The coronavirus pandemic is likely to lead to an increase in demand for litigation funding in the longer term, Burford Capital has told investors.
The AIM-listed company has also cancelled its final dividend – in line with many other companies – although it reassured the market that it has “more than sufficient” liquidity.
In an update to the market yesterday, Burford said it was “sensitive” to the impact of the pandemic, but said that in the longer term, “just as the global financial crisis of 2008-09 was followed by a large amount of litigation”, Burford expects that the current global crisis “will result in a significant increase in the volume of large dollar litigation and arbitration matters”.
It continued: “Moreover, as businesses face liquidity challenges, Burford anticipates an increase in corporate monetisations of litigation positions.
“However, the short-term impact of COVID-19 and the logistical challenges of writing new business will likely result in a decrease in new commitments before we see an upswing in litigation.”
Burford said the progress of some existing matters was likely to slow, “although others remain on pace and the courts remain open” – indeed, it has received winning decisions in two matters in the last fortnight, and made two new investments in the last week.
It was “too soon to tell if macroeconomic conditions will reduce near-term settlement willingness by corporate defendants”.
Burford declared itself “in a strong liquidity position to meet the needs of its current commitments and its operating expenses”.
At 31 March 2020, Burford had $146m in cash on its balance sheet and held a further $15m in cash management investments. The balance sheet also has $180m invested in complex strategies matters, which have an average duration of less than a year, while the company has access to a further $758m in undrawn capital.
But the company still intended to “husband” its cash for use in new investments, “particularly as access to external capital may be constrained in the near term due to market conditions”.
As well as cancelling the dividend, Burford’s founders – chief executive Chris Bogart and chief investment officer Jonathan Molot – have committed to use their entire 2019 bonuses to purchase more shares once the 2019 results are published.
Mr Bogart said: “All of us are having to adjust to a new reality with Covid-19, just as the courts are, and while near-term delays will certainly occur in our business as well as in our financial reporting, we have a great deal of optimism about what the future holds as businesses face an environment that is both dispute-heavy and liquidity-constrained.”
The announcement did not help Burford’s share price, however, which closed down 53p at 335p.
Meanwhile, fellow AIM-listed funder LCM – which unveiled strong results last month – has announced that it is moving its management function from Australia to London, including the relocation of chief executive Patrick Moloney.
LCM told investors today that it has also begun “seeking strategic advice about a corporate reorganisation, with respect to global revenue laws, and the most efficient and suitable jurisdictions from which to operate”.
Mr Moloney said: “With the marked progress we are making in our geographic expansion strategy outside Australia, it is logical that our executive management team relocate to London.
“Aside from the obvious benefits of being able to work more closely together in one of the world’s pre-eminent financial centres and the convenience of the time zone, importantly we will also be at the centre of our key growth area of corporate portfolio investments.”