Burford Capital has made an £6.6m profit on a £9m investment in an innovative arrangement that saw it provide a corporate debt facility linked to an arbitration claim.
The third-party funder said the deal “expands the potential of the litigation finance market” by showing it is not just about non-recourse financing to bring litigation.
The facility – agreed in 2012 – enabled Rurelec plc to monetise the value of its arbitration claim and obtain a conventional, fully recourse £9m senior loan from Burford at a 12% capitalised interest rate, lower than would otherwise have been available in the debt markets.
It also included a contingent value right to receive a portion of the ultimate arbitration award, expressed on a sliding scale based on time and amount.
Burford said the result was that Rurelec received the capital it needed at a reasonable price, and was able to monetise a contingent asset (its arbitration claim) for which its lenders and shareholders were not giving it financial credit. Meanwhile, Burford was able to earn “appealing returns in a transaction with lower risk of loss”.
Rurelec, an AIM-listed owner, operator and developer of power generation capacity internationally, did not need the money to pay its lawyers – it used the Burford facility to expand its business while awaiting the outcome of the arbitration.
This concerned the Bolivian government’s decision to nationalise Rurelec’s controlling stake in a Bolivian power company. Last month, the Bolivian government paid £19m in compensation.
Out of this the company repaid the £9m loan to Burford, as well as a further £6.6m.
Rurelec’s chairman, Colin Emson, said: “We were able to use the pending arbitration claim to obtain innovative corporate financing from Burford that lowered our cost of capital and helped our business expand. The ability to monetise a pending claim is something that we could only have achieved with Burford.”
Christopher Bogart, Burford’s CEO, said: “Litigation finance is too often thought of in its most basic form, which does not reflect the range of innovative investment structures we are able to utilise.”
Rurelec was represented by Freshfields Bruckhaus Deringer in the arbitration proceeding and by Skadden Arps Slate, Meagher & Flom in the financing transaction. Burford performed its own internal evaluation of the arbitration claim, and was represented by Latham & Watkins in the financing transaction.