Shares in litigation finance specialist Burford Capital (BUR) slumped 42% on Friday after a negative US appeal court ruling. The outcome reversed an earlier judgement in favour of Burford’s clients in their legal fight with Argentina over oil firm YPF.
Historic claim
Burford backed and funded litigation against Argentina over its nationalisation of YPF in 2012. In 2023, a US district sided with the plaintiffs, investors Peterson and Eton Court, ordering Argentina to pay $16.1 billion in compensation.
In a press release published late on Friday, Burford said it expected Peterson and Eton Park to seek a second hearing. The investors have 14 days to make a final decision, although statistically the chances of a re-hearing are low.
The alternative course of action is to begin investment treaty arbitration against Argentina itself. Including interest, the value of the YPF cliam is now believed to be around $18 billion.
Burford CEO Christopher Bogart called the court’s decision ‘very disappointing and a remarkable abandonment of the rights of minority NYSE shareholders’. However, Bogart stressed Burford’s core portfolio of cases other than YPF ‘continues to perform strongly’.
Impact on Burford
In a further statement published today, Burford said its core business produced over $1.2 billion of cash in the last two years. This core portfolio is expected to produce more than $5 billion of cash in future years.
‘We have always treated YPF as separate and apart from Burford’s core business’, explained Bogart. ‘Burford is run on a cash basis, and does not rely or count on cash from the YPF case to operate the business.’
The court’s decision will have a negative non-cash impact on the carrying value of the YPF case. The firm said it had over $700 million of cash to fund ongoing and new cases.
We’ve never been fans of businesses where outcomes can be binary and largely outside management’s control. No doubt Burford has a great core portfolio, but its sheer size means the YPF matter dominates the investment case.
We’ve already seen smaller firms suffer adverse decisions this year, Litigation Capital Management (LIT) being a case in point. Clearly financing court cases is a riskier business than it was made out to be when these companies listed.
Read the press release here: https://investors.burfordcapital.com/overview/default.aspx
