United States securities and exchange commission logo
July 7, 2023
Jordan Licht
Chief Financial Officer
Burford Capital Limited
Oak House
Hirzel Street
St. Peter Port GY1 2NP
Guernsey
Re: Burford Capital
Limited
Forms 20-F for the
Fiscal Years Ended December 31, 2021 and 2022
Filed March 29,
2022 and May 16, 2023, respectively
Form 6-K dated June
13, 2023
Filed June 13, 2023
File No. 001-39511
Dear Jordan Licht:
We have reviewed your January 26, 2023 and April 25, 2023
responses to our comment
letter and the filings referenced above and have the following comments.
In some of our
comments, we may ask you to provide us with information so we may better
understand your
disclosure.
Please respond to these comments within ten business days by
providing the requested
information or advise us as soon as possible when you will respond. If
you do not believe our
comments apply to your facts and circumstances, please tell us why in
your response.
After reviewing your response to these comments, we may have
additional
comments. Unless we note otherwise, our references to prior comments are
to comments in our
January 12, 2023 letter.
Form 20-F for the Fiscal Year Ended December 31, 2022
Financial and operational review
Economic and market conditions
Inflation, page 27
1. Please tell us your
consideration for disclosing the impact of higher interest rates
associated with
inflation on the fair value of your capital provision assets and related
Jordan Licht
Burford Capital Limited
July 7, 2023
Page 2
unrealized gains or losses.
Results of operations and financial position
Statement of operations for the year ended December 31, 2022 compared to the
year ended
December 31, 2021
Capital provision income, page 29
2. Please provide us proposed revised disclosure to be included in future
filings that provides
a more robust and quantified explanation for the increase in your
consolidated capital
provision income from $194.6 million in 2021 to $319.1 million in 2022,
consistent with
the requirements in Item 303(b)(2) of Regulation S-K. In your proposed
revised
disclosure, at a minimum, address the following:
Quantify the "higher volume of favorable case resolutions, which
drove higher
realized gains" in terms of number of cases and the realized
gains. In this regard,
from the tables on page 30 and Note 6 on page 109, realized gains
relative to cost
only contributed $8.1, or 6.5%, of the $124.6 million increase in
capital provision
income.
Explain why the "higher volume of favorable case resolutions"
resulted in slightly
higher realized gains when it is apparent from disclosure in the
tables at the bottom of
page 59 and in Note 7 on page 109 that overall consolidated
realizations declined
from $455.1 million in 2021 to $426.7 million in 2022.
Quantify separately the number of cases with positive case
milestones achieved and
negative case milestones suffered during the year and the impact
of each on your fair
value adjustment during the year. In this regard and
notwithstanding your Chief
Executive Officer's (CEO) statement of intent in your June 13,
2023 earnings
conference call to not provide case milestone information in the
future we note, for
example, discussion of the number of case milestones achieved in
the first quarter of
2023 by your Chief Investment Officer during your May 16, 2023
conference call on
Full-Year 2022 Results. Also in this regard, we note your CEO's
statement from your
May 16, 2023 conference call that the largest driver of value in
your business is court
decisions and that they will remain the key driver of your
valuations. In addition,
discuss any individually significant fair value gains or losses
and any trends over
time.
Quantify the impact of changes in market interest rates and the
resulting changes in
your discount rate included in your fair value adjustment. In this
regard, for example,
we note your discussion related to slide 12 in the presentation
slide deck
accompanying your May 16, 2023 conference call where you indicate
that the
increase in discount rates over the last four years resulted in
about $400 million in
FirstName LastNameJordan Lichtyour portfolio.
foregone income from
Comapany NameBurford
Quantify Capitalthe
and discuss Limited
impact of any other material items
impacting capital
July 7, 2023provision
Page 2 income.
FirstName LastName
Jordan Licht
FirstName LastNameJordan Licht
Burford Capital Limited
Comapany
July 7, 2023NameBurford Capital Limited
July 7,3 2023 Page 3
Page
FirstName LastName
Portfolio
Overview, page 44
3. Please tell us why it is appropriate to characterize your undrawn
commitments as assets in
the tables on pages 45 and 46. In this regard, please tell us your
consideration for revising
in future filings the captions of total capital provision-direct
assets and total capital
provision-indirect assets as we note that undrawn commitments do not
qualify for asset
recognition under GAAP. In addition, consider reconciling this
disclosure to capital
provision assets on your balance sheet and clearly identifying the
columns in this table
and other tables that provide Burford-only, other funds, BOF-C and
Group-wide
information as being non-GAAP consistent with your indication on page
7. Please provide
us any proposed changes to be included in future filings.
4. Your tables on pages 45 and 46 as well as those on page 48 in your
fair value of capital
provision assets disclosure have captions labeled carrying value. As
you carry your
capital provision assets at fair value, please tell us your
consideration for clarifying in the
tables that carrying value is fair value. Provide us any proposed
revised disclosure to be
included in future filings.
Undrawn commitments, page 51
5. In the second paragraph in this section you disclose that your
consolidated undrawn
commitments were $1.9 billion, $1.7 billion and $1.6 billion at
December 31, 2022, 2021
and 2020, respectively. As these amounts appear to refer to your
group-wide totals in the
tables at the bottom of page 51 and not the consolidated totals
presented in the table in
Note 21 on page 128, please represent to us that in future filings you
will properly identify
the amounts in your narrative disclosure.
Summary of capital provision-direct portfolio, page 55
6. We note the table provided on page 48 of your report for the first
quarter of 2023 provided
as Exhibit 99.1 to your Form 6-K filed on June 13, 2023 where you
provide a table with
deployed costs and realized proceeds by vintage. Please tell us your
consideration for
augmenting your interim vintage information with information about the
status and
number of assets underlying the current period activity so that
investors may have a better
understanding of the progress in your portfolio, similar to your
presentation on page 55.
Provide us any proposed revised disclosure to be included in future
filings.
Critical accounting estimates
Fair value of capital provision assets, page 61
7. We note that the sensitivity analysis provided in this disclosure is
the same as the
sensitivity analysis provided in your Fair Value footnote on page 110.
In light of the fact
that you disclose that the estimate of fair value is largely based on
management s estimate
of forecasted cash flows, please tell us the extent to which you
considered providing a
Jordan Licht
Burford Capital Limited
July 7, 2023
Page 4
sensitivity of a 10 percent increase or decrease in the most likely
expected entitlement
assumption of your capital provision asset, which you refer to as your
win node in your
May 16, 2023 Investor Presentation available on your website.
Similarly, in light of the
significant range between the minimum and maximum difference of the
duration
unobservable input assumption, please tell us whether you considered
providing a
sensitivity of that assumption to show how a change in that assumption
could impact your
results. Provide us any proposed revised disclosure to be included in
future filings.
Consolidated statements of operations, page 85
8. In your financial and operational review disclosure on page 31 you
indicate that your
case-related expenditures ineligible for inclusion in asset cost
includes situations where
you are the claimant in a litigation matter, either due to the
acquisition of assets, or the
assignment of a claim. Please address the following:
Quantity how much of this expense relates to matters you acquired
or that were
assigned to you for all periods presented.
Tell us the process by which you become the claimant in a
litigation matter,
separately for the acquisition of assets and the assignment of
claims.
Quantity the number of litigation matters where you are the
claimant and explain how
these litigation matters are disclosed in your filing, from the
time of acquisition until
the time of resolution.
Provide an illustrative example of the accounting applied from the
acquisition/assignment of a claim to you, until resolution of the
claim, including the
line items in the financial statements where the activity is
recorded.
As you no longer apply a cost plus methodology for the
recognition of capital
provision assets, tell us your consideration for renaming this
expense to remove the
reference to cost.
Provide us proposed revised disclosure to be provided in future
filings that more
clearly describes the nature of these expenses.
Notes to the consolidated financial statements
Note 7. Due from settlement of capital provision assets, page 109
9. We note your $11.3 million unrealized loss in 2022 and your disclosure
in Financial and
operating review on page 38 that it relates to an $86.3 million
receivable in your Strategic
Value Fund. Please tell us:
The nature of this loss;
How you determined its amount; and
FirstName
LastNameJordan
Why you considerLicht
it an unrealized loss when it presumably
resulted from a realized
Comapany gain
NameBurford
when youCapital Limited
reclassified it from capital provision assets to
due from settlement of
capital
July 7, 2023 Page 4 provision assets.
FirstName LastName
Jordan Licht
FirstName LastNameJordan Licht
Burford Capital Limited
Comapany
July 7, 2023NameBurford Capital Limited
July 7,5 2023 Page 5
Page
FirstName LastName
Note 15. Fair value of assets and liabilities
Valuation methodology, page 115
10. On page 116, you disclose that you have elected the fair value option
for certain equity
method investments, marketable securities, due from settlement of
capital provision assets
and financial liabilities relating to third-party interests in capital
provision assets. We also
note your disclosure that there were no gains or losses recognized
in the consolidated
statements of operations with respect to these assets and liabilities.
Please tell us, and
provide us proposed revised disclosure to be included in future
filings that clarifies, why
no gains and losses were recorded for each group of assets and
liabilities for any of the
reported periods. Additionally, as part of your response, please
clarify whether the
amounts for these assets and liabilities reported in the Income for
the period columns on
pages 117 and 118 solely represent interest and dividend income.
Movements in Level 3 fair value assets and liabilities, page 117
11. We note that the balances and activity for your total capital
provision assets and for your
due from settlement of capital provision assets do not necessarily
agree with comparable
balances and activity presented in the separate rollforwards presented
in Note 6 for the
former and Note 7 for the latter. Please tell us why the following
amounts differ between
the relevant rollforwards and reconcile for us the following
differences:
The opening balance for capital provision assets at January 1,
2020;
The realization and income for the period amounts for capital
provision assets during
2020;
The deployments, income for the period and foreign exchange
amounts for capital
provision assets during 2022;
The ending balance for capital provision assets at December 31,
2022;
The opening balance for due from settlement of capital provision
assets at January 1,
2020;
The deployments and realizations amounts from Note 15 and the
relevant captions in
Note 7 for due from settlement of capital provision assets during
2020; and
The deployments and realizations amounts from Note 15 and the
relevant captions in
Note 7 for due from settlement of capital provision assets during
2022.
Sensitivity of Level 3 valuations, page 118
12. In the second paragraph in this section, you disclose that for cases
where cash flows are
denominated in a foreign currency, forecasts are developed in the
applicable foreign
currency and translated to US dollars. We note your disclosure from
Note 6 on page 109
that exchange differences arising from non-US dollar-denominated
capital provision
assets held by US dollar functional currency entities are recognized
in capital provision
income while 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. Please tell us why your disclosure regarding
forecasts in foreign
Jordan Licht
FirstName LastNameJordan Licht
Burford Capital Limited
Comapany
July 7, 2023NameBurford Capital Limited
July 7,6 2023 Page 6
Page
FirstName LastName
currencies is limited to the translation into US dollars instead of
translation into the
functional currency of your relevant subsidiary/operations. In this
regard, we note your
disclosure on page 100 that certain subsidiaries operate and prepare
financial statements
denominated in pound sterling and euro. In your response, reference,
where appropriate,
the authoritative literature you rely upon to support your accounting
and address the
following:
Clarify whether subsidiaries with functional currencies other than
the US dollar hold
capital provision assets denominated in currencies other than
their functional
currencies. If so, clarify if changes in the exchange rates
between the functional
currency and the contract currency are included in your operating
results;
Explain why the foreign exchange loss for 2022 in the capital
provision asset
rollforward in Note 6 on page 108 of $13.1 million differs from
the $11.2 million
amount as disclosed in Note 15 on page 117; and
Clarify whether the difference between the $13.1 million foreign
exchange loss
presented in 2022 in the rollforward in Note 6 and the $6.4
million foreign exchange
loss in the components of your capital provision income table on
page 109 represents
translation of non-US dollar-denominated functional entity
capital provision assets
and related activity into the US dollar reporting currency and is
included in other
comprehensive income.
13. In the second paragraph on page 119, you disclose that your fair value
policy provides for
ranges of percentages to be applied against the risk adjustment factor
to more than 70
discrete objective litigation events (or adjudicative events) across
five principal different
types of litigation. However, in your January 26, 2023 response to the
fourth bullet of
prior comment 4 from our January 12, 2023 letter you indicated that
during 2022, you
applied a fixed percentage. Please tell us, and provide us proposed
revised disclosure to be
included in future filings as appropriate, to address the following:
Which periods you apply a fixed percentage for each discrete
adjudicative event and
which periods you applied a range of percentages.
For all periods where a range is applied, how you determined what
percentage within
each adjudicative event to apply on each asset.
14. Your tables on pages 119 and 120 present positive case and negative
case milestone factor
ranges for various aggregated capital provision assets that in total
represent more than
65% of total assets as of December 31, 2022 and 2021. Given that the
fair value
information is shown at such an aggregated level, it is difficult to
relate the individual
unobservable inputs disclosed to various types of capital provision
assets. Please tell us
your consideration of providing additional information to allow users
of your financial
statements to evaluate the quantitative information disclosed, as
outlined in ASC 820-10-
50-1D(d). In your response, at a minimum, tell us your consideration
of the following:
Disaggregating the single capital provision asset category
(consisting of single,
portfolio, joint ventures and equity method, legal risk
management, litigation finance
(BOF-C) and financial liabilities) into separate capital
provision asset categories,
including the following five categories, each separately broken
out for those capital
Jordan Licht
Burford Capital Limited
July 7, 2023
Page 7
provision assets with positive case milestone factors, and those
with negative case
milestone factors: (1) significant ruling or other objective
event prior to trial court
judgment, (2) trial court judgement or tribunal award, (3) appeal
judgment, (4)
settlements, and (5) portfolios with multiple factors. In this
regard, we note that this
presentation would be consistent with the categories used for
this type of disclosure
on page 110 of your Form 20-F for the year ended December 31,
2021. To the extent
you determined this presentation was not meaningful or feasible
to disclose, please
tell us whether there are other ways that this category could be
more disaggregated to
meet the objective in ASC 820-10-50-1D(c).
Disclosing the interrelationship between positive and negative
case milestone factors
and your adjusted risk premium as stipulated in ASC
820-10-50-2(g).
Disclosing the identity of the "other" case positive milestone
factor and its impact on
fair value as it has a 100% weighted average impact in each
period
presented. Additionally, provide some quantitative information so
investors
understand how much of the capital provision asset balance is
impacted by that
assumption (e.g., X matters out of total capital provision asset
matters, or the dollar
amount of capital provision assets out of the total dollar amount
of capital provision
assets).
Form 6-K filed June 13, 2023
Exhibit 99.1 Burford Capital Limited Interim Report...
Notes to the Condensed Consolidated Financial Statements
Note 4. Income taxes, page 17
15. We note that although your income tax provision doubled from $3.4
million in the first
quarter of 2022 to $7.1 million in the first quarter of 2023 the
effective tax rate decreased
from 4.5% to 2.3%. We also note that these effective rates are
substantially lower than
those presented in your annual financial statements for 2019 through
2022. Finally, you
attribute the higher tax expense in the first quarter of 2023 to higher
taxable income in the
United States driven by realized gains on capital provision assets,
offset in part by the
reversal of previous valuation allowances. As it appears from the table
on page 17 that
your valuation allowance declined only $2.2 million from December 31,
2022 to March
31, 2023 and that absent this reversal your effective tax rate would be
3.0% for the
quarter, please tell us why your effective tax rate is so low given the
significant overall
FirstName LastNameJordan Licht
increase in pre-tax income. In your response specifically tell us the
deferred tax provision
Comapany NameBurford
recorded during theCapital Limited
first quarter of 2023 associated with the
significant unrealized gains
related to
July 7, 2023 Page 7 the YPF matters.
FirstName LastName
Jordan Licht
FirstName LastNameJordan Licht
Burford Capital Limited
Comapany
July 7, 2023NameBurford Capital Limited
July 7,8 2023 Page 8
Page
FirstName LastName
You may contact Mark Brunhofer at 1-202-551-3638 or Sharon Blume at
1-202-551-
3474 with any questions.
Sincerely,
Division of Corporation
Finance
Office of Finance