Burford Capital Ltd may seek a credit rating on its bonds and even raise finance by securitizing some of the litigation claims that short-seller Muddy Waters says it may be overstating in financial statements.
Burford’s Chief Executive Officer Christopher Bogart told analysts on a conference call that the company may request a review of its business from a major credit ratings agency, according to people who listened to the call Aug. 14 and asked not to be named discussing its contents.
He did not provide a timeline or forecast of the possible rating for the London-listed firm’s $620 million of bonds, which have fallen about 20% since rumors of Muddy Waters’s interest started circulating last week.
A spokesman for Burford confirmed the company will consider seeking a credit rating and potential securitization.
“As the company’s track record and the litigation finance market continues to grow, credit ratings might become optimal,” the spokesman said. “Ultimately the market could see asset securitization, if an issuer is able to demonstrate sufficiently predictable cash flows.”
Burford’s shares fell more than 40% last week after Muddy Waters published a report arguing that the decade-old company, which provides cash to law firms or plaintiffs in exchange for a cut of potential monetary awards, is overstating projected returns on ongoing litigation. The company’s shares recovered some of their losses late Thursday after it announced a shake-up of its board to address governance concerns.
Commissioning a rating agency to review Burford’s creditworthiness may quell investor angst stemming from the Muddy Waters report. Burford said last week that Carson Block’s research firm had made “false and misleading” claims.
Executives have sought to reassure backers by holding conference calls and purchasing shares with their own money. Securitization -- the process of issuing bonds backed by a pool of assets -- is a long-term goal and would require Burford to make its income more predictable, Bogart said, according to the people on the call.
Some bondholders have already rushed to the exit. GAM Holding AG, the Swiss asset manager that was one of Burford’s biggest institutional creditors, sold its bonds after the Muddy Waters report, according to a GAM spokeswoman. The bonds are also held in individual brokerage accounts in increments as low as 2,000 pounds.
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