Burford inappropriately financed, says short-seller Gotham

London

SHORT-SELLER Gotham City Research LLC said Burford Capital Ltd isn't being financed appropriately because of the risks associated with litigation assets, in the wake of a recent report by Muddy Waters.

"We think Burford is inappropriately financed," Gotham founder Daniel Yu said in an emailed statement. "Litigation assets - whose associated cashflows' size and timing are notoriously unpredictable - should not be financed with debt. This poses a real risk of an eventual asset/liability mismatch nightmare."

The company has previously said Muddy Waters' short-seller report published on Aug 7 contained "many factual inaccuracies, simple analytical errors and selective use of information".

Burford's executives spent about two hours on Thursday addressing investors and analysts on a conference call, and responding to questions about the company's cash balance, use of fair value adjustments and the potential for a share buyback, among other things.

Burford shares fell 46 per cent on Wednesday after Muddy Waters, the research firm founded by Carson Block, published a 25-page report saying that Burford overstated the returns it earns on its investments and has questionable financial reporting and governance. The shares rose 41 per cent in the following two days after the litigation-finance company rebutted the report and Burford's executives purchased shares.

Gotham shorted London-listed Burford last year, though the firm doesn't have a short position in the company at the moment, according to the statement. While Mr Yu commended Burford for arranging a conference call in response to the Muddy Waters report, the company could still do more to improve its disclosures and governance, he said. BLOOMBERG