Burford Capital Ltd. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• YPF Case Analysis: Discussed the YPF case adjudicated in the Southern District of New York. Highlighted the low reversal rates of the court and judge, noting the market overreaction to the oral argument. Stated it would be extraordinary for the case to be dismissed on Forum non grounds and remained bullish on the case.
• Business Growth: Definitive commitments up over 50%, overall portfolio up 15% YTD (20% annualized). Continuing to grow organically and inorganically, confident in 2030 plans as laid out in the April Investor Day.
• Portfolio Performance: IRRs steady at 26% on $3.6 billion of realizations, loss rates steady. Had 4 large case wins so far this year, each potentially generating over $100 million in proceeds. Significant spread between book value and expected value due to the nature of the asset class, with embedded value yet to come.
• Buybacks: Management has bought over 1.3 million shares in the last year but prefers not to use corporate funds for buybacks currently due to uncertainty in case cash timing and debt obligations.

Segment Performance

• Principal Finance: Definitive commitments are up more than 50%. The overall portfolio is up 15% year-to-date (20% annualized). Deployments were up 61% in the third quarter. IRRs are steady at 26% on $3.6 billion of realizations, with loss rates also steady. The portfolio has a significant spread between book value and expected value, with embedded value yet to be fully reflected in accounting.
• Asset Management: Cash receipts from asset management were approximately flat year-to-date at $17 million. Some funds are in runoff, with only episodic performance fees expected from those funds.

Guidance

• Continue to grow organically and inorganically, aiming to double the business by 2030 as outlined in the April Investor Day.
• Confident in the portfolio performing over time to meet debt service needs despite delays.
• YPF case outcome would impact capital utilization and return discussions, as a positive result would be a large cash event.

Risks

• Litigation Risk: Uncertainty around case timings, including Forum non conveniens issues and the unpredictability of appellate court decisions.
• Debt Management Risk: Unpredictable cash flow from realizations, potential impact of buybacks on leverage and ability to meet debt service obligations.

Question and Answer

Q: Potential timing of the appeal of the Second Circuit on the order for Argentina to turn over its YPF shares?

A: The appeal is expected to be fully briefed by sometime in December, then scheduled for argument, with a decision likely in 2026.

Q: Trajectory of realizations over the coming years?

A: Rolling 3-year realization data shows continuing velocity, with more events and trials scheduled in the next 12 months than a year ago.

Q: Logic behind not doing a buyback despite share price concerns?

A: Prudential management of the business due to uncertainty in case cash timing vs debt obligations; debt has fixed timing for interest and principal repayment, which can't be delayed like court proceedings.

Q: Distribution of recent commitments deployments by duration and ROIC?

A: Diversified by duration and risk, with some higher ROIC deals, but not directly correlating size to duration/ROIC; business is all things to all people in terms of deal distribution.