Burford Capital Plc - 5% 2026

Thought I'd start a new discussion now that offer is up and running as I wasn't too sure which of the two recent discussion titles to post on

We (ie self plus wife) have just placed orders for these with Selftrade.

As usual, will modify or cancel as we get a clearer picture of these and read opinions/views of others


Woz

Comments

  • Suspect, as a private attorney practice, issuer is probably in "B" territory if bonds were rated. Third bond issue , and what other form of debt is there? Unless I know, 5 % not a sufficient cushion, so for now not willing to take the plunge.
  • @Fang: debt to equity is about 46%, although it has a large amount of cash (158 million) at the moment, making the net gearing around 19.5% (I think that's right). There is a covenant restricting debt/equity to 50%. Very high dividend cover (6.75) and interest cover (x9) (2016 figures). Data from HL and AJBell(MorningStar).
    It's only 5% for 9 years but what else is there? If this were a mega-multinational, the rate would no doubt be much lower for longer. I'm probably going to go for a small allocation.
  • @Rick24 Take your point but puzzled by need for bond issue at all, in view of high cash position. Their true cost of funds is nearer 6% (allowing for fees) so if they are such a good credit, banks would presumably fund them at much lower terms.
  • Yes, that question did arise for me. Perhaps the terms would be more onerous (security required). They don't have a long track record either, which might put banks off.
    On the subject of financial strength, I remember them mentioning in the previous prospectus,that their income could be lumpy so maybe cash flow could be a problem.
    The progressive reduction in coupon between issues indicates a perception of growing strength.
    Will be interesting to hear what Oliver has to say.
  • Progressive coupon reduction more to do with decline in gilt yields ( gilt prices are back close to pre Brexit highs). Meanwhile plenty of warnings from the U.S. as to absurd risk/return profile of junk bonds.
  • As to risk/return profile of junk bonds ( defined as sub-investment grade, which unrated Burfoot presumably belongs to): The covenant protection for bond holders has gone downhill for some years now, due to the reach for yield giving issuers the stronger hand. Means that in a default scenario, secured lenders will take priority over assets whereas high yield bond holders as unsecured party are disadvantaged. Will not touch bonds such as this one unless I am comfortable with the bond covenants and a very low probability of default.
  • As a footnote: a company will only have a credit rating if it chooses to apply for one. I note in the prospectus that if the company applies for a rating and that rating turns out to be less than investment grade, the coupon will be increased by 1%.
    Totally respect your decision. I'm not optimistic about getting paid back on the basis of an unsecured bond.
  • I have held the 6.5% 2022 bond since issue. I posed myself the question, whether I would rather pick up more of that issue at a current running yield of 5.9% and yield to maturity of 4.5% and hold that for say 2 more years with the prospect of possibly holding on until 2022 if interest rates rise in the meantime and erode the capital excessively or whether I want to participate in this new 5% 2026 issue. I can't really see the benefits of the 2026 issue over the 2022 issue but there are certainly disadvantages given the eventual likelihood of interest rate and inflation rises. In the end I decided that 2026 is so far away as to be comparable to an undated preference share and I have just bought one of those instead paying over 6%.
  • I was waiting for the latest inflation figures for April to see if there's a trend.
    Figures released today: RPI 3.5% CPI 2.7%
    www.ons.gov.uk/economy/inflationandpriceindices
    So 5% over 9 years? Since I already have the last Burford bond, I'll be giving this one a miss.
  • I'm holding off a decision but aware that this will probably close early. A view from Oliver would be helpful.
  • Oliver conspicuously absent this time. Perhaps that tells us something.
  • Early close announced - lunchtime today. There are clearly some people who are keen on this offer.
  • I notice a lot of people are selling the recent Greensleeves issue at the moment. Typically £10k retail investments. There's a large block of money which follows the new issues around, hoping to cash in on the premiums but the margins are getting ever tighter. A contrarian approach might be to shun Burford and buy Greensleeves.
  • Just bought a block of GSHT, I'm sure BUR3 will trade up, but I have enough of BUR2, absent Oliver's write up , decided to sit on my hands, a lot of extra risk for an extra 1%
  • Several postings on twitter this morning suggesting this has closed/or is about to close today - but cant see any confirmation. I put an order in and will decide how long I hold in due course
  • Now RNSd
  • According to Investegate issue raised £175 Million. See Share price has improved this morning presumably as this issue will be seen as big vote of confidence.Presume also that all orders will be allocated in full/close to full. Lets see
  • In my experience bond issues tend to be issued in full and closed early (I cant recall any example in the last 3-4 years where this wasn't the case), unlike a lot of share issues where scaling back seem to regularly get scaled back. So reasonably confident Ill get my full allocation
  • DavROs-yes think you're right almost certainly fulfilled in full. Anyone fancy a good guestimate at opening price levels.? My instinct would say 106-7.
  • Crikey - id be surprised (and delighted!) if it opened at that level. I was assuming/hoping it would open at 101-102 level ie a small premium - but thats a complete guess
  • My guess 103-104
  • I hope i am right too-interestingly nearly all ORB bonds are a tad lower this morning except Burford 2022 are up and just traded at 110.31 and the 2024 issue are unchanged at 108.53. Guess there will be plenty of people switching between each entity so will be a bit volatile for a while. We will soon see but there is no doubt about the enthusiasm for this offering.
  • BUR1 on a bid basis is returning 4.5% ytm, BUR2 4.8% so i would be surprised to see bid prices much above par given the 5% coupon.
  • Just got back home and re-calculated my estimated bid price (mistakenly used running yield before)
    I reckon price will be between 100.5 and 101.5

  • Showing at 100.9 to 101.65. I'll take that as a starting point
  • Thanks for the write-up, Oliver - it's such a unique and valuable aspect of this site. Interesting reading also for those of us holding the previous issues. If the attitude of institutional investors changes towards Burford bonds in general, we could all stand to gain.
  • Thanks Oliver. I rather thought that £175m must indicate strong institutional interest. Your comments make for an interesting read, as ever.

  • Oliver - thanks for another excellent article. I find these incredibly informative; your research is always thorough and digs up information that never seems to appear elsewhere. This, coupled with your ability to explain things in a clear manner, peppered with the odd amusing remark, puts you in a league of your own.

    Over the past few years my wife and I have always held quite a bit of cash in 1-3 year bank deposits (we are retired), but returns on these have dwindled away so much in relation to RPI inflation (the figure that represents a more realistic number for our spending pattern), we are now looking for new homes. I guess that we are not alone, another reason why recent issues sell like hot cakes.

    Perpetuals, like prefs and PIBs are not terribly appealing at present, with the inevitable interest rise on the horizon (although this is still the same distance away as it was a couple fo years ago !)

    I now hold a relatively large amount of Burford Bonds and will keep a close eye on the YTM of each issue as at some time in the future I will probably sell and re-invest in new issues. However, for now, I am relatively happy with these, especially after reading your appraisal of BUR3
  • I only got chance to buy in SIPP as being lazy eventually got around to do some swaps in Isa and discovered it had closed an hour before , self administered kick up the backside followed .
  • Ditto, thank you Oliver for your comments and for finding the time to write your article. Yes big take up and for sure institutions would have been involved/will be involved at such an issue size.
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