Burford Capital has raised a further £25m for its litigation funding warchest, the AIM-listed company announced today.
The issue of contingent preference shares by a wholly-owned subsidiary of the company has been fully subscribed.
This means institutional investors agree on demand to provide up to £25m in additional capital.
The completion of the offering is contingent on the admission of the units to the Channel Islands Stock Exchange, for which application has been made and is expected to occur later this week. Burford said it has privately consulted a number of its shareholders and received support for the move from shareholders representing a clear majority of the ordinary shares in the company.
In a statement, Burford said: “Litigation finance investments tend to be medium term in duration and come with some uncertainty around the timing and quantum of their cash inflows and outflows, which means there is potential for a substantial gap between cash committed to investments and cash actually deployed.
“As it is inefficient to reserve dollar for dollar against future commitments, the company believes that the facility offers an innovative alternative to manage the uncertainty around cash flows.”
Chief executive Christopher Bogart added: “We are delighted to have expanded our available capital with this £25m facility, and continue to appreciate the tremendous support of our shareholders for our efforts to grow the business while enhancing value.
“This facility is an innovative arrangement and enhances our flexibility while also continuing our move towards a more mature capital structure for the business.”
Burford’s annual report in September said that it had £164m committed to 29 live investments.
Andrew Langhoff, chief executive of Burford UK, explained the rationale of having a ‘callable’ facility with a “simple” example.
He said: “Burford signs up to do a case for up to £10m. However, that money will be spent over time – probably three years – as the case proceeds through the court system. So the company doesn’t need all that money on hand at once, or even soon.
“However, Burford can’t very easily predict when other cases are going to resolve and pay it, so it is risky to rely on being able to fund the £10m from other wins. Historically it has tended to put much of the £10m aside to be safe. That means it can do less with its capital than it should be able to because it has a lot of cash sitting around just waiting to be called in a case – £70m at last report just sitting in the bank.
“This solves that problem. Burford can now put less money aside and invest more money now, without waiting for cases in progress to resolve, because we know we can call on our shareholders to fill a funding gap if one ever occurs.”
“It can now invest more money in cases without becoming less financially conservative and without paying for the extra money. This innovative financial structuring has taken a year to develop working closely with [financial adviser] RBC and Freshfields. It even has a name – COPPS – because we suspect other businesses in other industries will copy it.”