If the $100 million income target is not achieved, no contingent equity consideration will be payable.
20. Share-based compensation
Equity-based awards granted to the employees as compensation are measured based on the grant date fair value of the award. Equity-based awards that do not require future service are expensed immediately. Equity-based awards with service and performance conditions are expensed over the relevant service period to the extent the performance condition is met or deemed probable. Equity-based awards with service and market conditions are expensed over the relevant service period regardless of whether the market condition is met.
Long-term incentive plan
In 2016, shareholders approved the LTIP, which was amended and extended by shareholder approval on May 13, 2020. The LTIP creates alignment between participants in the LTIP and public shareholders and creates a long-term retention vehicle. All of the Group’s employees may be granted awards under the LTIP, and the Group typically makes an initial LTIP grant to each new employee and periodic grants thereafter.
Awards granted under the LTIP generally vest after a three-year service period and may also be subject to the satisfaction of performance- and/or market-based conditions.
During the period since the LTIP’s inception, the Group has issued awards in respect of approximately 3% of the Company’s issued ordinary share capital and, at June 30, 2022, there was a total of approximately 6.3 million awards issued under the LTIP. Awards granted under the LTIP may be satisfied with newly issued shares, a transfer of treasury shares or shares purchased on the open market. At June 30, 2022, approximately 15.6 million ordinary shares remained available for future grants under the LTIP through 2030.
The table below sets forth the LTIP activity for the six months ended June 30, 2022 and the year ended December 31, 2021.
| | | | | |
|
| Number of |
| Weighted average | |
| | ordinary | | grant date fair value | |
(Ordinary shares in thousands) | | shares | | per ordinary share | |
| | | | | |
Unvested LTIP awards at beginning of period | | 2,656 | | $ | 8.35 |
Granted | | 1,895 | | $ | 8.74 |
Earned/vested | | (156) | | $ | 16.24 |
Forfeited | | (301) | | $ | 12.22 |
Unvested LTIP awards at December 31, 2021 |
| 4,094 | | $ | 7.94 |
Granted |
| 1,196 | | $ | 8.97 |
Earned/vested |
| (305) | | $ | 21.51 |
Forfeited |
| (85) | | $ | 9.30 |
Unvested LTIP awards at June 30, 2022 |
| 4,900 | | $ | 7.32 |
The weighted-average remaining contractual term of unvested LTIP awards was 1.6 years at June 30, 2022. The compensation cost related to unvested LTIP awards not yet recognized was $21 million at June 30, 2022 and $19 million at December 31, 2021.
Burford employee deferred compensation plan
The Group maintains the Burford employee deferred compensation plan, under which a specified group of employees can elect to defer a portion of their compensation until future years. Participants may elect to defer base salary, bonuses, payments under the “carry pools” program and/or LTIP awards. The deferral period is a minimum of three years, and deferral distributions may be elected to be received in a lump sum or in annual installments. During the deferral period, the participant’s deferral account is notionally invested in investment funds available under the Burford employee deferred compensation plan. In addition, the Company may in its sole discretion make a matching contribution to the participant’s deferral account to the extent it is notionally invested in the Company’s ordinary shares. Distributions from the Burford employee deferred compensation plan will be made in accordance with the timing and form selected by the individual participant when the deferral is first elected. The Burford employee deferred compensation plan is administered and maintained by an independent third party. The Group has purchased an amount of its own shares which are held in treasury in the condensed consolidated statements of changes in equity in connection with this component of the deferred compensation plan.
74 Burford Capital Interim Report 2022
Notes to the condensed consolidated interim financial statements
continued
This company match component of the plan is accounted for as share-based compensation and vests after a two-year service period. For the six months ended June 30, 2022, the Group granted 116,960 unvested shares at a weighted average grant date fair value of $9.10 per ordinary share. The weighted-average remaining contractual term of unvested deferred compensation plan awards was 1.8 years at June 30, 2022. The compensation cost related to unvested deferred compensation plan related awards not yet recognized was $1 million at June 30, 2022.
21. Earnings per ordinary share
The table below sets forth the computation for basic and diluted net income per ordinary share for the six months ended June 30, 2022 and 2021.
| | | | | |
| | For the six months | | ||
| | ended June 30, | | ||
($ in thousands, except share data) |
| 2022 |
| 2021 | |
| | | | | |
Net (loss)/income attributable to Burford Capital Limited shareholders | | (21,501) | | (28,590) |
|
| | | | | |
Net (loss) attributable to Burford Capital Limited per ordinary share | | | | | |
Basic | | (0.10) | | (0.13) |
|
Diluted | | (0.10) | | (0.13) |
|
| | | | | |
Weighted average ordinary shares outstanding: | | | | |
|
Basic | | 218,935,492 | | 219,049,877 | |
Dilutive effect of share-based awards | | - | | - |
|
Diluted | | 218,935,492 | | 219,049,877 |
|
The dilutive net loss attributable to Burford Capital Limited shareholders for the six months ended June 30, 2022 and 2021 does not include 3.6 million and 2.3 million number of shares, respectively, relating to potential dilutive effect of the Company’s share-based awards, as to do so would be antidilutive to the basic net loss attributable to Burford Capital Limited shareholders.
22. Financial commitments and contingent liabilities
The table below sets forth the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments at June 30, 2022.
| | | | | |
| At June 30, 2022 | ||||
($ in thousands) | Leases | Debt issued | Debt interest payable | Other liabilities | Financial liabilities relating to third-party interests in capital provision assets |
Remainder of 2022 | 1,729 | - | 39,419 | 11,127 | - |
2023 | 1,730 | - | 78,838 | 7,243 | - |
2024 | 1,327 | 121,430 | 78,838 | 8,402 | - |
2025 | 1,417 | 180,000 | 71,400 | - | - |
2026 | 1,424 | 212,503 | 60,375 | - | - |
Thereafter | 4,393 | 760,000 | 118,802 | - | - |
No contractual maturity date | - | - | - | 54,146 | 397,581 |
Total undiscounted cash flows | 12,020 | 1,273,933 | 447,672 | 80,918 | 397,581 |
Lease present value adjustment | (3,037) | | | | |
Lease liabilities | 8,983 | | | | |
Burford Capital Interim Report 2022 75
Commitments to financing arrangements
As a normal part of its business, the Group routinely enters into financing agreements that may require the Group to provide continuing funding over time, whereas other financing agreements provide for the immediate funding of the total commitment. The terms of the former type of financing agreements vary widely—e.g., in cases of discretionary commitments, the Group is not contractually obligated to advance capital and generally would not suffer adverse financial consequences from failing to do so and, therefore, has broad discretion as to each incremental funding of a continuing investment and, in cases of definitive commitments, the Group is contractually obligated to fund incremental capital and failure to do so would typically result in adverse contractual consequences (such as a dilution in the Group’s returns or the loss of the Group’s funded capital in a case).
The Group’s commitments are capped at a fixed amount in its financing agreements. The Group had outstanding commitments of $1.6 billion at June 30, 2022 and $1.4 billion at December 31, 2021. In addition, at June 30, 2022 the Group had $81 million (December 31, 2021: $88 million) of exposure to assets where the Group provided some form of legal risk arrangement pursuant to which the Group does not generally expect to deploy the full committed capital unless there is a failure of the claim, such as providing an indemnity for adverse legal costs (assuming the GBP to USD exchange rate of 1.2143 at June 30, 2022).
Leases
Leases consist primarily of the Group’s leased office space in (i) New York, New York, (ii) Chicago, Illinois, (iii) Washington, DC, (iv) London, United Kingdom, (v) Singapore, Singapore, (vi) Hong Kong, China and (vii) Sydney, Australia, which the Group has determined to be operating leases under US GAAP.
The table below sets forth the components of lease costs for the six months ended June 30, 2022 and 2021.
| | | | | | |
| | | For the six months | |||
| | | ended June 30, | |||
($ in thousands) |
| 2022 |
| 2021 | ||
Operating lease cost | | $ | 1,136 | | $ | 1,140 |
Cash paid for amounts included in the measurement of operating lease liabilities | | $ | 1,206 | | $ | 1,230 |
| | | | | | |
The table below sets forth right-of-use assets, lease liabilities, weighted average remaining lease term and weighted average discount rate for the operating leases at June 30, 2022 and December 31, 2021.
| | | | |
| | At | ||
| | June 30, | | December 31, |
|
| 2022 |
| 2021 |
Right-of-use assets | | 8,149 |
| 10,948 |
Operating lease liabilities | | 8,983 |
| 11,896 |
Weighted average remaining lease term (years) | | 7.0 | | 7.1 |
Weighted average discount rate | | 6.7% | | 6.7% |
Litigation
Given the nature of the Group’s business, the Group may from time to time receive claims against it or be subject to inbound litigation. Having considered the legal merits of any relevant claims or progressed litigation and having received relevant legal advice (including any legal advice from external advisers), the Group considers there to be no material contingent liability in respect of any such litigation requiring disclosure in the condensed consolidated financial statements.
23. Related party transactions
The Group holds investments in associates and joint ventures. See note 18 (Joint ventures and equity method investments) to the Group’s condensed consolidated financial statements for additional information with respect to the balances held with associates and joint ventures. For the six months ended June 30, 2022, funding on the investments in associates and joint ventures was $3 million (June 30, 2021: $3 million).
76 Burford Capital Interim Report 2022
24. Credit risk from financial instruments
The Group is exposed to credit risk in various asset structures, most of which involve financing sums recoverable only out of successful capital provision assets with a concomitant risk of loss of invested cost. See note 2 (Summary of significant accounting policies) to the Group’s consolidated financial statements in the Annual Report. Upon becoming contractually entitled to proceeds, depending on the structure of the particular capital provision asset, the Group could be a creditor of, and subject to direct or indirect credit risk from, a claimant, a defendant and/or other parties, or a combination thereof. Moreover, the Group may be indirectly subject to credit risk to the extent a defendant does not pay a claimant immediately notwithstanding successful adjudication of a claim in the claimant’s favor. The Group’s credit risk is uncertain given that its entitlement pursuant to its assets is generally not established until a successful resolution of claims, and its potential credit risk is mitigated by the diversity of its counterparties and indirect creditors.
The Group is also exposed to credit risk in respect of the marketable securities and cash and cash equivalents. The credit risk of the cash and cash equivalents is mitigated as all cash is placed with reputable banks with a sound credit rating (A-2 or higher by S&P and P-2 or higher by Moody’s). Marketable securities principally consist of investment grade corporate bonds and asset-backed securities, as well as investments in investment funds and US treasuries.
In addition, the Group is exposed to credit risk from opponents in litigation insurance. The underwriting process includes an assessment of counterparty credit risk, and there is a large diversification of counterparties.
The maximum credit risk exposure represented by cash, cash equivalents, marketable securities, due from settlement of capital provision assets and capital provision assets is specified in the consolidated statements of financial position.
Further, the Group is exposed to credit risk on financial assets held at amortized cost and receivables in other assets. The maximum credit exposure for such amounts was the carrying value of $16 million at June 30, 2022 and $22 million at December 31, 2021. The Group reviews the lifetime expected credit loss based on historical collection performance, the specific provisions of any settlement agreement and a forward-looking assessment of macro-economic factors. Based on this review, the Group has not identified any material expected credit loss relating to the financial assets held at amortized cost, except for as set forth in note 6 (Capital provision assets) to our condensed consolidated financial statements. The Group recognized no impairment and less than $1 million of impairment for the six months ended June 30, 2022 and 2021, respectively.
The Group is not exposed to concentration of credit risk from a particular region or customer.
25. Subsequent events
On August 8, 2022, we declared an interim dividend of 6.25¢ per ordinary share, payable on December 1, 2022, to shareholders of record on November 4, 2022.
Burford Capital Interim Report 2022 77
Further information
Set forth below is certain information relating to our board of directors and various advisors and service providers at the date of this Interim Report.
| |
Directors Christopher Bogart Christopher Halmy | Independent registered public accounting firm |
| |
| |
Registered office | Advisors to the company on Guernsey law |
| |
| |
Advisors to the company on English law | Advisors to the company on US law |
| |
| |
Nominated adviser and joint brokers London EC2V 7BF | Joint brokers Jefferies International Limited London EC2N 4JL United Kingdom |
| |
| |
Registrar | Administrator and company secretary |
| |
| |
Computershare Investor Services | |
78 Burford Capital Interim Report 2022
Equity and debt securities
The table below sets forth certain information relating to our equity and debt securities outstanding at the date of this Interim Report.
| | | | | | | | | | | | |
Issuer |
| Security |
| Exchange |
| Ticker |
| ISIN/CUSIP |
| FIGI |
| SEDOL/ID |
| | | | | | | | | | | | |
Burford Capital Limited | | | | | | | | GG00BMGYLN96 | | | | |
| | Ordinary shares | | New York Stock Exchange | | BUR | | G17977110 | | BBG004FJ52G6 | | BMHLZ26 US |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Ordinary shares | | London Stock Exchange—AIM | | BUR | | GG00BMGYLN96 | | BBG000PN88Q7 | | BMGYLN9 GB |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Burford Capital PLC | | Bond | | London Stock Exchange—Main Market | | BUR2 | | XS1391063424 | | BBG00CMS9C56 | | JK7086578 |
| | Bond | | London Stock Exchange—Main Market | | BUR3 | | XS1614096425 | | BBG00GPZLYD7 | | AN5937551 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Burford Capital Finance LLC | | Bond | | London Stock Exchange—Main Market | | BUR4 | | XS1756325228 | | BBG00JWN4HQ2 | | AQ9291818 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Burford Capital Global Finance LLC | | Bond | | Unlisted | | N/A | | Rule 144A: US12116LAA70 / 12116L AA7 Regulation S: USU1056LAA99 / U1056L AA9 | | BBG00ZSKX1F2 BBG00ZSKX1P1 | | BO7730613 BO7730647 |
| | Bond | | Unlisted | | N/A | | Rule 144A: US12116LAC37 / 12116L AC3 Regulation S: USU1056LAB72 / U1056L AB7 | | BBG016KF3DV3 BBG016KF3G37 | | BV7236672 BV7236722 |
| | | | | | | | | | | | |
Burford Capital Interim Report 2022 79
Company website
Our website is located at www.burfordcapital.com. The information on, or that can be accessed through, our website is not incorporated by reference into, and does not form a part of, this Interim Report.
Investor relations inquiries
For all investor relations inquiries about Burford Capital Limited, please contact:
Investor Relations
Burford Capital
Brettenham House
2-19 Lancaster Place
London WC2E 7EN
United Kingdom
Telephone: +44 (0)20 3530 2023
Investor Relations
Burford Capital
350 Madison Avenue
New York, New York 10017
United States
Telephone: +1 (212) 235 6820
Email: IR@burfordcapital.com
Visit the investor relations section of our website located at www.burfordcapital.com/shareholders for investor relations information, including the latest share price, presentations relating to financial position and results of operations and regulatory news. The information on, or that can be accessed through, our website is not incorporated by reference into, and does not form a part of, this Interim Report.
80 Burford Capital Interim Report 2022