Burford shares bouncing back as it launches stout defence

Stock exchange: Burford shares rise

Burford Capital has today issued a 5,000 word “rebuttal” to what it called the “false and misleading” short attack report issued by Muddy Waters, which more than halved its share price.

The litigation funder accused Muddy Waters of “many factual inaccuracies, simple analytical errors and selective use of information” as the company sought to “expose its fallacious insinuations”.

Not only were founders Chris Bogart and Jonathan Molot intending to buy more shares, as reported yesterday, but two non-executive directors and “numerous other Burford employees” have signalled that they intend to do the same.

“In addition, the board is also considering the company buying back its own shares, given the potential investment return the shares represent at their current price.”

The robust response has helped Burford’s share price jump back up 23% at the time of writing to 742.5p, having closed yesterday at 605p.

It noted that the core of the attack was based on Burford’s expanded investment disclosures, which it began voluntarily publishing in March.

“Muddy Waters would have investors believe that Burford has been engaged in a multi-year pattern of deception and misrepresentation that has only been revealed by Burford’s own election to provide even more transparency into its business – hardly sensible conduct for a business ‘egregiously misrepresenting’ itself as Muddy Waters claims.”

The statement stressed that the company “generates strong cash flow and has good access to expansion capital”.

Addressing questions that arose from the statement yesterday that it needed “additional external capital to continue its growth”, it explained: “Burford is a rapidly growing business that invests in medium-duration assets. By definition, if its growth rate in a year exceeds the recoveries from prior years’ investments, it will need incremental capital.

“That has been consistently communicated to the market, is common to all growth companies and should not be a concern.

“It is also something entirely within Burford’s control, in that Burford could simply slow its growth should it wish to access less expansion capital, although we believe that would not maximize shareholder value in the long term.”

The statement said Muddy Waters’ suggestion that Burford was “arguably insolvent” was baseless.

“Presumably, the reason ‘arguably’ is inserted is because Muddy Waters knows they would lose a lawsuit if they accused Burford of insolvency, and they know they can’t support such a claim.

“Burford has a low debt level, a strong cash position and the capacity to take on more debt as desired. Burford’s net debt to equity ratio was 0.3x at 30 June 2019, with laddered debt maturities between 2022 and 2026.

“As previously discussed, Burford is likely to continue to access the debt markets in addition to considering other sources of financing. Burford also has a strong cash position, with approximately $400m in cash and cash equivalents on hand presently.”

The statement went on to defend Burford’s accounting and financial reporting, which it described as “transparent, appropriate and has been consistent for many years”, with clean audit opinions from EY since 2010

The funder rejected criticisms of its corporate governance, saying they would be no different were Burford listed on the main market rather than AIM – where it has been the largest company – and pointed out that it has already indicated that it was “actively considering a second listing, most likely on either NASDAQ or the New York Stock Exchange”.

That Burford’s chief executive and chief financial officer were married “is longstanding, disclosed and well-known”.

The response went on to counter in detail seven specific issues raised by Muddy Waters, before going on the attack itself.

“Short attacks such as this are a fundamental menace to an orderly market and to the value inherent in long-term investing in companies such as Burford that are revolutionising industries.

“Burford is well equipped to investigate and pursue market manipulators, and as stewards of investor capital, we are exploring doing so here, cognisant of the substantial losses our investors have suffered. Our early investigation already shows the hallmarks of market manipulation.”

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