Ladies and gentlemen, welcome to today's Burford Capital 2020 interim results conference call. My name is Jordan and I will be coordinating your call today. [Operator Instructions]. And now, I am going to hand over to Chris Bogart, CEO, to begin. Chris, please go ahead.

Thank you very much, Jordan. And hello everybody. Thank you very much for joining us today for this call. As usual, with me are Jon Molot, Burford's Chief Investment Officer and my partner and cofounder and Jim Kilman, our Chief Financial Officer. This is a very exciting day for us. Not only do we get talk to you about some terrific results, but we were also able to announce this morning that we are done with the U.S. listing process. We have, in U.S. securities parlance, gone effective with the U.S. Securities and Exchange Commission as of yesterday afternoon and that lets us have a little period of mechanics now and then our shares will start to trade on the New York Stock Exchange on October 19, in addition, of course, to continuing to trade in London. So that's the end of a long and multi-month process and we are very pleased with the outcome and I will talk a little bit more about it in a moment. But turning to Burford and what we have been able to accomplish, I am looking at slide three. And really, if you look at the vignettes on that slide, the numbers really speak for themselves here. We had a great half year, really sort of the best in our history for investment performance. And before I even turn to some numbers, let's just set in context what has happened here. Burford has obviously been on a growth trajectory for a number of years. But starting in 2016 was when you really saw a big sharp uplift in our ability to upsize the portfolio and develop a large and robust portfolio of litigation assets. And obviously, within that period, since litigation is not the world's fastest process, we just like you have been…

Thanks, Chris and thanks to all of you for taking the time to speak with us. As Chris says, we are really pleased with being able to report these first half results to you. And I will be speaking to slide four to begin with. But I do want to step back and echo something Chris said, which is we are now 11 years in and we have produced on a fairly consistent basis, very attractive, risk adjusted returns, right. Our IRRs have hovered around 30%. We have had returns on invested capital that are quite attractive and we have told people in the past we will tick up or tick down depending upon the duration of matters, right. We end up with higher returns on invested capital when things run long and end up going to trial and either produce big wins or, as Chris says, occasionally losses. And we will have lower returns on invested capital, but still quite attractive ones with attractive IRRs for the matters that settle earlier on. But we have generally produced consistent results from period-to-period such that no one period after 11 years can you say, oh, that was a fluke. We have enough realizations that everybody understood this is the nature of the business. And I think probably the other thing that investors would have recognized is, we have grown significantly over the past several years from 2016, 2017, 2018, 2019, we have put out much more capital. We have grown the team. We did it to meet demand because law firms and corporate clients needed our capital. And the legal services market had previously been ignored by the capital markets. So we saw tremendous opportunity and we added people. But we did it in a very careful way to target the…

Thanks very much, John, I am going to speak to slide seven and eight, but I am going to do that quite quickly because Jon has largely stolen my thunder. But I think the point to be made here and you have seen these slides before and they just are our effort graphically to illustrate to you what Jon and I have both been saying orally that litigation and the way that we construct our litigation portfolio has a rhythm to it and a set of reasonably predictable outcomes. And so if you look at slide seven, what you see there are those three possible outcomes. We make investments. The capital is deployed and the cases go on and they either win or lose or settle. And those are the only three outcomes. Litigation comes to an end. It's not something that is open ended and the process drives it along. And I think what's notable there is that 90% of the time, 90% of the dollars that we are putting out are generating high positive returns, either because they are settling fairly rapidly and generating nice IRRs as a result and nice but lower returns on capital. Or they are going to trial or some other form of adjudication and winning, which obviously takes longer but generates much higher nominal returns. And 10% of the time, we lose. And that's the nature of the business model. And frankly, that is why our returns are high because there aren't very many capital provision businesses out there where every single investment you make a complete loss of all of your capital is just not only possible, but part of the expected outcome of some portion of your book. And so the pricing for our capital is appropriately high to reflect that…

Thanks Chris. So turning to slide 10, although Chris and Jon have talked about how this is a period where significant realizations and realized gains drove our results, it's also worth noting that we did have a modest level of unrealized gains during the half as well. As a reminder, we are required under IFRS to fair value our legal finance assets. For a small number of them, primarily our YPF-related assets, we have historical sales-based values to factor into our fair value. Since there were no significant sales transactions or other case developments on the YPF-related assets during the first half, we have not changed our carrying value for them, which remains at $773 million. As a consequence, none of our unrealized gains during the period were YPF-related. Then for the vast majority of our legal finance assets, as we have talked about, we fair value them based on policy prescribed percentage marks, up or down, based on case progress, pretrial rulings, trial outcomes, appeal wins and the like. To provide some more transparency on these fair value judgments on the portfolio, we have included a new table in Note 13 of our financial statements that provide some data on how these policy prescribed percentages have actually been applied. So I would encourage you to take a look at that. As Jon touched on, during the first half of 2020, we did have positive progress in a number of cases in our capital provision direct portfolio, as you would expect, as our portfolio continues to season and mature. This drove $68 million of unrealized gains during the period. Even with those gains though, our total unrealized gain on the capital provision direct portfolio, setting YPF aside, remains quite modest at only 12% of carrying volume. In our 2019 results…

Thanks Jim. And just to wrap up on slide 13. So as you can tell from that fairly long presentation, we are pretty excited about what has happened so far this year. And we are also pretty excited about the future. We think that Burford is very well-positioned from both a market and a financial perspective, especially considering our cash liquidity and our access to significant fund capital to be able to capitalize on the opportunities that we see ahead. And we are thrilled with where things stand right at the moment. So rather than me rattle alone anymore about our enthusiasm, why don't we pause and take your questions?

[Operator Instructions]. Our first question comes via the webcast from Mike Brooks of Aberdeen Standard Investments asking.

Please, can you provide an update on YPF? What is the potential timetable and scenarios from here and the relevant, if any, from the Argentina debt restructuring?

Thanks Mike. So the YPF cases, both the Peterson and the Eton Park of the cases, are currently pending in the trial court in the Southern District of New York. So that's the Federal Court in Manhattan. And as those of you who have followed these cases know, we have won decisively on the question of jurisdiction for the U.S. courts. That was the important first half of this case and that went all the way to the U.S. Supreme Court. Now having won that, the cases are in, what we would call, sort of a normal litigation posture where they are proceeding through discovery right now. And then after discovery, you will have a period of motion practice followed ultimately by a trial. The court has set a schedule for those cases to move along quite rapidly. And they are moving along as we speak. This is litigation. So there will be doubtlessly be twists and turns along the way. But right now, they are behaving like a normal piece of large dollar contract litigation, which is exactly what this case is. As we have long explained, the litigation judgment or litigation debt is entirely unrelated to the sovereign debt picture, which is a contractual set of agreements between lenders and a country. There is obviously no such contractual agreement in litigation and arbitration. And so the two processes, the two systems operate entirely independently. And so the debt restructuring doesn't have any impact one way or the other on these claims, just as the default prior to the restructuring didn't have any effect and didn't cause us any particular anxiety.

We have another question from Laurence Endersen of Capstrive asking.

Congratulations on your progress. Have you seen any major changes in the competitive environment for litigation finances? Is your leadership position widening?

So it's an interesting question when you look across the market, because certainly there is more capital than there ever has been going into the legal finance market. If you went back some years, much of that capital was coming from small venture capital like players. Some of those players have grown and some of them have struggled and left the market. And you have seen also an attempt to new entry that have been somewhat constrained this year by the pandemic and by liquidity dynamics for their backers. So Burford certainly considers itself to have a very robust market position in the market. And we don't think that has changed. But there's also no question that we will continue to see entry into this market. And from our perspective, that's a very good thing. And we have always taken that position. The reason we think entry is good is because the potential users of litigation finance capital are incredibly diffused. They basically include every law firm and every company that has claims out there in the world. And for it to be a normal and accepted part of your corporate finance practice to make use of this capital, just like in any other area of corporate finance, there needs to be a robust market. If Burford were the only player, a monopolist player in this marketplace, it would not be nearly as large. And so what we have long done is actually welcomed entry. And the most recent example of our industry leadership is that just a month or so ago, we announced the formation of the International Legal Finance Association, the very first trade association for this industry. So we have taken a form of a leadership role. And things like that we think just cement our position in the market, but also normalize the use of this capital broadly in the sector. And we think that's a positive for us.

Our next question comes via the phone lines from Julian Roberts of Jeffries. Julian, the line is yours.

Hi. Thanks very much. A couple from me, it's all right. The first one is, are you able to give us any idea of the credit worthiness of the defendant in the cases behind the newly recognized receivable? And any further expectations around the timing of receipts? I know you have already commented on that. And then the second one, it's obviously to try and help analysts. Is there anything that we can monitor which might give us an idea of the sort of resurgence of litigation funding opportunities for you? Or will we basically just have to wait for the next results? Is there any other indicator we can look at?

So in terms of credit worthiness of the defendant in the related cases, we have been publishing for a little while now that our concentration tables where we talk about the industries that our large cases are involved in and those related cases were involved in the insurance industry. And I think that it's fair to say that we have no concerns about credit worthiness at all in terms of the payers of the judgments there. In terms of timing, this is really just a mechanical question. So we have said that these are a group of related cases. And so what that basically means is that each of the cases is a separate litigation matter pending in its own court. And so what happens after the comprehensive win that we have here is, each court has to deal with its own processes and some of them are faster than others. But there's nothing substantive that stands in between these cases paying and today. So the question is just one of mechanics and it's the speed at which each court process goes through and stamps the various papers and all of the other administrative steps that need to happen. And that's why when we have these receivables after cases resolve that the vast majority of them pay within six months. And indeed, you probably would have seen more of these paid by now if it weren't for the fact that these cases resolved really very late in the first half. So I don't have a precise prediction about timing, but this is not as though there are multiple stages more of litigation to go here. In terms of how to sort of externally monitor the markets, I think unfortunately there really isn't, is the simple fact of the matter. Litigation is a pretty local activity and it's sufficiently diffuse as well in terms of scale. So even if you were to log on to the U.S. court system and watch new filings in a particular court, even that wouldn't help you, particularly because a lot of those filings are going to be in cases that wouldn't be attractive to us as a financing matter. And so you have to really dig in and do a lot of research to figure out, gee, I am seeing now a resurgence in large dollar antitrust cases in the United States, for example, that would be pretty difficult to track on any sort of basis. So, I wish I could help you more with that. But I don't I don't see it, unfortunately.

Thank you anyway. Thanks for the answers.

Our next question comes from James Hamilton of Numis. James, the line is yours.

Thank you. There are two that I would like you to try to help with if you can, please. Firstly, obviously, whilst the pandemic is terrible, my observation is there's an enormous amount of economic disruption. I was just wondering, in terms of quantum, how do you sort of view this versus the disruption that we saw in the global financial crisis? And what I am specifically thinking about in areas is breach of contract where a company A has said, I want X by Y date and for a whole variety of reasons, that hasn't materialized. It would be the first. The sort of second is, if there is a huge volume of litigation finance questions, volumes, would you see the mix out of things like complex strategies where you have a lot of flexibility that you mentioned and therefore over the next few years, the mix of the portfolio might shift? And finally, I don't want to be too greedy. I was just wondering if you could, I appreciate that a huge number of cases settle, but assuming that your cases don't settle and they all went to trial, I am just wondering what sort of proportion of your caseload could deliver what I would describe as an exceptional result, such as the one you have posted today?

So let me start and then I am going to ask Jon also to chime in on this. When you talk about litigation arising from the pandemic, I really think you are talking about two things. They are not just one. One is claims that are actually caused by the pandemic. And James, for example, you referenced breach of contract claims. So certainly, you are going to see lots of litigation that is effectively fault or loss allocation litigation. And I am sure we will see some of that. That's obviously much more widespread than it was in the financial crisis, because everybody has been affected in some way or other by the pandemic, whereas very much fewer, very many fewer people in the global financial crisis actually had a cause of action arising out of something that went awry. But I think Jon will have some further thoughts on that. Before I turn it over to Jon and Jon will also to talk with these other, your other two questions as well. I would just comment briefly on mix and complex strategies and so on. And I think the answer there is two parts. One is, we are obviously very opportunistic. And so if we see a gold rush of opportunities in core litigation finance that we really like, we will obviously allocate capital there in preference to some of the other opportunities that we might see in adjacencies. The other thing going on, though, is the complex strategies business, as we have been practicing it thus far, really relies on not only a robust M&A market, but a robust M&A market with fairly high prices and not so much stress. And so I think that leaving allocation aside, you are likely to see low volumes from us in that strategy for the near term, at least, until we see a return to more robust M&A. I didn't talk about this when I was talking about COVID numbers, but one of the other factors in COVID numbers, of course, for us is, we are also very sensitive to market conditions. So in addition to the legal industry closing down, we were also cautious about both credit worthiness and desirability of matters which caused us to slow our own pipeline somewhat. And that's true in company strategies as well. We are not going to chase an opportunity that we think is potentially unrewarding just for the sake of doing the business. Jon?

Sure. So those are great questions. And to the first one, in terms of mix of litigation and volume and the third and what the return profile would be, I would say sort of following up on Chris' theme that the financial crisis created litigation in two ways. One very specific, right, particularly residential mortgage backed securities that collapsed. There were holders of those that had claims. So if you were an investor in a financial instrument and you were a victim of fraud, you had a claim. And that led to a lot of specific litigation. But there was and I would suppose you would say the comparable category of litigation today would be where there's COVID-related interruption of business or triggering the breach of a contract and there could be litigation over who bears the risk, as Chris says. But then there was a second respect in which the financial crisis led to litigation finance opportunities that I think is the same today as it would have been then and perhaps even broader, as Chris said, because of the greater magnitude of the disruption globally. And that is, people don't tend to sue each other when deals go well. They sue each other when things go badly. If both parties to a contract make money, they are not in litigation. It's only when they don't make money that they are litigating over who has to bear that risk. And when things go badly, not only are there therefore more litigation claims in the aftermath, but companies lack the capital to finance those claims, right. They are busy with whatever their legal budgets are. They are hiring lawyers to deal with corporate matters, defensive matters, regulatory matters. They don't have the budget for the extra litigation. And we have…

Our next question comes via the webcast from Peter Webster of Janus Henderson asking.

Given the likelihood of dispute inflation linked to pandemic disruption, are you looking to raise more external capital to fund growth?

So I think we are in the same position we have been in for years with respect to our capital structure and access to capital, which is that by having a multiplicity of capital sources, we are comfortable that we are never in a position of being forced capital raisers and that instead lets us be opportunistic. So in addition to the balance sheet, which obviously has today a very significant amount of cash on it and also a significant amount of debt capacity, we also, of course, have our private funds business where we have hundreds of millions of dollars of incremental dry powder available to us and quite likely the ability to access more capital there, should we need it. So, it's not something, it's not as though we view it as a binary issue. We just watch market conditions and act appropriately. But as Jim said during his presentation, we have done what we have done without having to raise any external capital at all for the last couple of years. And so we certainly don't feel any compulsion to do that either.

Next question comes from Andrew Shepherd-Barron of Peel Hunt. Andrew, the line is yours.

Okay. Thank you. Two related questions from me, if I may. On the cash, if you look at the narrowest definition of cash received in the first half, it is basically capital provision direct $46 million. Obviously, if you have got some short term receivables relating to that, if all of those come in, in the second half, on that narrowest definition, how much would that then total in terms of cash this year? And second question is that given what you said about the latest proceedings, et cetera, if it takes time to collect cash, is it unlikely, I am sure it's not impossible, but is it unlikely that we would see further significant cash coming in on capital provision direct cases in the second half? Thanks.

So I am going to the turn the first question over to Jim Kilman. As to the second question, I think the simple answer is that we don't know. We don't know in this period and we don't know in any period. We are, in most cases, there's a pretty short advance period where we know or think that there might be cash coming from a case, there might be a case resolving. And it's just extremely difficult to predict because we are in the hands of both of when judges decide and also when corporate litigants choose to settle. The fourth quarter of every calendar year, historically, this is not even in relation to Burford, historically is a period of active litigation settlement because I used to do this in my prior job when I was the General Counsel of Time Warner. You sort of get to the end of the year and you go dicker with the CFO about how much free cash he had and you would make some settlement offers to resolve litigation that otherwise you thought next year we are likely to go and do something and you try to take advantage of getting out early. And I think we simply don't know in the fall of 2020 what that's going to look like for corporate defendants. So I think it's a wholly unpredictable outcome at this moment. But once again, other than the fact that we are a public company and public investors like to see growth and predictability, frankly from the business' perspective, from a purely cash perspective, it's something that we are indifferent to. We tend to make more money when matters take longer. And so while we are happy for things to settle and go off risk and produce cash, we are also perfectly happy for them to stay outstanding and for our return multiples to keep on growing. And indeed, there are moments in the business where we are sort of crossing our fingers and hoping that something doesn't resolve at a particular point in time, because if it doesn't, then it goes on and it trips another multiple increment. So there is a tension between the market's desire for smoothness and predictability and the way to maximize cash earnings in this business. Jim, do you want to take the first one?

Sure. Andrew, as I think I understand your question, if you take the $46 million in cash that we got from the capital provision direct segment in the first half and I think it is fair to assume that virtually all of the receivables relate to our capital provision direct assets, the capital provision indirect realizations tend to turn into cash very quickly. So if you do assume that all $281 million of receivables come in and you kind of add those back to the $46 million, then you would get, I believe, $327 million that effectively is the cash number, if all of the receivables had paid in the current period. You could also, I suppose, take a look at it and say, the net increase in receivables during the period was $262 million, in which case the equivalent number would be $308 million.

Thank you very much.

Our next question comes from Portia Patel of Canaccord. Portia, please go ahead.

Thank you for taking my questions. I have got two please on capital provision indirect. So the first one is, just turning to cash again. So of the $224 million cash receipts you have flagged, capital provision indirect accounted for $170 million of those. But it's P&L contribution in terms of the realized gains relative to cost seems to be just $3 million. So therefore, should we conclude that the return on the $170 million of invested capital for complex strategies is very low single digit? And secondly, given that the portfolio on balance sheet of complex strategies now stands at $46 million, down from $183 in December and clearly, as you have explained, it's been an important source of cash for you in this half and in recent periods, I would just be interested to know what your expectation of cash to come back from these outstanding complex strategies and investments are? And in what timeframe? Thank you

Sure. So in your first question, you are right. We took a conscious decision in light of economic condition during the course of 2020 to push to resolve some of those matters and we were willing to do so at a discount to their usual historical returns in exchange for getting the capital in rapidly. And that resolved in our minds any concerns in the result of their credit worthiness and so on. So that was a conscious decision, but that's correct. As to the remaining assets, when you say it's been an important source of cash for us, I would probably not agree with that, frankly. What it's been is a place where we have been able to deploy cash with a more predictable, more reliable pace of getting that cash back again at moderate returns, returns that are much less significant than our litigation finance returns, but better, frankly, than just keeping the cash in the bank. And so we have always been in complete control about how much cash we want to put into that strategy. And again, as you can see, we have the ability to get the cash back out of it pretty expeditiously, if that's our choice to do so. So at any given time, we are obviously cash rich right now and we are comfortable with the positions in the remaining assets, so it's not something that we feel any need to raise to do. We will just be opportunistic about getting that cash back in from the investments at the appropriate point.

Our next question comes via the webcast from John Dalton asking.

The retail bonds continue to trade at elevated yield levels. Has there been any thought given to bond buyback or refinancing?

So I agree with you. I think the pricing on the bond is nuts and I actually think they are an extraordinarily good deal right now. I also find the pricing on the screen to not necessarily be reflective of the pricing in the market. And I say this from personal experience, because Jon and I actually bought some of the bonds a while ago and we were consistently unable to lay our hands on them for the prices that the screen suggest they trade at. So I think that's a murky world out there. But as we said in our liquidity discussion in the interim report, this is an area where we are prepared to be entirely opportunistic with respect to our debt capital in both directions. So we are prepared to be opportunistic repurchasers, especially in view of the fact that there's a maturity in a couple of years for one of those bond series. And we are also prepared to be opportunistic issuers, again, depending on market conditions.

[Operator Instructions].

And I enjoyed talking so much that I realized that we have gone now for well over an hour. So if there's one more question, I am happy to take it, but otherwise we can certainly call this to a close and burden you further today.

Our final question comes from David Jones. David, your line is open.

Hello. Good afternoon. What I wanted to ask you, please, is at which stage would you think that Burford would sort of move from continually expanding balance sheets and you using all the cash it gets to invest in more cases? And at what point would you consider producing larger distributions for shareholders?

So thanks. That's a great question. And I think our answer to that really boils down to the quality of opportunity that we see. We have built now over the past 11 years the market leading business with a great market presence in an expanding field. And given the effort and cost that have gone into building our position and the fact that as we have demonstrated and Jon has take you through in detail, we are still able to generate very high returns on capital when we deploy it. It seems a little bit foolish not to take advantage of that market position and continue to grow and continue to deploy capital to the extent that we believe we can continue to make attractive returns on them. So the market is still at that stage and I think we still have the mindset of continuing to take advantage of what we have built and continuing to drive returns for shareholders. But we are certainly sensitive to all of the shareholder dynamics in play here.

And with that, I think given that we are almost at a quarter past the hour, I think Jon and Jim and I and the entire rest of the Burford team would like to thank all of you very much not only for participating in this call today and hearing us out, but also for your support over the last year or so, especially given that this has been a more tumultuous period for various reasons in the global economy and more locally, to Burford. And we hope that the combination of these results and our explanation of the business and the U.S. listing that you are about to see coming to fruition provides people with a strong degree of comfort about what this business is and what it's capable of delivering. And we look forward to continuing to speak with you about the business in the months and years ahead. Thank you all very much for participating.

Ladies and gentlemen, this concludes today's call. Thank you for joining us. You may now disconnect your lines.