Bond issue judged a great success

Demand for Burford’s new retail bond issue has proved to be incredibly strong. The issue was oversubscribed and raised £175m, with the offer being closed less than a week after being opened. The coupon of 5% was a significant reduction on the previous issues, in spite of the term being a year longer at 9 years. Of the yield improvement, only a third can be attributed to changes in the gilt rate, suggesting much greater market confidence and understanding in Burford’s business than at the time of the last issue. The net proceeds from the issue will be £172.8m ($225m). Of these $43.75m will be used to repay the loan note for the Gerchen Keller Capital acquisition. Given the coupon on this was 6% per annum this looks sensible.

• Trading: Burford has not given any trading updates during the issue process. We can infer that investment opportunities remain strong, though Burford management do tend to be somewhat prudent and Hardman & Co expects the funds, as usual, will be invested steadily rather than immediately.
• Balance sheet: Post the issue, Burford will have gross debt of $471m. The covenants allow for deduction of cash balances when compared to total assets and there should be no restriction to Burford from these.
• Valuation: The demand for the bond issue reaffirms that Burford’s rating remains good value despite the strong share price performance. The prospective P/E for 2019E is only 14.2 times, while a prospective 17.5% RoE with strong growth suggests strong metrics all round.
• Risks: The investment portfolio is now quite diversified, but still has some very large investments, which means revenue may be volatile. The Petersen case provides a concrete example of this. As the company matures we would expect that to decrease, but not to disappear.
• Investment summary: Burford has already demonstrated an impressive ability to deliver good returns in a growing market while investing its capital base. As the invested capital continues to grow, the litigation investment business will continue to produce strong earnings growth.