Burford Capital Ltd. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• New Business: Second quarter had significantly higher new definitive commitments than recent years, and year-to-date new definitive commitments are up 71% from 2024, showing strong demand for capital.
• Financial Metrics: Net income was up very strongly, 5x year-to-date compared to 2024 and 63% up on the quarter. Revenues were up, and operating expenses have stabilized.
• Debt Offering: Successfully raised a new $500 million issuance, upsized it, priced tightly against indices, and had new debt investors, showing market maturity and desirable cost of capital.
• YPF Progress: Tentative oral argument date in October for the main appeal of YPF. Judge Preska in the Southern District of New York granted motion for turnover of some Argentina's YPF shares, though it's on appeal.
• Portfolio Details: Principal Finance portfolio has fair value of $3.8 billion, with diverse geography and asset types. Asset Management has a portfolio around $2 billion, with funds having certain characteristics related to growth and income.

Segment Performance

• Principal Finance: Fair value of the portfolio is $3.8 billion with undrawn commitments of $1.7 billion. YPF makes up approximately 43% of the assets. Deployed cost is $1.6 billion and 33% of deployed cost represents a fair value markup. Year-to-date total revenues for Principal Finance have seen a large increase. New definitive commitments in the second quarter were significantly higher than previous quarters, with year-to-date new definitive commitments up 71% from 2024. Deployments were in line with last year, and realizations were ahead of pace at $225 million versus $219 million year-to-date, with a year-to-date ROIC of 37%.
• Asset Management: Year-to-date Asset Management income is $21 million. In the quarter, Asset Management income was $7.1 million. The funds in this segment, including some inherited ones, have certain characteristics affecting income, with focus on building the balance sheet.

Guidance

• New business growth is at a higher rate than needed to meet long-term targets set at April Investor Day.
• Successful $500 million debt issuance shows market acceptance of the company's proposition.
• Expectations for continued progress in the YPF case and growth in the portfolio.

Risks

• Uncertainties related to litigation, such as Argentina quoting previous comments in court proceedings as noise, which could impact the case's progress.
• Asset Management funds, including inherited ones, may not grow at historical rates, affecting income projections.
• Opposition from the insurance industry and others to litigation finance, as it levels the playing field and deprives certain parties of structural advantages.

Q: Mark DeVries asked about the timing for the Second Circuit to hear the appeal for Argentina on the order to turn over the YPF shares and the time it might take for the Second Circuit to give its judgment once heard.

A: Christopher Peter Bogart said there's a two-part procedure. Argentina appealed the turnover order and asked for a stay, with the Second Circuit's decision on the stay likely to impact the appeal's speed. The timing of the Second Circuit's judgment on the appeal depends on the workload of the panel members, potentially measured in months but hard to predict exactly.

Q: Julian Roberts asked about YPF-related unrealized gains and other cases contributing to fair value gains, and about new assets in Asia and success in other cases.

A: Jordan Licht said there are multiple factors including YPF progress, duration, and interest rate change contributing to fair value gains, and it's an array across the book. Christopher Peter Bogart and Jonathan T. Molot mentioned that new assets in Asia and success in other cases, like IP cases, can have various dynamics such as campaign-style approaches and that one realization suggests someone is vulnerable but may be the start of a potential campaign.

Q: Randy Binner asked about Asset Management income being below expectation in the quarter.

A: Jordan Licht said Asset Management income is affected by historical funds needing to hit hurdles for income, with some inherited funds and originated funds moving in tandem with the balance sheet, and the focus is on building the balance sheet.

Q: Alexander Bowers asked about growth opportunities in industries, geographies, and the ecosystem of law.

A: Christopher Peter Bogart said the pipeline is broad and diversified due to working with global law firms with diverse industries. Geographically, the company is expanding boots on the ground in markets like Korea and Spain. In the ecosystem of law, the company is actively reviewing potential opportunities in law firm equity, legal tech, etc., and has deployed small amounts of capital already.