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@ffcmember it's highly highly highly unlikely Burford will settle the bonds at any point soon. Any receipts they get would be wasted if not funneled back into cases
Also, if they were going refinance they'd be doing so at much more expensive levels than those prevailing when they were issued.
Thank GG
But I still can't see them buying Bonds as a Negative ? Am I wrong? I'm happy to be corrected
At what point might they Call the Bonds ? Or is the 6% a meager price to continue to pay against forward rewards ?
The bond purchased initially surprised me. However, I guess it makes sense. By the CEO and CIO having around $1m of their own personal money in bonds you could argue that the risk of default may be perceived at a notch lower. They're very likely to be tapping the bond markets relatively soon and so you can see the logic if viewed in that way.
@ffcmember you could argue it's because they see more value in the bonds vs the equity but I'd think that would be very unlikely in this case. I'm not really sure why they went for the bonds rather than the equity, it might be as laconic says that they're planning to issue more.
For them to call these 6% bonds you'd expect to see the price much closer to/at/above par (the implied cost of debt for Bur is 8%-10% while they're trading around 90). It would make sense to do it once they're up a bit though though because interest rates have tanked, and hopefully the business will soon prove that it's counter cyclical (which is what bond investors love).
For me all it did was to suggest, why buy new Bonds when "second hand" ones are so cheap ????
In the currant market what % would they need to offer ? And has Muddy Waters made them look risky in any way ???
I don't follow Bond markets but $87 does seem like a kick in the arse having only bought them 2018 was it . or is that the average discount atm
And if they were looking to boost their available cash flow why would they not print a few more shares when they dual list ? I think existing shareholders would have accepted that ?
I disagree that shareholders would have accepted that. Issuing shares at a time where the share price is artificially depressed is a terrible idea for existing shareholders, especially those who bought at four times or more the current price and might not be in a position to buy more. Buybacks would make far more sense in the current situation (if capital couldn't be employed more usefully within the business and help growth, which management repeatedly say that it can). Burford's gearing is relatively low and expected returns seem greater than the cost of borrowing, therefore issuing extra bonds makes sense. However, anything you can do to reduce the cost of your borrowing also makes sense.
Iaconic
I don’t necessarily disagree with your take on funding through bonds but I also don’t feel comfortable with indefinite periods that these bonds can go unsettled either ???
Not so sure given the expected extra demand due to the economy and covid that buy backs would happen any time soon though ?
Buybacks almost definitely won't happen anytime soon - it's been discussed many times.
Why do you want the bonds to settle? If there are investments that mean you can make a decent return in excess of your borrowing costs, you borrow (within prudent risk limits). That's basic finance.
BUR's strategy is to grow in what's a relatively new industry and that requires money for additional investment. In that scenario the last thing they'll be doing is paying back the bonds, in fact they've signalled intent to issue MORE.
There are other funding sources available (such as the sovereign wealth fund) but those are considerably more expensive. BUR makes far more from balance sheet investments than it does from those investments.
If you want them to pay back the bonds, essentially you don't agree with one of the fundamental company strategies that's been stressed time and time again.
I was not aware Argentine bonds paid interest presently
So at what point are we able support funding needed solely through profits ????? Or is it naive to expect that ?
Of course borrowing is needed in a co early years I’ve no problem there but at what point do we accept we are no longer a “ relatively new industry”
What’s wrong with hoping I’m invested in a co that in five years time will be reducing debt rather than adding to it ??
Nothing wrong at all to hope that the company will have sufficient funds to pay back the bonds eventually but when they're cheap relative to the investments that can be made, there's zero point.
Remember that the Sovereign Wealth fund takes a huge percentage of the profits there - far better to use bond debt over that type of finance, but it serves a purpose in the current situation.
I'd say that calling when they might reduce debt is pretty impossible - when there aren't enough options available to use the money for a good return is the fundamental answer. I wouldn't wish for that day too soon - it might mean potential in the industry has dried up and room to grow further has gone!
Debt falling relative to own assets is possibly a more realistic thing to expect to happen.
Many thank Iaconic
The only way to question your own opinions sometimes is to have them questioned for you ! and I appreciate the manner in which you did it
Regards
ffc
FFcmember Burfords debt is not a normal typical debt, they borrow money for the safest litigation lawsuits that they can find, they get there litigation cost back + a proportion of that litigation settlement,
That money gets spent and hopefully returned in around 12 months or so, the biggest amount of that money gets returned as profits, And overall we clear a great profit margin, It’s not like we buy machinery or plant with that money, it essentially stays intact, that’s why the sovereign wealth fund lends to us year after year, now if we can issue more bonds then we can make more money taking less from the S.W.F
as they get 40% of any litigation settlement money, as we get 60% settlement money using there money, if the market sees Burford making huge sums of profits then much higher funding from the bond market should ensue. with Burford only paying
5 % / 6 % Interest on them bonds, if Burford holds onto more of there profits , then that cash balance would give bond holders much more confidence in holding Burfords bonds. Also that in itself could mean us paying even a lowering of interest rates on any new bonds, the lower the risk the lower the interest on any bonds, investors always feel safer for Burford to have substantial assets per share when buying new bonds.
GLA
TB
We have Bond paying 6.5% , 6.125 % ,5% and 6.125%
I Completely understand why but whilst they don't resemble the high figures attached the junk bonds say ? over the life of the Bonds they actually add up to a significant amount so I welcome the day when it comes that they are paid off !!!
AISI Sovereign wealth funds get a higher pay off because correct me if I'm wrong they are not "lending " but taking the risk with us ????
@thomasbrowne you seem to be under the impression that the SWF is lending to Burford? I don't think that's the case.
@ffcmember it might be better to think about this mathematically. Let's say one year Burford invests £100 and makes a return of 50% for a £50 profit. If this were all funded by equity, you'd have an ROE of 50% - quite nice.
Let's then imagine that Burford raises 100 of debt @6% to go alongside that 100 of equity. Now it invests 100 of equity and 100 debt in the same/similar investment. The return is the same at 50%, but the profit is 100 on the investment. Burford then pays the 6 back in interest, for a total profit on 94. Your ROE has been boosted from 50% to 94% with addition of debt @6%.
It's the same point laconic made, 6% in the context of the business is pretty good. I don't think you'd want them to pay back debt, and contrary to what I think you might believe, the use of debt typically increases rather than decreases as a business matures.
Also, I think the debt maturity profile is very attractive. You do NOT want Burford funding itself with short term debt.
FFCmember. Most of the reason burford uses all these different types of Litigation funding is to spread the risk out in different types of funding models as possible, sovereign wealth fund, bond holders etc, they proportionally take the risk with there own money , and burford takes the 60% profit made from the S.W.F funding money, how fantastic a business model is that, the bond holders get promised a much smaller share of that profit, though their actual money is not at risk as long as burford stays solvent. for me it's a sensible respectable lawyer based business model that's trying to reduce our shareholder risk and put that risk onto other funders, namely the S.W.F. And yet we still get 60% of any settlement money. A truly fantastic business model in my humble opinion.
Very soon AMERICAN investors can share in the huge rewards and push our share price to a historical high.
PLEASE DYOR. GLA
GG
Re your Monday 13.41 " you don't see them settling any time soon"
Can I ask when would you see the 2018 bond (due 2025) might_could be settled ????
I am not disagreeing I just think I may have misunderstood during this particular thread !
Regards
ffc
GG no I'm very clear that the S.W.F doesn't lend to burford per-say , let's just call it a investment that's safer than other types of lending, the huge amounts of money the S.W.F directly invest in burford is injected because the returns are so huge, and the risk are kept as LOW as possible/ with burfords lawyers picking the safest lawsuit cases possible.
Ideally we want to issue bonds with the lowest interest rates possible, so that may mean paying many different interest rates over many years on different lengths of bonds. That's a very good thing, and one day we will hopefully have made billions £$ and then need little or no funding at all, in the mean time, what burford is doing is using a truly fantastic business model. And one that every other litigation funder uses to their advantage.
GLA
"and one day we will hopefully have made billions £$ and then need little or no funding at all, in the mean time,"
Voila
@ffcmember it's hard to say exactly when the bond will be called because it depends on market conditions.
Let's start by taking it as given that Burford will want to have some debt outstanding (which laconic and myself has argued will be the case). The next consideration will be the cost of that debt - Burford will be seeking to pay as little in interest as is practicable.
Burford raised its latest bonds back in 2018, before the MW attack when the market was extremely bullish on the company's prospects. Now things are clearly different, and the bond price has fallen to well below par. The best indication for the rate at which a company will be able to issue new debt is the yield on its outstanding debt. NOTE that the yield vs. the coupon are two different things - a bond priced below par will yield more than its coupon and vice versa. So, given that Burford's bonds are trading well below par, it implies that Burford would have to pay more if it raised new debt than if it just kept the current debt outstanding.
"and one day we will hopefully have made billions £$ and then need little or no funding at all, in the mean time,"
No, no no!!! Please read what myself and laconic wrote earlier about debt funding. If Burford carried no debt, you would see the return on equity go down quite significantly. Burford will always carry debt on its balance sheet.
GG the point I'm trying to make is this, if you gave burford £10 billion right now they would then need no debt, if burford had a unexpected lawsuit win at £10 billion profit it would then cancell out and probably get rid of most if not all of its debt, it wouldn't need bond money or The S.W.F money, and could keep all The profits from our litigation settlements.
The reason it has debts is to get its hands on other people's money to make a profit from that money,
Burford wouldn't need any debt at all if it made billions in profits,
Just ask Warren buffet about using your own money to fund your companies success, he has around $137 billion, and the only debts he has is to reduce his tax returns, that's why numerous companies load up with debt to reduce the tax bills, and then get into trouble in recessions, that's why Warren Buffett accumulates billions until he hits a recession and then buys UP companies that can't service there debts at a low price, that's why he's a king in investing.
Burford absolutely needs debts ok, but only because we can't replace that debt with our own billions.£$
GLA
I know what you're saying @thomasbrowne but it's just wrong. Fundamentally misunderstanding how corporate finance works.
Yes GG I get it
It just felt to me that the suggestion was that we just keep issuing bonds for future funding as they are so cheap !!! It mounts up if they don't get settled at some point , there's debt and there are millstones
Although I wouldn't mind a few at 87 bucks