LONDON (Alliance News) - Burford Capital Ltd Tuesday said it has received USD26.0 million back from a corporate debt facility provided to Rurelec PLC that was linked to Rurelec's Bolivian arbitration claim, giving Burford an USD11.0 million net profit on a USD15.0 million investment.
While Burford Capital, which provides capital and risk management for litigation, would usually directly provide capital for legal costs, in this case it opted for the more complex structure after weighing up the value of Rurelec's arbitration claim against Bolivia.
Rurelec didn't need capital to pay its lawyers for pursuing the claim, which was for the expropriation of one of Rurelec's power plants, but it needed funds to continue to grow its business. Rurelec then won its claim, extracted payment from Bolivia, and paid Burford.
The news comes after Rurelec on Monday said it received USD31.5 million in compensation for the nationalisation of its 50.001% stake in Empresa Guaracachi, the largest power producer in Bolivia, in 2010.
Burford Chief Executive Christopher Bogart said that litigation finance is too often thought of in its most basic form, meaning that the range of investment structures that can be used aren't always shown.
"In this case, by recognising and assigning value to a pending arbitration claim, Burford was able to structure an investment which allowed Rurelec to pursue its expansion. This is a good demonstration that the benefits of litigation finance go far beyond that of simply helping to pay legal fees, and in many cases can provide an effective alternative method of financing to help companies achieve their strategic goals," Bogart said in a statement.
Burford said the facility enabled Rurelec to monetise the value of its arbitration claim and use that to obtain a conventional fully recourse loan - under which the borrowing parties guarantee to repay the debt - which meant Rurelect to borrow at a lower interest rate than would have been available in the debt markets. The facility provided by Burford included a full recourse, secured USD15.0 million senior loan at a 12% capitalised interest rate, as well as the right to receive a portion of any arbitration award.
Rurelec was represented by Freshfields Bruckhaus Deringer in the arbitration proceeding and by Skadden, Arps, Slate, Meagher & Flom in the financing transaction. Burford performed its own internal evaluation of the arbitration claim and was represented by Latham & Watkins in the financing transaction.
Burford Capital shares were Tuesday quoted at 125.00 pence, up 1.8%. Rurelec shares were flat at 8.00 pence.