Investing.com -- Moody’s Ratings has raised the corporate family rating (CFR) and the long-term senior unsecured ratings of Burford Capital Limited and its subsidiaries, including Burford Capital Finance LLC, Burford Capital PLC, and Burford Capital Global Finance LLC. The rating agency moved the rating from Ba2 to Ba1 and altered the outlook from positive to stable.
The upgrade is a reflection of Burford’s consistent record of earnings growth and strong profitability. The company’s well-managed liquidity position and robust capital position, considering the broad returns and equity-like risk characteristics of its legal finance investments, also contributed to the upgrade. Burford holds a leading position in legal finance, primarily offering capital to corporations and law firms to cover commercial litigation costs. The company also generates income from fund management and other services.
However, Burford faces credit challenges linked to the unique risk and return profile of its capital provision assets. These challenges include their illiquidity, uncertain valuations, and the irregular timing of its capital deployments and realizations, which lead to higher earnings and cash flow volatility than most specialty finance companies.
In the first quarter of 2025, Burford reported robust consolidated revenues and net earnings of $118.9 million and $36.9 million, respectively. This is a notable increase compared to the $44 million and ($17.5) million reported in the first quarter of 2024. As of March 31, 2025, the company’s consolidated capital provision assets totaled $5.3 billion, a slight increase from the $5.2 billion reported at the end of 2024.
Burford’s capital provision assets produce a wide range of outcomes, with returns on invested capital sometimes exceeding 500%. Since its inception in 2009, Burford has accumulated $3.5 billion of realizations from its deployed capital, representing a strong 83% aggregate return on invested capital and 26% aggregate annualized internal rate of return.
The company effectively manages its liquidity by maintaining strong cash balances, moderate leverage, and avoiding large debt maturity concentrations. As of March 31, 2025, Burford-only cash and marketable securities totaled $548 million, and receivables were $103 million, resulting in a strong liquidity position considering debt maturities of $123 million over the next 12 months.
Despite the strong capital position, the absence of an unsecured revolving credit facility to diversify and bolster the company’s liquidity is a credit challenge. This is especially true given the company’s growth and less predictable cash flows.
The stable outlook for Burford is based on expectations for continued strong performance, moderate leverage, and effective liquidity management. Factors that could lead to a rating upgrade include strong management of volatile investment income, further diversification of funding and liquidity resources, and a continued record of strong earnings and cash flow performance. Conversely, increased risks to earnings and cash flow, materially weaker returns compared to historical performance, reduced liquidity coverage, or materially increased leverage could lead to a downgrade of the ratings.
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