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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.
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 ??
I was not aware Argentine bonds paid interest presently
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.
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 ?
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.
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 ?
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
@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).
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.
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 ?
@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.