Burford Capital Limited (NYSE:BUR) Q3 2024 Earnings Call Transcript

Burford Capital Limited (NYSE:BUR) Q3 2024 Earnings Call Transcript November 9, 2024

Operator: Thank you for standing by and welcome to the Burford Capital’s Third Quarter 2024 Financial Results Conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I’d now like to turn the call over to Christopher Bogart, Chief Executive Officer. You may begin.

Christopher Bogart: Thanks very much and hello everybody. Thank you for joining us today. As usual, with me on the call is: Jon Molot, Burford’s Chief Investment Officer; and Jordan Licht, Burford’s Chief Financial Officer. And the three of us will take you through the slides that have been put up on the website. I’m going to start on Slide 4, and it’s obviously very nice when a strong quarter like this comes along and we can show you how the business is performing. Our business doesn’t really fit neatly into quarters and the third quarter is often slow, given the summer. So it’s particularly nice to have this kind of result, even though we like to look at the business over a longer term than just on a quarter-by-quarter basis.

But this slide is purely about the quarter. And so, what you can see here are some real indications of activity, realizations more than doubled compared to the comparative quarter. Net realized gains almost doubled. We brought in a ton of cash during the quarter, decent income, and our deployments and commitment activity was certainly consistent with this kind of period. In fact, new commitments went up more than 5x over the comparative period. But because courts and lawyers are often slow in the summer, the third quarter is never what we look to for new business as some sort of bellwether of anything. I’m going to turn to Slide 5, which lets us talk a little bit more about the year-to-date. And I will say, just as we start going through these slides, we’re going to try to do this at a reasonable pace for you because it was our intention on this call to give you a little bit more fulsome of an update when we come to talk about the YPF-Petersen cases.

So we prepared some material for that, including a new slide, and we’re going to spend some time talking through that. So we’re going to — while not giving short shrift to the quarter, I’m going to dwell on some of these points a little bit less than I might ordinarily. So on Slide 5, which is really more about year-to-date. The fundamental message here is that, we’re having a very strong year. We’re seeing real portfolio activity, and Jon’s going to talk in some more detail about that. That’s driving cases forward. It’s creating realizations. You’ll see sort of record cases here, not only are the realizations on a record pace, but net realized gains just through three quarters are already basically hitting a record annual level. In addition to the cash that we brought in during the third quarter, we’ve now brought in, during the course of the year, well over $0.5 billion.

And so, we’re sitting on some meaningful liquidity that Jordan will talk about in a moment. And we continue to be able to write a nice amount of new business in the market, notwithstanding the fact that the team is certainly also occupied by the fairly significant level of portfolio activity that we’ve got going on. So with those sort of opening remarks, let me turn you over to Jordan.

Jordan Licht: Thank you, Chris. Good morning and good afternoon to everyone on the call today. I’m on Page 6. This is just a quick summary of the financials for Burford-only. As we talked about earlier this year, it’s obviously difficult to make comparisons to the prior year periods. 2023, of course, included the positive news regarding summary judgment on the YPF cases that drove a good portion of the 23 years overall results. But let’s start first looking at the quarter and some of the totals. Overall, we had $136 million of net income for the second quarter, resulting in $0.61 per share. Net income was just over 60% of total revenues. On the asset side, we are slightly over $3.6 billion of capital provision assets. Of that, our non-YPF assets represent approximately $2.2 billion in which there’s approximately a 35% fair value uplift to deployed cost.

Tangible book values over — excuse me, book value per share is over $11 now and tangible book value is just shy of $10.5. I’m going to go into more details about revenue, expense and some of the other key metrics now. So why don’t we switch to Page 7? On Page 7, breaking down the various components to capital provision income, a couple of headlines to focus. If you exclude YPF, our net realized and unrealized gains were up 200% quarter-over-quarter and 17% when looking at the year-to-date figures. I also want to highlight the net realized gains in the third quarter, in particular, were close to double the same quarter or same period last year. And as Chris had mentioned, and more importantly, the 9-month figure of $186 million is already in line with previous annual records.

Inside the earnings, market interest rates did reverse course during the third quarter and this impacts the discount rate that we use in valuation. That dropped approximately 90 basis points, which resulted in slightly less than $100 million of positive impact to fair value. As a point of comparison, we had seen rates rising through the first half of the year, which had created a headwind to unrealized fair value gains. The discount rates in general follow market trends and broader market volatility. But as I always say, we focus on the cash resolution of our assets and not the interim fluctuation created by rate volatility. And so, that brings me back to the record results with respect to net realized gains in the year-to-date. I’m going to switch now to Page 8.

So look, this — as Chris mentioned, third quarter sometimes can be slow given the summer, but it was a productive quarter to continue building the portfolio. Burford-only capital provision direct new commitments remain consistent with what we traditionally see in first and third quarters. And as Chris mentioned, it significantly outpaced the third quarter of last year. From a Burford-only balance sheet perspective, the year-to-date figures practically identical on new commitments between 2023 and 2024 around $450 million. Deployments remained in line with our expectations for the quarter in comparing 2023, recall that in Q2 of last year we had a large deal to support a Fortune 50 client. That resulted in a $325 million commitment and $190 million of that was for the Burford-only capital provision direct commitments.

And it also had an immediately large deployment of $127 million by the balance sheet. So overall, Q3 looks good from that perspective and comparative. We expect deployments to continue to be robust, given that we’ve got approximately $700 million of definitive commitments to deploy on the existing portfolio. And so, with that, I will move to Page 9. Looking at Page 9, you’ll see that we have Burford-only capital provision direct realizations of $380 million, representing a 39% increase over the same period last year, which is obviously a great result. The bullet on the side of the slide highlights that this is driven from a diverse set of assets, not just one large item. We had 10 items that were greater than $10 million, five items that were greater than $20 million in realizations.

And realizations is obviously then what turns in the critical component and what turns into creating cash and cash receipts have been consistent if you look at the previous eight quarters at near over $100 million. And, of course, if you look at the most recent quarter, we had a record of $310 million of cash receipts. And if you look overall for the Burford-only capital provision direct, we’re just shy of $0.5 billion coming back to the balance sheet. So bottom line, the portfolio continues to produce a lot of cash. And with that, I will turn it over to Jon for Slide 10.

Jonathan Molot: Before we turn the slide, I just wanted to say thanks Jordan back on Slide 9 and thanks to you all for joining. And, in fact, I just want to give some color, my perspective on the two slides Jordan just spoke to. On the one hand, commitments and deployments and on the other hand, realized gains because that’s the bread and butter of what our team does. And on the commitments and deployments front, I would just observe, as Chris said early, generally the third quarter, 2/3 of it is summer, July and August. Lawyers often take their holidays during that period. It’s slower. They try to get work done in June and deals done in June before going away. But this year, I just felt like the pipelines were robust. The team was busy all the way through the summer into September.

So we weren’t playing that kind of September catch up to make up for slower quarters — I mean, slower months before. And the other thing about it is, it was very active in a broad, diverse way geographically and by types of cases. It’s been years since we were a New York-based U.S. commercial litigation funder that happened to have satellite offices. Like we are a global provider. When I think about how active the EMEA and Asia Pacific groups have been, how active our patent team in the U.S. has been with intellectual property litigation. So that whether it’s run out of Chicago, out of London, it’s Asia or it’s New York, there’s just has been a ton going on consistently throughout the year and that’s really fabulous. And on the realizations point that Jordan just talked to on Slide 9, I’d just say, I’ve been saying on these calls for many years, particularly during COVID when things were slower and we weren’t seeing the realizations that I still saw that the portfolio was strong, there were good things happening.

I was very bullish on it and, of course, that was me because I saw it. You are investors who are supported us couldn’t see that tangible results of that activity. And I’m so thrilled that you’re getting to see it now because it’s just a lot of money coming in. And if we turn to Slide 10. You will see that it is a lot of money coming in, in very good, attractive deals. On Slide 10, you’ve seen this slide before, but I just want to step back and say like we’ve brought in $3 billion on $1.679 billion out, like with an 84% return on invested capital. That’s really something I’m very proud of the team for. And you see the breakdown of why we’re able to do this with those kinds of returns because the resolutions are going to either go to adjudication or settle.

The majority settle. And we have attractive IRRs and returns on invested capital with that. And in the adjudication gains, the gains far outpace the losses we bet right. And so, it just leads to a very attractive diverse portfolio. You see the IRR ticked down to 26%. I wouldn’t read anything into that. We’ve told you, a, that it bounces around and b, we’ve been talking for some time about how COVID slowed down some resolutions. So even though we’re getting lots of cash now, it may be things that took a little longer. And the nice thing is, as we’ve also said, our deals traditionally have some time-based component in the return profile. There’ll be a preferred return with either an IRR, an interest rate or a rising multiple. But there’s also a percentage of net usually.

And so, it’s not surprising there would be some effect on IRR for that period. Though I’m proud that it was not a market one and I wouldn’t read anything into it. We certainly haven’t changed our underwriting approach or seen any change in the quality of things coming into the pipeline. Turning to Slide 11. You’ve seen this slide before, too, but I just observed one thing about it. One, this is sort of another way to demonstrate graphically what the prior slide did about just the return profiles that you have these adjudication wins that are really high end, very impressive returns on invested capital. But really part of the interesting story here is, you look at the losses and I don’t know that people have focused on it before: but one, to have a loss rate that’s below 10% lifetime; and two, when you look at the breakdown of those losses, those dark shaded bars, those are losses of less than $1 million.

Well, what does that mean? It means either it’s kind of like an ante where you put money in and there was a gating issue you knew about at the beginning and a motion dismissed and you lost early for not much, or they went along and there was a fair bit of money in it, something didn’t turn out the way was anticipated. And so, rather than going to trial and taking that risk, the parties decided to settle. And we didn’t get our full investment back, but we didn’t lose our full investment either. So when I just look at this profile, the spread of the big wins, the really solid singles and doubles and limited losses, it just has borne out. So, seeing the big realizations that Jordan talked about and seeing the profile of what those consist of, it’s a really attractive asset class and we’ve got the best team in the business doing it.

And with that, I will hand it over, for Slide 12, to — I’m going to, for a change, have Chris do a little YPF explanation.

Christopher Bogart: Thanks, Jon. Yes, it’s been a little while since we talked at any length about YPF. And so, we thought that it was about time to give a little bit of an update about what we could say. Look, we understand that there’s a lot of shareholder interest in the YPF case. That’s obvious given its size and its significance for the business. And we know that investors find it frustrating not to be able to get chapter and verse from us about our strategies and their progress. Unfortunately, that is simply the reality of conflict litigation. And none of you, no rational investor, would want us to disclose publicly any information that would give Argentina an edge in that ongoing litigation. But what we can do is, provide here a bunch of information that is publicly available if you dig for it.

So nothing I’m about to say is new or not already public, but we’re just making it a bit easier than having you had to pour through court documents and media reports on your own. And we’re also going to bring together some of what we’ve said in the past about what we’re doing here and how it really relates to the end game. There are essentially three buckets of activity going on right now in the case. The first bucket of activity is the appeal. Argentina has an appeal as of right from the trial court’s judgment against it. That appeal is taken to the Second Circuit Court of Appeals, which is the federal appellate court that covers New York and some other states. And in addition to Argentina appealing its loss, the plaintiffs have also appealed the dismissal of YPF from the case.

Those appeals are now fully briefed. In other words, all of the papers for the case have been submitted. The next step is oral argument before a 3-judge panel, and we are waiting for the court to give us an argument date, which we would expect to be later this year or early next year. After oral argument, the court will go away and write its decision. There is no time limit for the release of that decision, but we would expect it later — we would expect it some months after oral argument. It’s worth remembering that this is not a matter of first impression for the Second Circuit. This case has been before the Appeals Court once already when it recognized that Argentina failed to comply with its obligation to make a tender offer for the remainder of YPF’s outstanding shares.

In fact, the Second Circuit actually characterized the minority shareholder protection for a compensated exit as undisputed. So, although the 3-judge panel that will hear this appeal will be different than the prior panel, the new panel is bound by the decisions of the old panel. After the decision is released by — from the Second Circuit, either party may seek leave from the U.S. Supreme Court to take a further appeal. There is no right to such an appeal and leave is granted less than 5% of the time on average and probably even lower numbers than that in commercial cases like this. Appeal really — the Supreme Court really only takes cases when there is a novel legal issue or a disagreement about the law among the various Circuit Courts of Appeal across the United States that doesn’t exist here.

You’ll remember the Supreme Court declined to take this case previously when Argentina sought leave to appeal the Second Circuit’s decision that the U.S. courts had jurisdiction to hear this case. So, again, it’s not a matter of first impression for the Supreme Court. The process of deciding whether to grant leave usually takes several months. If the court did elect to hear the matter, perhaps because of its size, that would add somewhere between 12 and 18 months to the process depending on the time of year the case is heard. So that’s what’s going on with the bucket #1, the appeal bucket. The second bucket of activity is around enforcement and recognition proceedings. Because Argentina didn’t satisfy the conditions for a stay of the judgment, the trial court judgment is enforceable even though it is on appeal.

That allows us to do several things. We are pursuing post-judgment discovery from Argentina, YPF and the third parties in the New York Court, and we have been doing that actively, including engaging in motions to compel information where necessary. We’re also seeking substantive enforcement assistance from the New York Court. For example, we have filed a motion seeking to have Argentina’s shares in YPF turned over to us. We’re also engaged in global efforts. In order to enforce the judgment in other jurisdictions, we need first to have the local courts in those jurisdictions recognize the judgment. In other words, adopt it as though it was their own judgment. We have filed for recognition of the judgment in multiple non-U.S. jurisdictions, and those proceedings are winding their way through the procedural preliminaries in those local courts.

Now, stepping back from the lawyering, it’s important to bear in mind what enforcement is and isn’t and its purpose. The goal of enforcement campaigns is to apply pressure and create friction so that a rational negotiation can occur. It is not in and of itself the goal to wander around the countryside, trying to pick up an asset here and an asset there and sell them at auction to pay off an enormous judgment. The law around enforcing judgments against sovereigns is complex and often unclear, and we will try many gambits that won’t work as a strictly legal matter. That should not concern anyone. However, what is really going on here is that, Argentina is rebuilding its economy and resuming its place on the world stage. And to do that, it needs to rejoin the capital markets and participate in the global economy.

Having a large unsatisfied U.S. court judgment and ongoing enforcement proceedings around the world that also sweep in third parties is sand in the gears for that normalization process. And it should, in our view, ultimately lead to a commercial resolution. Put simply, we are a nagging problem that Argentina needs to solve. I want to take a minute to address specifically a couple of filings by the U.S. Department of Justice in trial court recently, including one last night because this is a somewhat technical legal matter that has not been well reported by the media and has clearly been misunderstood by the market. First, to be clear, the DOJ filings relate only to the turnover motion I mentioned a moment ago and not to the case more broadly.

Indeed, the U.S. government has previously supported the pursuit of this breach of contract matter against Argentina, and it also has not made any filings at all on the appeal and the time to do that has lapsed now. So what is actually going on here? Now, we made a motion some months ago asking the U.S. court to order Argentina to bring its YPF shares into the U.S. so that we could then seize them. So just to think about that and put that in maybe layman’s terms, this is a bit like you not paying your car loan, but the car now being located in a different country. And instead of us sending the repo man to that other country to get the car back, we are asking a court to require you to drive the car back to New York so that the repo man can grab it there.

There’s no question that is a request that is out of the ordinary. We believe that it is supported by existing law, but we also knew that there was a good chance of governments seeing this differently. And in fact, more than a month ago, Bloomberg ran a piece on this, quoting me saying that the U.S. government might well say that we had gone too far in making this motion. The U.S. government is concerned about the precedent this would set when applied to foreign governments, both because it might interfere with diplomatic relations and also, maybe even more importantly, if it were applied globally, it could mean that other courts, foreign courts might try to make orders about U.S. government property. So the Department of Justice has asked the court not to grant this particular order, citing legal doctrines that are in some dispute.

And again, this is narrowly just about this one turnover order. It has nothing to do with anything more broadly in the case. Ultimately, the decision is up to the court, which is free to disregard the DOJ position, but this is a complex legal issue either way, and we will just have to see what happens over the coming months. In any event, this is just one motion in a broad multi-jurisdictional enforcement strategy. And as I said earlier, the purpose of our strategy is more about bringing Argentina to the table than it is about actually seizing and selling off assets. So that’s the state of play on enforcement and recognition. The third bucket of activity relates to diplomatic and political efforts. This is the bucket that we can say the least about as virtually nothing involved in it is public.

It has, however, been publicly reported that Jon met in Buenos Aires with the Office of the Treasury Attorney General, which is in charge of the case for Argentina in December. It has also been publicly reported that Gerry Mato, HSBC’s former Head of Banking for the Americas is working on our behalf. Again, we’re just trying to distill public information for you. Beyond that, we can’t say anything specific, but this is an important part of our approach as we believe ultimately, this judgment will be resolved through negotiation and not formal legal process, and we have a number of very experienced advisers on our team in that regard. So let’s turn to Slide 13, which you have not seen before. Slide 13 is a reminder of the current economics and the accounting for the YPF matter.

The judgment continues to accrue post-judgment interest at a rate of 5.42% compounding annually. That amounts to more than $2 million a day being added to the judgment every day it’s outstanding. So the judgment today stands at around $17 billion, up from the original $16.1 billion, although we’ve made it clear that we don’t expect full payment and instead seek a negotiated outcome that will inevitably include a discount. From whatever is ultimately paid, Burford is entitled to a minority of those ultimate proceeds with the majority going to the Petersen estate, Eton Park, the secondary buyers and lawyers operating on risk. Burford’s entitlement is around 35% of proceeds from the Petersen case and around 73% of proceeds from the Eaton Park case or in the aggregate, around 40% of the total.

Burford obviously fair values its assets, including this one for accounting purposes and the carrying value of this asset today is around $1.5 billion. That is an effort to estimate what a third-party would pay to assume Burford’s position today and bear all of the risks and reap the rewards associated with that position. That number does not include any entitlements other than Burford’s, and it reflects a substantial discount for continuing appellate risk, collection risk and duration. Importantly, it should not be taken as any sort of indication of what the parties would be prepared to accept in a settlement. As to Argentina’s ability and willingness to pay once the appellate process is concluded, we note that since President Milei’s term began in December, Argentina’s economy is experiencing real growth.

Inflation is significantly down and the government has a budget surplus for the first time this decade. Argentina’s country risk Index, the EMBI+ Index, which measures the spread over U.S. treasuries that the country has to pay to finance itself in U.S. dollars as calculated by JPMorgan Chase, dropped under 1,000 points for Argentina for the first time since August 2019. If that trajectory continues, Argentina could certainly theoretically return to the international debt markets. So while this is, of course, a large judgment, the process we follow to turn a judgment into cash is not really size dependent. And this process is unfolding largely as we would have expected or predicted when we obtained the judgment a little bit more than a year ago in September of last year.

The only thing that’s really different at all is that, because Argentina is a sovereign country, courts are generally prepared to give Argentina more time to move through the process if it asks for it, which Argentina repeatedly uses as a delaying tactic. Nevertheless, we are perfectly happy with and unsurprised by the current posture of things. I think we can close this YPF discussion by just adverting to a couple of recent statements from Argentine officials. First, President Milei himself has admitted on Twitter that Argentina committed an illegal expropriation of YPF, those are his words. And recently, referencing our case, among others, posted, and this is a quote: “it’s hard, but we are going to get out of the hole that politicians have sunk us into, and we are going to make Argentina great again.” Also, just a couple of weeks ago, representative of Jose Luis Espert, an economist and former presidential candidate who is reported to be a close ally of President Milei’s stated, it makes me sick when lawsuits come from a useless person like Kicillof in the province of Buenos Aires, who nationalized YPF in 2012, knowingly violating contracts, knowing that this was going to result in a lawsuit that Argentina was going to lose for sure.

Because when you violate a contract in any civilized country, you lose the lawsuit because you violated a contract that you signed. Is that clear? It’s two plus two. You sign a contract, you don’t comply with it, you lose the lawsuit. And finally, the Chief of Cabinet echoed similar words in reference to another lawsuit, again, just a couple of weeks ago, when he said, it is our greatest commitment to work every day to become a serious country for the world again. And becoming a serious country for world again implies ultimately getting to a resolution of your outstanding issues. So that’s where we stand on YPF. We hope that was helpful. We understand and sympathize with the frustration that we hear from investors about their inability to get us to explain more regularly and in more detail the inner workings of what’s going on.

But I’m afraid that we really will just have to live in a world where we can try occasionally to give updates like this to put things in context for you, but it’s very difficult for us to expose the inner workings of our strategies and particularly the ongoing discussions and efforts on the political and diplomatic fronts. And with that, I’ll turn you back to Jordan.

Jordan Licht: Thanks, Chris. And I’ll get through the next couple of slides, and then we can wrap up and turn to questions. Page 14, which is our traditional asset management slide. Look, that continues to perform. As I’ve discussed before, asset management business is predominantly driven by the partnership with the BOF-C, which takes a pro rata share of our balance sheet investments. As a reminder, the asset management business is a cash-on-cash business. So predominantly, we receive cash when our investments are realized. If you look at the payout over the first nine months of the year, we’ve had a cash inflow of $17 million. However, on the income statement for Burford-only, you’ll see positive fair value movements are going to move the recognition of some income for us.

Switching to Page 15. I’m going to discuss the expenses rather than revenues. At $113 million during the nine months ended this September 30, our operating expenses are down 25% versus the same period last year. Of course, we see a lot of variations in the reported operating expenses that are driven by unrealized gains, as well as some of the other accounting items. One of the things that I know I’ve spoken about before on the call is that, we can’t control the impact of our share price and how that then impacts deferred compensation. We economically hedge deferred comp, but that hedge doesn’t actually offset the movement of the share price in our P&L. And so, what you’re seeing here in the salaries and benefits line, it appears to have reduced meaningfully when you’re comparing the nine months of 2024 versus 2023 on the year-to-date periods, where, in actuality, the 2024 period would be slightly larger than 2023, and that would have been around $32 million.

So, again, that’s driven by the deferred compensation that our employees elected. And like I mentioned, we go out and buy those shares and economically hedge it. Other highlights on Page 15 are case-related expenditures that are ineligible for inclusion in our asset base. That’s significantly lower than last year. The annual incentive comp line is discretionary bonuses that’s accrued throughout the year, but finalized in the fourth quarter. And then the last piece is G&A, which is tracking lower than last year. That’s driven by the expense we had predominantly around the restatement in 2023, but it’s slightly offset by the transition of accounting firms in 2024. Overall, though, we see a period-over-period, our cash operating expense levels remain largely consistent with last year.

And then finally, switching to Page 16, our liquidity and leverage page. Chris mentioned this, Jon mentioned it, I mentioned it, obviously, we’ve had a good quarter and a good year with respect to the cash position. We ended the third quarter with $629 million of cash and securities, driven, of course, by the case recoveries, as well as collections on last year’s realizations. Obviously, this is a larger amount than we’ve historically carried. It is appropriate as we prepare to address the 2025 debt maturity. And to that extent, we have been slowly chipping away at that outstanding balance, having purchased just about $35 million below — of that issuance just below face value with another $145 million coming due in the summer of 2025. We’re committed to keeping the latter debt schedule as we outlined at the top of the page.

And if you look overall, our leverage levels at 0.8x are well below any covenants and our stated maximum of 1.25x. I’ll stop there and hand it back over to Chris for Slide 17.

Christopher Bogart: Thanks. So I’ll just close on Slide 17 and before we take your questions, and you’ve all seen this slide before, it’s just a reminder of the overall value proposition that we think exists here, which comes with these 4 points. The first being the value of the portfolio that we’ve assembled. Jon talked at some length and eloquently about that earlier. And even if we did nothing else, that portfolio is going to throw off a lot of cash in the years to come. We twin that with a significant origination platform, market-leading, again, that Jon described as being now a truly global platform that is feeding us business all over the world. An asset management business that supplies a little bit of ongoing leverage, although, as you know, we have been increasingly favoring using our own balance sheet capital instead of relying on what we feel is pretty expensive fund management capital and, obviously, the YPF assets that we’ve talked at significant length about today and which we believe will provide significant value to the business.

So we’re excited about where the business stands. We’re very pleased with how the portfolio is progressing, and we’d be delighted to take your questions.

Q&A Session

Operator: [Operator Instructions] Your first question comes from the line of Mark DeVries from Deutsche Bank. Your line is open.

Mark DeVries: Thanks and I appreciate all the comments on YPF. That was really helpful. I had a couple of follow-ups, though. And Chris, you may have answered this kind of indirectly, but has Argentina indicated that they’re not willing to come to the table until this appeal is fully adjudicated?

Christopher Bogart: So, again, I think we’re constrained in being able to discuss with you any of our discussions or our advisers’ discussions with Argentina. But what I can say, I suppose, as a more general proposition is, when you think about this purely as a logical matter, it’s pretty unlikely from my perspective that while there’s ongoing active litigation about a case that a government is going to find it particularly easy to resolve it. And so, I think the question is about positioning yourself to be in as good a position as possible when you get to the end of that process.

Mark DeVries: Okay. Makes sense. And did you indicate when you would expect the oral arguments to get scheduled?

Christopher Bogart: No, we don’t have a date for oral argument yet. The way this works is, the case gets fully briefed first, and that happened towards the end of August. And so, then it becomes eligible to be assigned for oral argument. And we just simply don’t yet have a date from the court for that. If you’re one of the people who watches the docket closely in this case, you will have noticed that just in the last couple of days, there have been updated filings by the lawyers setting out the dates they are and aren’t available for argument over the next few months. So it’s — you can sort of read into that an expectation that this is something that should happen, if not this year, then in the early part of next year.

Mark DeVries: Okay. That’s helpful. And then just turning to your core business. Could you just talk about kind of the recent environment for deployments and identifying any new opportunities? Any kind of color on the types of new commitments made in the quarter?

Christopher Bogart: Yes. And I think as we do that, it’s important for everybody to bear in mind because I’m going to sort of link your question to a question from Rakesh from Veld Capital that’s been put in on the website. And that question is about cash versus commitments and deployments as well. And I think the thing that’s important to bear in mind is that, and Jordan referred to this earlier, we do a couple of things, right? We do new business where we’re signing up a new case. And that new case may result in a large deployment immediately when we’re monetizing a position, or it may result in deployments over time as the case goes through the litigation process. And so, we do new business that doesn’t necessarily result in immediate deployments, and that’s the $775 million number that Jordan gave you of definitive undrawn commitments.

In other words, these come in a couple of flavors. We might say to you as a client, yes, we’re going to be there for you when you come with your next case. That’s a discretionary commitment because we don’t like the case, we don’t have to finance it. And we have hundreds of millions of dollars of those kinds of deals, which bond law firms and corporate clients to us in long-term relationships. But the more precise version of these are definitive commitments. And that’s when we actually have agreed to fund the case and the case exists and is alive and it’s going through the litigation process. And we are looking at spending real money in that case over the years to come. So that second category, the definitive commitments is now pretty big at $775 million.

So that’s money all or most of which we expect to deploy over the forthcoming years as cases go through the process. The only reason that we wouldn’t deploy that money is, if the case settles before it consumes all of the capital that we’ve committed to it. And so, again, even if we didn’t do any new business, this business would continue to deploy quite a lot of capital over the years to come. And then what we do on top of that is, we layer the new business that we write. So the brand-new case that comes in the door that we do. And that — when we do that, we do that all over the world, and those are more variable because, obviously, we need clients to have cases that they want to finance, and we need them to need capital. And so, those are — we do a substantial amount of that every year in all sorts of different kinds of litigation.

And so, those two things together make up the way that we deploy capital. And to the question about — to Rakesh’s question about cash, it’s also why we need to sit with a fair bit of capital on the — with a fair bit of cash on the balance sheet because those cases are going through the process. And this isn’t like venture capital where the company comes back for the next round and you can say, well, I don’t really feel it right now or my capital is low, so I’m going to put you on ice for six months. No, this is active litigation and the lawyers need to be paid and the experts need to be hired and the court is not about to extend the deadlines of anything because Burford says, “Oh, gee, we’d actually like to delay putting in some more money.” So we need to be in a position to make all of those payments on the cases to which we’ve committed.

And so, that drives the need to hold a fair bit of cash as well.

Operator: Your next question comes from the line of Alexander Bowers from Berenberg. Your line is open.

Alexander Bowers: Just two questions for me. Firstly, just starting with the core business. Commitments kind of tracking year-to-date, not far away from what they did in 2023. Could you just give us a bit of color on the competitive environment and what you’re seeing? And, I guess, in terms of new client wins from your side, how those are going this year? And then the second question, just on the DOJ YPF topic. Do you know why the DOJ decided to wait until the outcome of the U.S. election to [Technical Difficulty]

Operator: Speakers, we just lost connection with the analyst.

Christopher Bogart: I think I got enough of the gist of the question. So let me touch on both of those. And let me actually do them in reverse order because the answer to the second one is very easy. There’s no connection between the U.S. election and the timing of the DOJ’s filing. We made this motion some time ago. It’s gone through the briefing process. The DOJ told the court some time ago that it wanted to think about whether it was going to weigh in on that particular motion. And the court agreed to not decide the motion until the DOJ weighed in as long as it did so by November 6, which is yesterday. So the timing has absolutely nothing to do with the election and the decision about the DOJ position would have been made by career DOJ people.

As we said, there’s nothing particularly new or novel about this position, like DOJ here is acting as an advocate for its client, which is the U.S. government. And the U.S. government, on the one hand, has an interest in the enforceability of its court’s judgments. But on the other hand, the U.S. government does not want a world in which the reverse could be true, where an Argentine court could come along and issue an order that says, “Hey, U.S. government, please bring some of your property into Argentina so that we can take it.” And that’s why, as I said in my sort of longer presentation earlier, that’s why even when we filed the motion, I said to Bloomberg, it’s not at all impossible that the U.S. government will take the view on this that we have gone further than they would like.

That doesn’t settle the question. The court ultimately gets to decide how far to go. And in doing that, the court is going to have to weigh a number of competing factors. There is law out there that says you can do this kind of stuff, but there are also principles out there that say you need to be respectful of the foreign government issues. And so, we’ll just see where that balancing comes out. On the first question about new commitments and so on. I think the one thing to bear in mind is, and we’ve said this before, these numbers bounce around a little bit depending on whether we do or don’t do in a period, a big chunky deal. Last year, we did a big chunky deal in June, a $325 million commitment for a Fortune 50. We haven’t done a comparable deal like that this year.

The largest monetization transaction we’ve done in 2024 is $100 million. So — and that doesn’t represent for us anything that is unsatisfactory. In terms of the actual volume of business that we’re doing, as Jon said, we’re busy. We’re doing at least a comparable amount of business. I think we might actually be doing more business in terms of the sheer number of investments. But in litigation, it’s sort of like the taxi cab rule that applies to English barristers, you take it as it comes. And so, it just depends on what kind of size and nature of cases in the market. In terms of trends right now, unsurprisingly, we’re seeing a decent amount of activity in the antitrust and competition space. There has been quite a lot of government regulatory and investigative action there.

And so, that’s probably been a busier area for us than it has been in the last few years. And intellectual property has also been busy for us as — and we’ve recently seen a fair bit of volume in the arbitration space. So — but it really ebbs and flows just based on what individual clients are up to. And then we have a webcast question that I’ll hand to Jordan. This is Johannes’ question about the YPF gains.

Jordan Licht: Sure. So the question was on the gain with respect to YPF in Q3. Just for clarity, YPF asset is held on our balance sheet the same as all of our other capital provision assets, which means there’s an underlying model associated with it. And those models are impacted, of course, as I mentioned, by discount rate given the discounting and then with respect to duration. And so, you are going to see movement in a period when there was 90 basis points of movement in the discount rate that we saw given market volatility on rates. In the third quarter, you see some of that activity, just like you see the reverse when rates were to rise and the asset would change in value. So, almost similar to bond math, except for here, we are discounting our capital provision assets.

Christopher Bogart: So the next question on the webcast is from Richard Smith, who asks, is there a minimum amount that Burford are expected to make from the Argentina case? And I think the one word answer to that is no. This is litigation and negotiation. So the parameters here are we’ve got a judgment that issue was for $16.1 billion, now worth $17 billion with some more accrued interest in it. And ultimately, our expectation, as we’ve said, is that, there’s going to be a negotiation with Argentina about settling that judgment on some discounted basis. But I don’t think that there’s anything we can say about the — our expectations or what the parties would be prepared to accept in settlement. That’s sort of a core example of what wouldn’t be good to have out in the public domain. And I think we may have exhausted the pool of questions.

Operator: We do have a phone question. We have the line of Alex Bowers back from Berenberg.

Alexander Bowers: Chris, sorry, I think my line got cut off midway through my second question. I’m not sure whether you answered or not, so let me know if this case. But it was more just on the DOJ announcement last night, just the rationale for why they wait until…

Christopher Bogart: I did actually answer your question. So I didn’t know — so you — yes, we did answer that in full, and we’ll circle around with you, Alex, if need be afterwards.

Alexander Bowers: Sure. No problem.

Operator: And we have another phone question from the line of Julian Roberts from Jefferies.

Julian Roberts: Just one quick one for me. Is there anything on the regulatory or legislative front in the either near term, but in the medium term that we should be thinking about that might affect litigation finance more broadly that we — that is foreseeable?

Christopher Bogart: So there — in the U.S. — let’s start with the U.S. market just because — just surely because of its size. So what we’ve said for years is, not surprisingly, there’s a certain lack of enthusiasm for the existence of litigation finance from companies that are regularly litigation defendants because what we’ve done here is, we’ve come and by applying capital into the litigation system, we have altered what used to be a historical advantage that those companies had in dealing with plaintiffs. And, in fact, the very roots of this business and this industry can be traced back to Jon Molot’s early academic work on this where he’s written a number of papers analyzing this issue and the litigation advantages that go along with repeat established litigation players.

And so, because we’ve disrupted that and because nobody likes to be sued, there has always been some degree of pressure around our business in the U.S. That pressure today takes the form really of only a fair bit of fussing about the level of disclosure of the presence of a litigation funder that should be made in an ongoing court proceeding. And we engage with the various regulatory bodies, most notably the committee that oversees the Federal Rules of Civil Procedure, but also with state governments about these issues. And I am not today particularly concerned about the ultimate outcome of those discussions. There’s probably a trend towards similar disclosure. And as long as that disclosure comes in an appropriate way, the way that it has outside the U.S., where we are routinely disclosed, I don’t think that, that’s particularly concerning.

It’s just a question of the sausage making to move in that direction. There’s no other concerning regulatory activity in the United States. In the U.K., as you know, the U.K. Supreme Court a while ago now released a decision called PACCAR, that took a fairly hypertechnical reading of a statute that really has nothing to do with litigation funding and applied it to litigation funding. That is yielding a strained result in the U.K., an unintended result. And both the former government and the current government have indicated that they intend to create a legislative fix for the Supreme Court’s decision. As part of moving towards that legislative fix, the current U.K. government has asked the Civil Justice Council, which is an arm of the Ministry of Justice that basically has jurisdiction here to conduct a review of the litigation funding industry.

And so, that review is going on right now and is expected to go on, I think, for another year or so. I’m not particularly, again, troubled by what’s going to come out of that in part because while we do quite a lot of activity in Europe, including quite a lot of arbitration in and around London, we don’t actually do all that much work in the English courts because the English courts are just not all that active. Just to give you a frame of reference, last year, the commercial court in London, which is the court that we would typically play in, only did about 90 or so judgments during the course of the year. And that’s a very small pool. And so, I’m not particularly concerned by any of the range of outcomes in the U.K. Then in Europe, there is a variety of activity going on.

And maybe since Jon was just in Europe talking to people about this, I might pass the mic to him for the two minutes that we have remaining in the time for this call.

Jonathan Molot: Sure. Just there have been positive developments in the trend we’ve seen insofar as there — it’s increasingly possible for there to be group actions where groups of businesses or consumers have been injured in a similar way by misconduct. And there’s an EU directive that the member states have to pass legislation implementing to facilitate those group actions. That obviously creates great opportunity for litigation finance because those actions need finance. So that’s a positive legislative development that’s been taking place.

Christopher Bogart: So — and that’s sort of where we stand. Sure. Thanks, Julian. And with that, I think we have reached the hour. We hope you found that useful and helpful. And as always, we’re delighted to talk to anybody off-line as well. Thank you all for your time and support, and we look forward to talking to you again in a few months when we can report to you on what the year-end looks like. Thanks, everybody.

Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.