Yet Another Value Podcast - Artem Fokin's take on Burford's YPF summary judgement ruling $BUR

Episode Date: April 10, 2023

Artem Fokin, Portfolio Manager at Caro-Kann Capital LLC, returns to the podcast (for the third time) to update his thesis on Burfurd (BUR) on the heels of their big YPF summary judgement ruling against Argentina. For more information about Caro-Kann Capital, please visit: http://caro-kann-capital.com/ Artem's first appearance on BUR: https://youtu.be/qBuH8pyc8Y0 Muddy Waters BUR case: https://www.muddywatersresearch.com/research/bur/mw-is-short/ Artem's response: http://caro-kann-capital.com/pdf/2019_09_09_Burford_Muddy_Waters_Dreams_of_Black_Cat_That_Just_Is_Not_There_by_Caro-Kann_Capital.pdf Chapters: [0:00] Introduction + Episode sponsor: Stream by Alphasense [2:33] Initial thoughts on Burford on the heels of the YPF summary judgement ruling [6:30] How winning this case validates the Burford business [9:03] Why is Burford saying this is such a complete win against Argentina? [16:25] Cont'd on why is Burford saying this is such a complete win against Argentina? [21:26] Understanding the mechanics of the waterfall payments [30:37] Largest risks to Burford now; odds Argentina wins on appeal? [33:39] Clarifying the mechanics of an appeal [36:48] Estimated proceeds the Burford can actually collect [44:59] What kind of cash flow is going to come into the company? [55:13] Burford's asset recovery business [59:04] Argentina's options if they want to stay in the international business community [1:01:28] Capital allocation plans Burford could do [1:06:42] Monetizing stakes [1:17:31] Thoughts on this SEC fair value discussion they're having [1:22:32] Quick update on Burford's business Today's episode is sponsored by: Stream by Alphasense Are traditional expert calls in the investment world becoming obsolete? According to Stream, they are, and you can access primary research easily and efficiently through their platform. With Stream, you'll have the right insights at your fingertips to make the best investment decisions. They offer a vast library of over 26,000 expert transcripts, powered by AI search technology. Plus, they provide competitive rates on expert call services, and you can even have an experienced buy-side analyst conduct the calls for you. But that's not all. Stream also provides the ability to engage with experts 1-on-1 and get your calls transcribed free-of-charge—all for 40% less than you would pay for 20 calls in a traditional expert network model. So, if you're looking to optimize your research process and increase ROI on investment research spend, Stream has the solution for you. Head over to their website at streamrg.com to learn more. Thanks for listening, and we'll catch you next time. For more information: https://www.streamrg.com/

Are traditional expert calls in the investment world becoming obsolete? According to Stream, they are, and you can access primary research easily and efficiently through their platform. With Stream, you'll have the right insights at your fingertips to make the best investment decisions. They offer a vast library of over 26,000 expert transcripts powered by AI search technology. Plus, they provide competitive rates on expert call services, and you can even have an experienced by-side analysts conduct the calls for you. But that's not all. Stream also provides the ability to

engage with experts one-on-one and get your calls transcribed free of charge, all for 40% less than you would pay for 20 calls and a traditional expert network model. So if you're looking to optimize your research process and increase ROI on investment research spend, Stream has the solution for you. Head over to their website at streamrg.com to learn more. Thanks for listening and we'll catch you next time. All right. Hello and welcome to the yet another value podcast. I'm your host, Andrew Walker. If you like this podcast, we mean a lot. If you could rate, subscribe, review it wherever you're watching or listening to it. With me today, I'm excited to have on for, it's the third time now. My friend, Arden, Fogun, Ardham, how's it going?

Hi, Andrew. It's nice to be back for the third time. Hey, I appreciate you coming on. This is, I think a week ago, we did not have plans to do a third podcast yet, but appreciate you coming on a quick notice. Just let me start this podcast, a quick disclaimer. Remind everyone, nothing on this podcast is investing advice. We're going to be talking about a somewhat controversial company. I think a lot of the controversy's been put to bed here, but keep in mind, investing involves risks, neither of us are lawyers, so everyone should keep all that in mind. Anyway, we wanted to return about two years ago now. We did our first podcast together. That was on Burford. You know, I recently reviewed the podcast actually for different reasons than what we're

going to talk about today, but I think a lot of it holds up very, very well. The reason we're talking today is on Friday, kind of, you know, one of those things that completely changes the company, the narrative, the story came through. Burford's giant YPF, P.F. Peterson case, the judge came out with a summary judgment ruling that I believe the quote from Burford was a complete win against Argentina is what they got. If you look at the headline numbers, you know, just in the press release that Burford put out, they said, hey, you know, this could be $8 billion before prejudgment interest, which could number another $8 billion.

So this could be $16 billion on face value to Burford. Now, $16 billion before they're sharing everything, but it's a huge number. Burford is an under $3 billion market cap company. So we were talking about just ginormous numbers. The stock's had a nice run in the past week. I'm rambling or not. I'll pause there. I want to ask you, you know, like, you've been invested in Burford for a long time.

What are your thoughts on Burford on the heels of the YPF summary judgment ruling? And we can talk about all aspects of it. Okay, so let me start this podcast the way I start every podcast when Andrew invites me by giving my disclaimer, which is Caracan Capital C or its affiliates, long Burford shares. I'm long Burford Chairs as well, so I can throw that just like and also maybe long other securities that have that I equivalent to being long Buford shares or Buford in general. So do your own work. This is not investment advice.

So with that behind, let's dive into your question. I think there are several big blocks there. So big block number one is pure YPF win on liability. And I'm happy to talk more what we meet, what we know liability means, what is remaining to be still decided by the court that is here in this case, et cetera, et cetera. And that, as you said correctly, this is potentially a multi-billion dollar. That's block number one. Block number two, this, in my opinion, should be giving a lot of credibility to Burford, Burford business model.

and management team. For several years, many maysaysayers were saying publicly that Peterson and when I say Peterson and YPF, I use them interchangeably. Exactly speaking, it's not correct. YPF is a defendant. Argentina and YPF are defendants. The name of two cases technically. One case is Patterson. This is a bigger case. And a smaller case, which is based pretty much from the same facts is Eaton Park against Argentina and against YPF. So, but I what I call, when I say YPF, I really mean those two cases combined. So I just want listeners to be clear about terminology here.

So many naysayers were saying publicly that either Burford will lose those cases. And again, technically, so Burford would lose them because Burford technically is not a plaintiff. But again, I'm using those terminology very loosely. So be aware. Either Buford will lose those cases. That's number one. Number two, if Buford wins, they will not collect. Number three, if they win, they will win in Pesos.

Yep. Because Pesos, unfortunately, for people Argentina, depreciated substantially since 2012, when the contractual breach was occurred according to the fourth decision. You know, it's currency massive devalued. So even if you win a lot of money, you will get paid in pesos that depreciated, what, 90% since then, 95. I don't have the chart in front of me, but it's a massive depreciation. So sure, you will get nothing.

And most of those things have been so far proven, at least now, and we talk about the appeal risk later, incorrect. And that, I think, should be serving as a boost to Burford credibility. And then before the narrative was, Burford will never get, when this case will never get paid. And I think it's possible that the narrative could change over time to, is it possible that within Burtford portfolio today, there may be another YPF? And I don't know, because we don't, first of all, we don't know their cases, all of them. We know only very, very few, so it's hard to speculate.

Second, they may never have another YP. It's also possible. But it's also possible that they may have. And to make sure, we're talking about here probably like a multi, multi, multi, multi, multi, multi bagger for Burford over those roughly 11 years. Oh, I mean, just to add on, so we're going to talk a lot about the case today. But I think one of the things, look, a lot of people are going to look at the share price and see Burford stock went from seven to 11 or 12 today in the past week on the heels of this news. And I think a lot of people are going to look and say they missed it. And I think the two things I would say is we'll discuss analysis, but I think the market is kind of under appreciating how much Burford's going to get from this.

But the second thing is to add on to what you said, I think this is a clearing event for Burford, not just because it puts, you know, a lot of people didn't want to step in front of a YPF ruling, but they just won this. And to me, that is such validation of the business where, you know, going forward, Burford ring always includes slides that say, hey, you know, our IRA on our investments to date are 30 or 40 percent or something, right? And I think a lot of people were hesitant, and that excludes YPF. I think a lot of people were hesitant to underwrite that. But I think going forward, a lot of people are going to be looking at Burford and saying, hey, not only do you get these great, pretty consistent uncorrelated returns, but as you said, what if there's another YPF hiding in there, right? What if they invested $2 million and, you know, they invested, I think, in total $20 million

and they got $200 million in proceeds from selling pieces of this so far and they're going to get another billion, $2, $5, whatever it is. Like people might start looking to say, what if the next Facebook is in there, right? because that's kind of what they just found here. So I just think this is a clearing event and we're going to see the market going forward giving them kind of more credit for the quality of the business

because I think this proves that. Anyway, again, please continue. I like your analogy very much about Facebook. The way I always, you, the way the analogy that I use historically is this, saying that Burford will never get another YPF, which is totally possible. It's coming to a venture capital firm

here in Silicon Valley and saying, Listen, you will never get another Instagram, another WhatsApp, another Facebook, another, you name one of those successful companies. And to be true, they may not. Or they may. We don't know. Future will tell. One thing that I just wanted to clarify so that we're on the same page.

I believe that Burford IRR, including YPF, is around 30% 300. And excluding YPF, it's about 24. If I remember the most recent presentations correctly. I just wanted to make sure that it's not 3040 on the aggregate of the portfolio. You know, I will trust you. They throw out so many different numbers, and some of them are excluding, some of them are including. It can be kind of tough to remember what's excluding, what's including.

You are probably right, but that's the 30% that's realization so far, if I remember correctly now that I'm thinking about it. So it doesn't include just how good the remaining pieces of the YPFR. But let's talk. So summary judgment ruling comes out. Comes out on Friday. Burford calls it a complete win against Argentina. maybe just talk to the high points of why this is a complete win against Argentina

because I actually know some people who they read it and instantly their thought was oh, Burford kind of lost this one because there wasn't an explicit damages number listed and YPF was dismiss as a claimant and then 20 minutes later they read the whole thing. They're like, oh, no, this is great. But just walk us through. What are the high points? Why is Burford saying this is such a complete win? Okay, so first, I'm sure there will be some people who listen to this podcast who are Burford

junkies, like you and me. So they know a lot about YPF. They know a lot about the legal rules. And I also suspect that some of you listeners may be hearing about YPF for the second time and for the first time. And they may not know some of those things. So let me just explain what summary judgment is. Sounds good? Yep.

If two parties plaintiff and defendant, iron court and face of the judge, and the fact, or at least some of the facts, are not being disputed. Both parties are pretty much agreeing on those facts. In that case, the judge, and in the, sorry, plaintiff and defendant, both of them, can file a motion for summary judgment, saying, dear court, facts are pretty clear. This is a matter of purely interpreting the applicable law. Could you please decide this faster in the summary judgment instead of us going through the first, through the full trial? Yep. And that's what was happening here. Both plaintiff, Peterson and Ethan Park, and defendants, Ypreson, and defendants, YPF, and

Argentina, filed motions for summary judgment saying, honorable judge, the facts are very, very clear, who the police decided in a fairly expedited fashion? Because the case is so complex, expedited fashion here still meant a very long time. Again, it's a complex case. And rules, applicable law here is complex because it involves not only rules of New York, New York law, but also law of Argentina, et cetera, such. So it's a complex endeavor. And the judge issued And also, at that time, the court has an option. After analyzing the documents and testimony and everything, the judge, the court could say,

I grant full summary judgment in favor of a plaintiff. Or you can say, I will grant a full summary judgment in favor of the defendant, who will win by defendant. Or it can be what is called partial summary judgment, where the judge will say, this and this and this is very clear. I'm deciding on those matters. However, there are some things that needs to go into trial, but the scope of the trial is massively reduced.

So in this case, going back to YPM, the decision rendered on Friday, March 31st was the following. Plaintiffs, Ethan Park and Peterson, have won against Argentina. That's done. However, they lost against YPF. So, YPF, according to the summary judgment, is not using legal terminology, is of the hook. And simplifying the issue was the following. Did the YPF have an obligation to enforce Argentina to comply with its own violence? Yep.

It's oversimplifying a little bit. The court said, we don't believe that the corporation, who's biolns, laws were violated and the legal obligation to force the government of Argentina to comply with the bylaws. So, YPF is over the picture. However, Argentina lost on pretty much every account except the exact amount of damages. Yep. And the exact amount of damages boils down to, on the surface, very trivial issue. However, from monetary perspective, it's not very trivial. Yep. And the key point here was the following, once Argentina, the Republic of Argentina, takes control of YPF shares, not control of YPF as a company, but control of the shares. So 50% plus, 51, let's call it for the sake of simplicity.

This is a trigger, according to the bylaws, to tender for the shares. as a result, that date, when 51%, again, I'm simplifying the number here, is taken over, that's a critical date. And the question becomes, when did it happen? And I believe on February 12, sorry, on April 12th, I believe, correct me if I'm wrong on this date. Argentina effectively installed its own management. who started running the company in a different way. And the plaintiffs was saying, this is the day.

However, it may not be the case because there is a difference, or there may be a difference between control of the company and control of the shares. Those two different issues, potentially. But then Argentinian Congress passed the law, which was called public interest law, that expropriated shares owned by Ripsol, which is roughly 51%.

That law was passed by May 7, and I believe it went into effect either May 9 or May 10th, something like this. The dates are definitely within several days of being corrected from memory, yes. So, and that probably can be definitely considered as the date of acquisition of the shares. Importantly, the judge wrote in the summary judgment decision that Argentina made certain admissions in prior testimonies, That means that the latest date, the way I interpret the decision, the latest date when Argentina acquired the shares, control of the shares, is this date when the court, when the law went into effect. So the way I blew it, we have a failing narrow window of a couple of months. It's either April 12th, roughly the number I'm quoting from memory, up to May 9th. So within the time frame, this is probably the date when Argentina took control of the share. So, let me pull scan.

And now, a quick word from our sponsor. Are traditional expert calls in the investment world becoming obsolete? According to Stream, they are. And you can access primary research easily and efficiently through their platform. With Stream, you'll have the right insights at your fingertips to make the best investment decisions. They offer a vast library of over 26,000 expert transcripts powered by AI search technology. Plus, they provide competitive rates on expert call services, and you can even have an

experienced by-side analysts conduct the calls for you. But that's not all. Stream also provides the ability to engage with experts one-on-one and get your calls transcribed free of charge, all for 40% less than you would pay for 20 calls in a traditional expert network model. So if you're looking to optimize your research process and increase ROI on investment research spend, Stream has the solution for you. Head over to their website at streamrg.com to learn more. Thanks for listening and we'll catch you next time. I was just flipping through the summary judgment. Your dates are almost spot on. And then, you know, if I'm just going to cut to the end, the difference is, like,

people can read Burford, YPF's bylaws had a formula. You know, when YPF IPOed, it was not lost on anyone that Argentina had a history of nationalizing companies. YPF's bylaws had a formula that said, hey, Argentina, if you want to nationalize us, here's the formula. You know, it's basically a multiple of net income times the highest trailing price earnings multiple over the prior two years, if I remember correctly. And the question is, if it happened in April, use one number that gets you to, you know, about $10 billion in total damages. If it happened in May, you use another number that gets you to about $5 or $6 billion in total damages. So like, obviously these are a huge swing based on just one month because what happens is

the net income number, I believe, I believe YPF's filings get made in early May that reduce their net income and reduce their trailing multiple. So, you know, just a couple of days can have a massive, massive swing on value here. So that is the, that is one of the, I'll arguments and we might come back to that. But overall, let's just continue talking about the complete win for Burford here. And the judge said on this issue, I cannot make for some of the judgment on the date when it happened. I need more testimony. I need more arguments. I need more steps to be completed before I do that. And without that date, I cannot calculate the number of the amount of damages. And because of that, you won Patterson and Newton Park, but we don't know yet

how much you want. Yep. A couple of other minor issues and it will be probably too much of legalists to talk about this because board for the plaintiffs were also proposing the consequential damages is not a legal theory, but it seems to me that it's probably was just a backup plan if the main plan doesn't go through. It looks like main plan went through just fine. There are a couple of smaller issues, but I don't think they matter at all. So that's why I think it's a very clear win. Also, if you look at the decision, pretty much all arguments

proposed by the council for the defendants were dismissed. Including, so to me it wasn't a surprise because I had to do a lot of legal analysis on the currency conversion issue because some of the very well-respected media globally will publish an article saying like, oh, Burford will get paid in pesos

and will not be very valuable. And they were quoted in a particular legal case that on its surface, if you take it and read it, you would get scared. The problem is that they never mentioned that there is another case and there is, simplistically, what happens is this.

And this is pretty well-established jurisprudence in the United States. It goes probably almost 100 years back by now. Obviously, they were follow-ups, etc. But very simplistically, if there is a decision that involves a currency years back,

the question is, do you convert at that time or do you convert at this time? And importantly here, the obligation to tender for YPF shares was in U.S. dollars because they were trading in the United States of America and in New York Stock Exchange. The legal currency here is U.S. dollars. I'm not commenting right now on Bitcoin and other cryptocurrencies being used right now. But you cannot go to a store in the United States of America and try to buy code using euros. It would be illegal.

So the tender, the medium of the tender must have been U.S. dollars. And then you carry that. So again, we'll be too much legalese, but many people against capital. Just to your credit, I was nervous about the pesos argument. I thought it might even be a way for the judge to kind of split the baby here. You know, I don't think the judge, if she found the rulings of law were against Peterson and Eden Park, I'm sure she would have, but I don't think anybody wants to set the precedent where, hey, companies can nationalize their assets willy-nilly with

that trade on the U.S. stock exchange without any liability. but she could have been like, also, this might bankrupt Argentina. Maybe I do it in pesos to make it less on them. I was a little nervous about them. I specifically remember I reviewed the podcast we did two years ago. You were very firm. No, this is going to be in US dollars. This is coming in US dollars.

And look, that was the ruling. That's what happened here. Yeah. So, yes. So that was very nice to see, definitely. And if you read, if you read the judgment, it feels to me, and to be clear, I've never worked as a US judge. So I've never written a judicial decision.

I never even Clark as a, you know, as a. clerk to a judge. So I'm interpreting this from the outside, not from the inside over. But to me, if you read the decision, it's very clear that pretty much a real legal argument proposed by the defendants failed on its face. When I read it, I felt it's a very, very clean win. There wasn't, like, well, on the one hand, on the other hand, and this is and that, and they're like, oh my, it's going. How should, how the judge will rule? Then you're like, you start seeing the logic, like, yes, this is where it's going. And that's what happens. So very, very clean win. So, so that's good.

That's very, very good win. So, all right. So we've got this clean win. We do still have, we'll come back to damages and we'll come back to interest rate. Maybe we'll talk, but we've got this clean win at this point, right? Yes. We still need to go to actually like pretty much a full trial to establish the damages. The interest rate is up in the air.

I think the judge says, hey, it's probably Argentinian rate of 6% but we need to talk about that. We've got this clean win at this point. Let's talk about, let's go. Actually, let's see that. Let's quickly talk about the, oh, did you want to say something? Let's just first explain a couple of things. Let's first explain, because you mentioned some numbers, like in the billions, right? Many billion dollars. So let's just explain how the mechanics of the waterfall work.

And I can't have anybody who is interested in this topic, go and read press release that Burford issued on Sunday, April 2nd. By the way, Andrew, thanks God, it was not April 1st, when word for this press release, right? Yeah. Yeah, I am with you. You know, it is just so funny. The, the summary judgment comes out March 31st. Burford is very smart to put out the press release April 2nd. Because there is a world where this comes out April 1st and all of us are looking like, is this a joke? Yeah, like, this is the weirdest security fraud joke I've ever, I've ever seen in my life. But I have the press release pulled up over here. You go ahead with the numbers and I'll kind of spot check you if anything is off or anything. So this is what

is important. So at some point, I would think that the court would issue a final decision on damages. And when you see that number, this is not the number which will be going eventually, if collected and we'll talk about that, that's not the number that Burford is entitled to. Yep. So there is a fairly complex, but Burford really simplified it, waterfall of payments, where Burford eventually from Patterson, that's a bigger case, because Petterson, because Petterson owned roughly 25% of the company. Yep. There's roughly 100 million shares,

which roughly probably would be tended some way between, call it, 53 and 88 or something like that. Yep. So you need, I will skip the intermediate steps, but I believe roughly Burford will be getting the entitlement of that number. What, like 35%? It's 35% from Peterson, and then if you want me to skip head from the Eden Park claim,

they get 73%. Exactly. So it's 35%. So when you see at some point, I would think we will, you will see those final numbers. You multiply one number by 35, another one by 73%. This is what Burford entitlement, and the reason why I'm saying, you'll entitlement, because it's not cash yet, cash needs to be collected. I'm sure we'll talk about that.

So that's what Burford will be getting. So, and those numbers, and I will, Andrew, you have Pesceles in front of you, why don't you mention what those numbers collectively convert to Burrfer? Yep. So if the April 16th date is used, which I just consider the higher number date, Peterson would be $7.5 billion and Eden Park would be $900 million. So Burford on those numbers would be entitled to, if I'm doing the math in my head correctly, about $1.1 billion. And then if the May date is used, Peterson's 4.5, Eden Park is $5.50. That's a little over $5 billion in total. And Burford would be entitled to about $650,000.

billion. Oh, I'm sorry. I was deducting for, I was deducting for my, I've got my little chart with the pre, with the haircut. Sorry. On the 5.5 billion, Burford would be entitled to 1.6 billion. On the 8.5 billion, we'd be talking about 2.7, 2.8 billion is what they would be entitled to. Sorry about that, everyone. Yeah, because I felt like the numbers were way too low. Yeah, yeah. I just, I've got my spreadsheet with everything listed and I was just looking at it, but I've got different face and I was deducting for the face. So those are the numbers. Yep. Perfect. So now, everything. everybody most likely is familiar with the concept of time value of money. One dollar. You would think on this podcast, everyone would be at least. Exactly. I would expect that. So everyone would appreciate the fact that if Argentina indeed paid the money to people,

two parties involved, Peterson and YPF in 2012, that would be very, very different than if they pay money tomorrow. the US legal system recognizes the time value of money. And there is this concept called pre-judgment interest, which means this, if Argentina needed to pay $100 to someone in 2012, but they would only do it, for example, in 2020, but the judgment will be rendered in 2023. I'm making this number up July 1st, just to keep things very simple.

In that case, we would need to be talking about prejudgment interest for that period of time. And unfortunately, it's not. compounding. It's simple, but if you take a simple number, a simple interest for 11 years pretty much, it still adds up. And the question is, what rate should be applied? Generally, in the commercial matters in New York, that would be 9%. That's my understanding. However, Argentina made a proposal, made an argument as far as I understand the filings, that there should be a different rate applied, which is used in administrative cases in Argentina.

I don't know the exact number, but I suspect that it's a lot lower. However, Burford, it sounds to me that the plaintiff counter-proposed or counter-argued, and the judge seems to be leaning that way, even though it's not final and not certain, that it should be a rate which is normally used in Argentina in commercial disputes. It would be between 6 and 8%. So the way I think about it, if you take six multiplied by 11 years, that's 66. And if you take 8 and multiply by 11 years, it's almost 80. So which means that you take those numbers that Andrew mentioned,

and you should be adding, if this plays out the way it seems to be going, which is not final. The judge could, the judge very clearly stated that she reserves her mind, her right, to change her opinion and approach here. but right now on the surface, it seems to be that we need to be increasing the amounts that Andrew mentioned by 66 to 88%, which is again several million billion dollars more. On top of that, once the judgment is issued and the damages are finalized, the prejudgment interest stops because guess what? It's called pre-judgment. Now there is a judgment, so it stops.

But there is also post-judgment entries, which obviously has not been distinguished. and it would not be decided in this trial right now, but the concept of post-judgment interest also recognizes time value of money. And the way it works is this. If someone, if a plaintiff obtains a judgment against the defendant and defendant is not paying the money and they will be trying to avoid collections and they will only get pay, will pay in five years from now, again, the plaintiff is hurt. So to compensate the plaintiff, there is a post-judgment interest, which is generally is applicable federal rate is used. And that's lower. And it fluctuates.

So it depends on the way at rate side, et cetera, et cetera. But the good news is that it will not be 608, most likely. It will be probably quite a bit lower. But even 3% a year being accrued, it's still something. And we'll get back to that. But also, it could be probably used as a little bit of a stick in negotiations at the later. And it'll be applied to the total award amount. So, you know, we mentioned roughly, if it's the higher number, it's roughly $8 billion.

pre-judgment interest, roughly $16 billion after you include the prejudgment interest, well, you know, 3% on $16 billion per year, 4% whatever it is, is going to be a pretty hefty number. So it could be pretty hefty. You know, the only thing I will add there is I talk to several people familiar with the case, experts, that type of stuff. And all of them were like 95% yes, this is probably simple interest, but there is a small outside chance. You know, everything's a negotiation. Everything's up for argument. there is a very small outside chance that somebody convinces them that this should be compounded interest, which would obviously add even more.

I'll take that every day of the week and twice on Sunday. Yeah, I would too. I'm just throwing out there, I mean, you are almost certainly correct, but just throwing out there that it is not, you probably don't want to bet your life on it, but you could probably come pretty good. So look, if we're just taking the high in numbers and I'm looking and I've got my spreadsheet properly adjusted, so higher numbers, five billion dollars in damage, or sorry, low in numbers would be $5 billion. That would be about $2 billion to Burford if that fell through. High-end numbers,

$8 billion. That would be about $3.3 billion plus to Burford if it went straight through. You could basically double those numbers to account for the simple interest if you want to start doing it. So, you know, I think one thing people might do is say, oh, Andrew and Arden have just said that there's this case. Oh, but we'll talk proceeds to Burford in a second, but one other thing. There's two risks to Burford here now. The largest risk is going to be collection risk. and we'll talk that in a second. But some people might say, hey, the final ruling isn't here yet. Argentina has a history of appealing.

You know, there is some risk. Argentina wins. This gets this overturned on appeal or something. I personally think that risk is extremely low, but I don't want to put words in your mouth. I ask you, what are the odds Argentina pulls a rabbit out their hat, gets this overturned on appeal? And you and I look very silly in hindsight talking about this big win on the podcast. Okay, so number one, regardless of what happens, we will not look silk for a very simple reason. we recognize that there is a risk of appeal

and we recognize that Argentina has the right to appeal and they very well may exercise the right I expect that they would so there is uncertainty and yes some judgments can be overturned on appeal it happens and by the way there is also a possibility that even if Argentina loses appeal they could go to an

Supreme Court to take the case the chance of that is very likely because generally the Supreme Court takes very important cases that could establish substantial legal precedent for the future, where the case law being established is so important that they need, they feel compelled to take the case. Yep. This case, with no offense to Peterson, Eaton Park, Argentina, YPF and Burford, that's relatively,

it's incredibly complex case for the judge to decide and rule. That's why it took a lot of time. And there was some fascinating issues about sovereign immunity. invoked earlier, but that was decided long time ago. But even that Supreme Court said we're not going to take it. Yep. So I doubt that we'll make it to Supreme Court. But yes, it could probably be, it would probably be appealed. And there is always a chance of losing an appeal. So we need to be very cognizant of that. So a hundred percent agree with everything you're saying, but, you know, I did talk to several lawyers and all of them said, look, Argentina has, it has lost

every decision and case in this case for seven years. Supreme Court rejected their sovereign immunity argument, as you said. No, no, Supreme Court did not reject the argument. They rejected to take the case. Yes, exactly. But they said, look, the judge felt comfortable doing summary judgment here. And in general, you know, you do summary judgment because the law and merits are quite clear.

If the judge felt comfortable doing summary judgment and you appeal, like the law and merits, according to the judge, were quite clear, it's pretty, it's extremely, extremely unlikely that the judge just misinterpreted the law and merits so badly that she's going to get overturned on appeal. So I have lawyers say things like appealing to summer judgment is like throwing good money after bad. Not to say Argentina won't do it. It's a huge case, but they just, everyone I talked to seem extremely unlikely that anything productive for Argentina happened through appeal. I think it's unlikely. I was historically, I was saying that probably winning in summary judgment will be a big win. It's unlikely that it will be

overturned on appeal, but it's possible. So I agree, my analysis is in agreement with what you just described. I agree with you. Also, let's talk about the mechanics of the appeal. Because I think some people are confused about it. So let's clarify the way I understand it. Again, to be player, I'm not a practice and lawyer. So I can be wrong, do your own work. But this is my understanding of how the rules work. So at some point, the court will render a decision on the damages. And then both parties can appeal. Why Peterson and Ethan Park may appeal? Well, remember, they lost against YPF.

They have the right to appeal that part of the decision and say, we disagree. I don't know whether they will do it or not. I'm sure right now, Burford and lawyers are strategizing about those things, but it's a possibility. Then about Argentina. Argentina has the right to appeal.

However, in order to appeal, like one of the important legal consequences of appealing as a judgment of the trial court is that it will stop collection efforts however there is a career in order to stop collection efforts a defendant who lost the case must post a bond I would suspect that not many parties will be willing to post a bond for Argentina because then that bond will be used to pay down if the appeal is lost.

Yep. So if they post a bond, that's actually, in my opinion, terrific news for work. That's actually, I hadn't thought of it that way, but you are 100% correct. That would be, hey, we're getting some percent of base guaranteed for sure. Let's go. Yes.

So then, so let's assume that Argentina does not post a bond. They still have the right to appeal. However, the appeal would not stop. collection efforts. In other words, Burford can immediately start working on enforcing the judgment. Okay. Now, there is a caveat. The court has the right to put a, what it called put a stay on enforcement, even without a bond. It happens incredibly rare. It's a very, very rare situation, but we cannot rule it out as well. So I want to mention them. But that's the mechanics of the appeal.

The time that takes appeal to go through varies. It varies from court to court. So in the US, and if I took the bar exam in 05, it was a lot of time. As you can imagine, Andrew, I was not reviewing the legal tax book recently on varieties of legal issues, only on Burford stuff. But my recollection is that there are nine appellate courts in the US. And New York cases go to the second appellate court.

And right now, according to proof of press release, the timing of appeal is about 18 months. Yep. The number I had in my head was actually a little bit lower, but again, 15, 16 months, but again, that number fluctuates can go up and down or, you know, or sideways. So that's on the appeal. So let's post here. Anything else? Okay, no, that's great.

So I think at this point, we've talked like the head of risk. We started talking a little bit about the appeal, just so, you know, everything you said on the bond and the enforcement, everything, completely consistent with what I was thinking. So let's talk on the low end, Burford, without any interest, if you take the worst state for Burford, they just got a ruling that the gross ruling is $5 billion. The proceeds to them is about $2 billion. On the high end, you take the highest end number, you include the prejudgment interest. This is over $16 billion.

This is all of this is USD, right? over $16 billion. We're talking about over $5 billion of proceeds, or roughly five, a little bit, let me get my math out. Where is it? On the higher end, we're talking about over $6 billion to Burford. Burford is a $2.5 billion market cap company as we're talking today. The question and what the market is trying to assess, we can talk about business

evaluation, everything in a second there, but everyone knows, look, Argentina is not exactly a good credit. a $16 billion judgment would, they do not have $16 billion. So everybody's starting to think about what is the haircut that Burford's going to need to take either because it takes so long and they have to go seize lots of assets and sell them or more likely them in Argentina go to a table and say, Argentina, you've got this $16 billion judgment against you. It's going to accrue.

We don't want to have to start seizing your warships. We don't want to have to seize Argentina Air Force One. Argentina says, hey, we'll pay you a billion dollars, we'll pay you $2 billion, we'll pay you some percentage of face value. People are starting to think, what is that percent that Burford's actually going to collect? Okay, so we'll get there in a second. This is a small proposal that I would make. So you mentioned some numbers in absolute what Burford entitlement could be. Yep. Let's convert them into per share basis because I think it will be for listeners to relate because they could, you know, look up the share price of Burford. Today, I think it's

what, 1150, 1130, 1160? It's moving all the time, but it's somewhere in the mid-high 11s, yes. Okay, so, and based on their math, and I'm here relying on the mass that Burford offered in their press release, and I converted that into the per share basis. Yep. So if it's only damages with the bad, call it bad date, low value date, then it's roughly nine bucks per share. Yep, 100, got my thing here, 100% agree.

And if you take the good date, great date, bull date, let's call it, and you put damages at 8%, then we're talking about $28 in change. Yep, that's about right to me. Yep. So now, before we get there and we'll get into collections, I'm not trying to avoid the question because it's a fascinating topic, there are a couple of other things. It would be reasonable to expect that Burford team would get a bonus. once the money either collected or at some point they will get maybe some intermediate steps,

whatever, because that's a tremendous amount of work and tremendous. As of right now, because there is always an appeal, but as of right now, that's a tremendous step towards shareholder value creation. It's reasonable they expect that there will be some money, substantial amount of money paid to employees, to the management team, as a bonus. We don't know what the number would be. I would speculate, probably between 5% and 10%, maybe 4 to 10. So that will be my guesses.

So I have talked a little bit about this. If you go back to their old annual reports, they disclose the employee incentive fees by vintage. And when the YPF case was kind of made, I believe the vintage employee performance fee, incentive fee, whatever you want to call it, was 4%. So 4% is kind of what I've been nudged to. Maybe it's a little higher because, look, if you want a $16 billion, award and you said this was a grand slam out of the park, I wouldn't be surprised if you were buying an extra watch or two for your employees, that thing. But so far, I've been guided to

4%. That's kind of how I've been thinking about it. Not to say it's right or wrong, just that that's what I've been using. So that's fine. Again, I said 5 to 10, mentioned 4 because I think I also have that number in the back of my mind. So could be 4. It's that range. But remember, you need to account for that. So, and then there is more substantial and interesting question, in my opinion, is will this giant amount of money be taxed? Yep. And portrait. So the worst case, you take, okay, a couple of things.

You need to remember that Burford is an international company. It's incorporated under the laws of Jornsey, if I'm not mistaken. Yep. And based on everything what I know about Burford, they structure things well. Also, another thing to disclose, in my prior life before going into a business school at Stanford. You were in taxes, right?

Yeah. I was an international tax lawyer. So my expectation right now, and remember, here I am sharing educated guesses. Because without being inside the company, ideally in their tax department, I would never know how exactly they do these things. Right. It's impossible. So I can only be guessing here.

So my suspicion right now, the taxes will be next to zero. I know that some people are kind of taxing it at mid-teens rate because Bulford said publicly that over time our rate would go to mid-tins. Maybe they're conservative, maybe not. Time will tell. I believe it's low teens from their 20F and I've been told low-teens. They started at mid-tins. Some time ago they said, oh, it's very low rate right now, but we'll go to mid-teens.

And then I think they dropped it to low-teens, if I'm not mistaken. Okay. So, but I think Peterson, as a case of earlier vintage, we're talking about 2015 vintage. I actually suspect that the taxation would be next to nothing. But again, I don't know. I'm just looking at their history, their commentary, and trying to figure out what's really happening. You know, I think there's a very good chance you're correct. I do think ultimately the haircut that they take actually is going to matter more than kind of the tax rate in the employee's claims.

Obviously, you know, 20% of a... 80% is... But I completely agree with everything you said. And then the other thing, you said, I don't know a lot. These are informed judgments. You know who knows? Absolutely no one. Because this is going to be a $5 billion, $6 billion, $2 billion, whatever it is award.

Herbert's not even going to know until they file their taxes with the U.S. government. And then the U.S. government file their taxes with Guernsey. And then everybody comes after and says, yeah, this is good or not. Like, you don't know because these are huge, huge claims. Like, people are going to take a look at... two billion dollar cash inflow okay so look now i'm really getting into complex things so that's that's risky okay so generally burford structures and also peterson is very unique right and remember peterson estate is in spain right your own separate company is in gerson yep then they have some

subsidiaries either direct or indirect in the u.s and by the way probably plenty of one locations was in the UK, they recently opened Dubai office, they got something going in Asia, et cetera. So it's a complex thing, right? So the situation is this. With either part, look, okay, I think those things will either be classified as interest income

or they will be classified as other income. and the other income oh boy i want to you know what i think i think i'm trying to remember the sector of the code so look but the bottom line is that it's a range we don't know the bull case is that it's zero the bay case it's 21 right yep yep that's how i think about but again we will see so a hundred percent agree let's turn to i think the most personal question you know berford says in their press release, hey, we can either try to enforce and we can talk enforcement strategies. I think Burford's well situated to enforce and know what the cost and likely outcome is. We can try to enforce or we can negotiate an upfront settlement guaranteed money.

But it's either substantial. If we take the upfront and we negotiate a settlement, it's either says substantial or significant, but it says it will be at a substantial discount if we take an upfront payment from Argentina, basically. So, you know, that $8 billion, $5 billion, $10 billion, whatever number it is, everyone's wondering how much do you haircut it for whatever a substantial discount or settlement would be? So how do you think about, you know, if they get, call it $10 billion to make the math really easy? What type of discount are they looking at? What type of cash flow is actually going to come into the company? I think it depends on when, first of all, if that happens, right? But it also depends on when

it happens. For example, if Argentina comes and says, Burford, let's make peace. Let's do a settlement tomorrow, even before the trial court renders a decision on damages. Yep. There's a lot more negotiation room because there is more a lot more uncertainty. What if the judge thinks that it's a bare date, not a bull date, right? That's one. Number two, let's say those negotiations, it's called post-judgment settlement. Let's say it happens after the decision is made on damages.

But before the appeal, there is still. some uncertainty on appeal as in you and I discussed, even if it's low, and here we're talking about billions of dollars, then the discount should be bigger. If it's after appeal, then the discount will be shrinking. Because at that point, I mean, again, assume that Supreme Court says, no, we're not taking this case. Because at that point, there is zero legal obstacles to the entitlement. There is only practical obstacles of collection efforts and enforcement. And those, in my opinion, will bring a lot lower discount. So let's go and say, okay,

only Argentina does nothing to try to settle the case until Supreme Court says, no, we're not taking this case. So what discount will be there? Remember, I don't know, nobody knows. Including Porf right now doesn't know. And Argentina doesn't know. And we don't have a very big sample size of prior cases, because number one, judgment of that nature are rare.

number two, very often their terms will be not disclosed. So it's not like we can go get a full data set and say, hey, this is the median, this is the average, this is two standard deviations to the left or to the right. So I don't know. If I watch your guess, I would say between 35 and 55%. That will be a discount. So call it, the collection would be anywhere between 45 to 65 cents on the dollar. That would be my guess.

And that's if they, that's what you're saying, if they, if Argentina takes it all the way to every appeal is done, Supreme Court's rejected this or, but basically it's up to the step where Burford is just trying to seize airplanes, warships, whatever they can to get paid. That's kind of where you would think the discount comes in at. So that's my guess right now. And this is another case, it's to be clear, when I talk about, for example, the tax rate, I have some experience and some knowledge of the industry and the rule. I don't know the internal facts, obviously, because they don't disclose and then they're filings. However, in this case, when we talk about the settlement, I am a lot more guessing than another matters. For example, when we were discussing foreign currency, I had a very strong new. Here, your guess is as good as mine, right? So, but now, let's talk also about the structure of the settlement, because it also, here's the thing. If Argentina comes and said, listen, we owe you 10 billion, we pay you right now 4.5, and we're done. That's one,

situation. In another situation, Burford, we don't have even $3 billion to give you right now. How about we give you a billion and then we'll be paying you $500 million for the next 10 years, right? That's a different situation. And in dollar amounts,

it will be larger than up front payment. So I was just looking at structuring here. People can go, people can Google. So if you look up international settlements and all this sort of stuff, Like every book will say, hey, there aren't tons of them, but there are, you know, in the dozens of cases and like half of them involve Argentina historically. And when I was prepping for this podcast and doing work on Burford, one of the funniest things is last year, there's very similar to what you just said, a group called the Paris Club met and negotiated a payment plan with Argentina. But what they were negotiating was they were renegotiating the last negotiation they had to renegotiate Argentina's plan because Argentina defaulted the defaulted on the next plan and was getting ready to defecating. fault on this plan. So Argentina and settlers are very familiar with the type of overtime payout,

negotiations, all that type of stuff. Okay, so a couple of important things here. Number one, Paris Club is, I believe, this is a group of major developed countries. Yes, yes. This is not a private organization. This is not a commercial consortium of hedge funds or investment banks. Correct. It's Germany and a few, yeah. Exactly. Germany, U.S., probably some other countries. Again, I don't remember the whole list. So they make decisions together, whether it's consensus or by vote, I don't know. But it's a group decision making where incentives vary.

And also, it's a group of countries. And there is a lot of international politics involved there. And different countries may have different incentives. I'm making this number of situation up. One country in continental Europe may be saying, we want to have good relations with Argentina, we'll try to be more lenient. Another country may be saying, we don't really care about Argentina. Our trade with them is very, very small, but we want better settlements, right? So it's a different situation.

And similar, when a sovereign nation defaults on a sovereign bond that is typically governed by the laws of New York or the laws of England, there is a default. There is a trust, the bond trustee. who will be acting to enforce it. But the trustee typically acts based on the vote of the majority of the bond holders. I'm grossly oversimplifying here the waste sovereign destruction as well. Massively oversimplifying. So don't try to buy bonds of a very sovereign nation based on this 30 second summary. And those investors vote based on the amount of percent of notional amount of the bond they have.

Okay. And different bonds have different bond trustees. Or at least it can be the same entity, but the voting and instructions will be different. And as you can imagine, people or institutions that all those bonds have different incenses. Someone bought them at 100 and rode all the way to, I don't know, 15 or 20, 25, depends on a particular information. Or, and someone can be a hedge fund that bought them at 12 cents on a dollar. And they're like, hey, we'll settle at 27 in a year with a 105 IRR will get paid out $2.20? That's terrific. So it's very, very difficult. And a lot of negotiation happens not only with the better, which is the country, but also within the group. Yep. All of this has virtually nothing to do with enforcing the judgment.

In the situation of a judgment, there is one defendant and there is one plaintiff. And here we have two plaintiffs. There will be two separate judgments, blah, blah, blah, right? So, and then you go and enforce that. You don't need to consult with a trustee. You don't need to get a vote. You don't do that. So to me, all those parallels about boundary structuring are a very bad analogy. There is no better analogy, or almost no better analogy, but it's still a bad analogy because the playing field here is radically different. It's like the same as you try to go to England and you try to use the rules of football here in the US to understand the Chelsea versus Manchester United game at the platform. It's not going to help you. It's different.

They also have the ball and people running, but it's a different game. So he is the same. So I think one of the biggest, one of huge misunderstandings about Burford and YPF has historically been this. I've heard this from a number of people who some of them are very smart, some, you know, not as smart, but many are very, very smart. And they will be saying, Artem, born, sovereign bonds of Argentina are trading at, you know, whatever they would trade. 25 cents on the dollar, yep, yep. Right now 25 at some point, they were probably 50 or 60 or whatever.

Hey, so this whole thing, Peterson should be haircut. I'm like, no, it's totally different. remember Murford has always an option not to settle for anything and make the life of the better hell

when it's a smart strategy financially it's a separate conversation right but they do not need to settle on the same terms that bondholders did they don't have to no it's a great point and I think

to your point one plaintiff one defendant A if Argentina doesn't, doesn't hit, do this settlement, like they're just like kind of spitting their nose at the U.S. courts and particularly the New York, New York Fed Court circuit. Like, that's, the New York Fed circuit might, you know, burpard one plane, one defended. They can just go to New York Fed and say, hey, we've got this judgment outstanding. Argentina refused to pay. Five million dollars just popped up into their bank account. We want to seize it. And the New York Fed says, these guys are giving us the finger. Absolutely. Frozen sees. Like, they can go like that, just seizing assets.

takes as well into the next thing. You know, one thing I think it's easy to forget about, but Burford is, you know, at core, they're a big group of lawyers. They have an asset recovery business. They've historically have, they've never had an asset recovery like this, but these guys actually own an asset recovery business. Like these guys are very well equipped. If they decide, if they do the math and they sit down and say, Argentina is offering us 30 cents on the dollar. We think we can get 35 cents on the dollar by going and seizing things. And obviously, we need to discount that back for uncertainty and time and everything. They're very well equipped to make that decision and go execute that decision. So I just want to pause there and talk about anything

on the Burford asset recovery side that you want to talk about. Okay, so broadly speaking, and this is all simplifying, many people, I think, are doing the wrong analysis here. They're thinking about like, oh, how many assets Argentina has around the world outside of Argentina, which can be taken over. And also, let's explain to you. the listeners. In Washington, D.C., Argentina has an embassy. I got no clue whether they own that building or not or whether they're listening. I don't know.

But let's assume that they own the building. Can you take over the building? The answer is no. Why? Because that building is all by sovereign nation for the purposes of conducting its activities as a sovereign nation. What you can only take over is the assets being used in commercial activities. So oversimplistically,

if Argentina owes a vessel which is used for commercial activities, let's say transport oil, again, I'm making this up completely just to illustrate a point, that can be arrested in a court in any place in the world that would be recognizing judgments

rendered by U.S. courts, which is, by the way, good news, plenty of countries do that. So, and many people, this is why I think many people are wrong, they're doing analysis like, oh, let's say $10 billion judgment, it's a lot of money.

Does the Argentina have enough property that can be taken over around the world? And then they start counting like, oh, one vessel, two planes, these, this, and like, I don't that much money, right? Sure, it's one of the strategy. And if you collect, you know, $10 million dollars there,

$20 million dollar day, over time it's Wudada. However, there is another important, the second important lever and avenue, which is we can do something which may not bring us tremendous monetary benefits, but that would make an alive of a sovereign nation that is a party to active international trade and relations, very challenging. It's like, imagine, Andrew, you have only one bank account. Okay, let's not use you as an example. That's the bad idea. Imagine John, random guy John, has only one bank account, only one, and he has only hundred bucks there. And there is a judgment against John, and that bank account is effectively

taken over. John losing only 100 bucks, which is not a big deal. However, living in the modern world without having a bank account, without using credit cards, which, and then your Venmo is linked to your debit card and your PayPal link to debit card, etc., etc., etc., that's kind of of challenging. Like, your app store payments will not work, et cetera, et cetera. That's, in my opinion, a lot more promising venue of enforcing, where effectively, sure, we only got a little bit of money out of these activities, using our friend John is a hundred bucks only.

But now John has all the incentives to come back to the negotiation table and say, okay, uncle, let's sit down and figure something out. I mean, I think the way it was described to me, and I have no international, was extra, but exactly what you're saying. Like, look, Burford can basically, Argentina has shown an increasing commitment. They want to be part of the international financial system, the international order. If this judgment is outstanding and they're refusing to payment, pay it. Burford can basically, as you're saying, freeze their bank accounts. And if Argentina ever wants to access the international financial system, they're going to have to deal with Burford at some point. They will have to.

It will not disappear, right? Like, it will not disappear. You need to do with that. And also, importantly, and this is an area where I have very little handle on, it also depends on the situation in the internal politics of Argentina, which administration is that, what they are planned, et cetera, et cetera, right? So I think elections in Argentina are coming up not too far from now, and I don't know what happens. Again, I don't follow Argentina and politics. We have enough in the U.S. to follow. So I don't know how that. will play out, but it's also a factor. At this point, if before we were pealing the legal land, what the law, what the facts, what the applicable precedents, etc. Now we're also in

the world after the summary judgment is rendered and after at some point damages and determined and appeal is behind us, et cetera, et cetera, we're also in the practical world. And there are many, many variables and many people that's many stakeholders with varying interests. And now, a quick word from our sponsor. Are traditional expert calls in the investment world becoming obsolete? According to Stream, they are. And you can access primary research easily and efficiently through their platform. With Stream, you'll have the right insights at your fingertips to make the best investment decisions.

They offer a vast library of over 26,000 expert transcripts powered by AI search technology. Plus, they provide competitive rates on expert call services, and you can even have an experienced by-side analysts conduct the calls for you. But that's not all. Stream also provides the ability to engage with experts one-on-one and get your calls transcribed free of charge, all for 40% less than you would pay for 20 calls and a traditional expert network model. So if you're looking to optimize your research process and increase ROI on investment research spend, Stream has the solution for you. Head over to their website at streamrg.com to learn more. Thanks for listening, and we'll catch you next time. So if I just did the math here, so if I take some of the numbers we threw out, right,

about a $10 billion award. I've been using 17.5% discount. A $10 billion award, you said maybe 45 to 65% of the award values what they get. And I've been using 17.5% to cover taxes and the bonus payments to employees. We can adjust that. But if I just threw all of that into my little spreadsheet, you know, at about half of, at about half a face, we'd be talking. about seven, somewhere been to $7 to $8 per share of cash flow coming into Burford. Burfer's an $11 stock right now.

You know, I guess the two questions I'm trying to go to are if they get $7 to $8 per share or $20 per share or $5 per share, what do you think they do with the cash? And then I quickly want to talk about the remaining Burford business before we wrap this up. Look, I don't know because there is no player statements coming from the company about the use of the proceeds. And which makes sense because why they would be talking about using the proceeds. Enough people, enough necasses we discussed, we're saying Peterson is zero, they will never win, they will never get paid in pesos, they will not, never enforce it, etc., etc.

It's very logical for management not to be talking about this is our capital allocation plan once we get many, many billions of dollars, right? Like, it makes sense. Plus, you know, let's not, let's be superstitious a little bit on this issue. Let's not talk about it. It's like, I don't know whether they're superstitious, by the way, but it makes sense to me. So now, let's say, and also remember, if they got three billion up front right away, it's one story. If they got 10 billion, but over 10 years, that's another story, right? So now, there are few things. Burford said publicly that they plan to deprioritize their asset management business, meaning they will not, this way I read it, in short of this,

the management is unlikely to raise more funds for capital, for core litigation finance strategy. This is the one that makes more money. Remember, several years ago, management was saying we are capital constraint. That's why we figure out another way to get more capital without dilute and shareholders is to manage the party funds. And then we allocate and we co-invest, 25% goes from balance, 25% goes from funds and 50% goes from sovereign wealth fund, which they also raised. They have great terms like 0 and 40, if anybody, like, if any hedge fund manager will be jealous of those fees. So then over time, they changed that formula, made it more 50-50,

then they change it again, but there's a formula so everybody's treated fairly and it's set up in advance and everybody sign up. So given that the management is saying, listen, we want to differentiate third-party management business, it means to me that most likely they expect a lot of recoverers, which they said publicly about their model from their co-business. And I also think that if they get paid on YPF and when they get paid on YPF,

some of that cash will just go to their co-business. And given the historical IRR of 24% on the core cases, normalized ROE, I think is 20% plus. That's pretty good. idea to do. Now, remember that unlike a hedge fund that invest in Facebook, and if someone, if there's a $10 billion hedge fund, invest in Facebook and Amazon and tomorrow they get another 10, they can just go buy more Amazon on Facebook. In Burford, in litigation finance management, in litigation finance business, it's different. You cannot just go and say, hey, I like that

case, I want to put 20 more million, 50 more million, right? You need more cases. Some of those cases may on similar or even the same legal theory, but you cannot just pile money. So there are some limits on how much you can deploy. Plus, their co-business, in my opinion, is doing very well. We'll talk about it. So I expect some return of capital to shareholders, either buyback or dividends. If I were to guess, I would guess on dividends. I would not guess on buyback. But that's personal opinion, which is not informed by anything. And the reason why I think it probably will not be a buyback, because once they got stuck to get started to get, in money, it's very possible that the multiple will be very different from what it is today.

I think I agree with everything you just said. I do agree. I think once the money hits the account, I think the share price is different and the multiple is different. The only thing I would add there, I think if you listen to their recent calls and having talked to them a little bit, I think if the stock price stayed here and they got 500 million in cash or something come in, I think they would be very interested in doing buybacks. I think all else equal, they would lean dividends, but I think they, they even said in their recent calls, we think the stock's under value. They've talked about the value thing.

I think if it came to it and they could buy back 300 million of shares at this price, I think they'd love to. But I do think if they're like in this scenario, you're right. In this scenario, what you described, Andrew, I were on the same page. I'm in agreement with them. If you and I were having a conversation, we were like, oh, we think the stock is at 90% of fair value. It'd be great if they would buy back shares.

I think they're going to lean dividends there. It's only if it's massively undervalued. I think they're going to lean buybacks. Before we talk about core business and probably a little bit on the SEC fair value discussion, just when they do, I believe they cannot monetize all of their Eden Park stake if they want to, and they can still monetize 10 or 20 percent of their Peterson stake. Do you think they're going to look to monetize a piece of their stake on the heels of the summary judgment win just to realize value, get some more cash in the door, maybe get a mark on the remaining share?

Okay, so it's possible. Let me just, again, for those who may not be familiar, who are not Burt for Junkies and Burt for Nourts, I think Jorz is better term than junkie. Yeah, I think so. Yeah, you're probably right. You're probably right. So let's clarify. Let's say clarify, I'll just explain the background. So we discussed that Buford has entitlement of less than 100% on Peterson. They have 75% of eating parts. so they can sell bits and pieces and again it's like waterfall in case of peterson it's like 61.5 percent of the gross let's call it so they can bring it down up to down to 50 they cannot take it while in the park they can sell anything and everything and so far they

haven't sold anything and morpher has a history of selling those things and the last time the sale was done was in July 2019 when the Supreme Court rejected but Supreme Court said we're not going to take the case

to hear the case based on sovereign immunity argument. So and then immediately literally I feel like within 48 hours the sale was announced which makes me think that the sale was already prearranged and parties involved were only waiting for the Supreme Court to reject it and then they signed the deal by the money, close the deal,

done, right? So, and that was done at a billion dollar valuation. Yep. And, sorry, it's a billion dollar valuation and, and Burford sold like 10% and got a hundred million. But remember, this is not from the number that you will be seeing in the court decision. It's the number below, which is only Burford entitlement. Yep. So it's a good valuation.

And if anyone's looking at Burford's balance sheet, this is roughly the value that YPF is held on their balance sheet. They have added some legal expensive that have been ongoing, but this is roughly where it's marked on their balance sheet and everything. That June or July 2019 sales date is where it's marked at, just for anybody who's wondering how it's on the balance sheet and everything. Yes. So now.

And subsequently, in Burford for a long time, never disclosed. the mark on Patterson on YPF. And the logic was that, listen, it could break confidentiality rules, it could work at any product rules, so we're not doing that. And then Automotive Waters Report, which was largely based, there were like eight or nine co-points, and one of them involved the accounting and fair value adjustments that are very sizable at a time.

Buford actually released the exact mark on YPF and they showed that their other fire value adjustments are incredibly small. So like not even worse talking about. And the question becomes, okay, Artem didn't, just tell me that they didn't do it because of legal limitations and now they did it. This is how they did it.

They said, listen, we will mark YPF not based on our internal evaluation based on the case progress. We're going to mark it. based on the valuation that was obtained in an arms, length transaction, on a size, on a big amount, 100 million is a lot of money, unrelated parties, blah, blah, blah, let's do. One of the parties I believe was actually, I'm not sure, but I think it was one of the funds they managed,

but I can be mistaken about that. So, but it was enough unrelated people, that's the mark. What it is said, we like it, sign off, done, and that way, Burrford satisfied investors without putting in danger any confidentiality in it. So now Burford And we should probably also talk about the new accounting thing

Burford now will probably be in front of this decision Okay, we need So first of all, the summary judgment was rendered on March 31st. What ends on March 31st at midnight? It means that Burford will need to mark up in my opinion

based on the, I don't know the internal models, but I suspect that summary judgment is a pretty big milestone to change the valuation. And they will need to do it. And by the way, Burford will start reporting quarterly for the first time this year. Yep. So they will need to do it.

And then the question becomes, okay, we mark it up and then all the investors will be coming to us and saying, so where is it marked? And by the way, did you mark other cases as well, only with IPF or what's happening? And in this situation, Burford cannot, in my opinion, cannot tell you where the market

However, if they'd sell small but sufficiently but sizable piece, where they say, listen, we made a sell at, I'm making this numbers up, at $5 billion valuation, that's where we're going to market right now without disclosing anything and any of our views about the future litigation. That's a win. So will they, will they monetize or not? I don't know, but I think there are lot of reasons to do so. Number one, it's accounting, so satisfy investors. In my opinion, that should be a list of an issue, but it could be a reason. More important reason is to show that the market, and I don't talk right now about stock market, I'm talking about sophisticated hedge funds who invest in this type of claims, valued it substantially higher than in 2019, and recognize

the importance of summary judgment. So that's so, and put a mark. So that's another reason. Plus, you get cash and then maybe you pay special dividend or maybe you do share buyback, as Andrew you were saying, if share price stays, you know, at some level that management views has very undervalued. Yeah. No, I think all of that was right.

I just think even if you're wildly, wildly bullish on this, like, you know, if you sell 5% of your remaining claim and take in 100 million, 50, whatever the number is going to be, your market cap's $2.6 billion. And like, I just think getting a little diversity, getting a little diversification, getting a little bit of the cash in the door, obviously don't sell it for a song, but getting that mark, being able to prove that, I think that's pretty important. We've been running really long. Also, Andrew, you're kind of is incorrect.

Burford sold Peterson's steak several times. Yep. The big reason for that was for diversification. Yep. Because Peterson, it's a great problem to have. It's like, imagine you invested in most of the best. when it started up, right? Yep.

Or if you're a private investor, invested in Facebook when it was 10 million valuation, right, and Cid round or whatever it was. So they kept trimming and that makes sense. So I would not be surprised that based on the same rationale, they will do another trim decision. I would not be surprised. And for them, they also were able to use

as early sales to fund their core business, which obviously this claim has done better than their core business, but their core business, you know, 20, 30, 40, 50%, 50% IRS ain't too shab either. We've been running long, but I do quickly want to go through two things. The other big thing that are on people's minds that cause a little bit of a sell-off before the YP—yeah, go ahead.

Okay, there is another thing which I think is fascinating. And I haven't seen anybody writing about it, talking about this. Okay. As we discussed, Woodford only has entitlement to a part of the claim. In both cases, okay? Question, how are the parties going to be collecting their own piece of their work? I think it's highly likely that those parties will come to Burford and say, Burford, you will be collecting for yourself. Can we make a deal that you will help us with collection like party pass? Oh, interesting.

And then we will pay you. So I actually think, as funny as it sounds, Burford will keep making more money. You know, asset recovery here. That's interesting. I don't know. I've never asked, never thought if they, when they sold the stakes, if they agreed to cover that. You're probably right.

Why would you cover that? I don't know, because I think part of it is the people they sold to agree to follow Burford. I'm going to put that on my follow-ups. That's a really interesting question. That would be pretty crazy if they were getting, because asset recovery fees on this would be pretty huge. So look, there are several situations here, and they're different. So let's start with Peterson. The, like, Peterson is state.

Yep. That's one party. And I would be shocked if Burford is obligated to help them with collections. Like, I would be shocked. Then there is a consortial of investors who invested, I assume it's some sort of SPV where Burford owns its percentage, 61.5, I believe, and the rest is owned by outside parties. I would be, it's more possible, but I still will be surprised that Burford is obligated. to pay enforcement.

Even if it's forced to pay, it will be paying, like more likely I think it will be the SPV that will be paying Bufor, big Buford, recovery fees, and effectively 61.5% will be taking money from your left pocket, putting it into the right, but the rest will be income, in my opinion. Again, I haven't seen those agreements.

They're confidential. The Buford never filed them. So I'm purely speculating here. But my point is that I don't think those, the investors who invested will piggyback and get a free ride here. Like, I don't think so. As you say it, I think you're right. I'm sure it's, I'm sure it's agreed that it has to be arm's length and, but I think you're going to be right. Anyway, but we do need to, there's two more. I'm sorry. Oh, Ardum. And I, my understanding, I believe that's that one of the

funds managed by Burford also owns a piece of Peterson. I think that is correct. So they will be an assume, I assume that there will be also an incentive fee on another piece at some point. So, yeah. So long and short, Peterson win is pretty nice. Let's quickly talk. Look, earlier this month, they report earnings. I thought earnings were great. We can very quickly talk core business a second. But the thing that caught everyone's eye is they said, hey, we can't file our financials currently. It is not an SEC investigation. They'll be very, they would be very bad if you caught an SEC investigation. But they're having discussions with the SEC over their fair value reporting of all of these legal claims and assets that they own.

And because of this, they can't file their 20F, their reporting is delayed. They think it's going to be resolved in the near term, but they can't make any promises because you're dealing with the government agency. It's complex accounting. What are your thoughts on this SEC fair value discussion they're having? In my opinion, that's a lot of knowledge. And I think, so number one, given the history of Burfer and how they're reacted when there was a short report published in August 2019. And I went, as you know, Andrew,

I went through point by point and published. All included link to the show notes. We talked about it extensively on the last, absolutely. And published a very lengthy rebuttal why I disagree. Looking back, many of those points played out in a way that short seller did not envision. For example, there was a particular set recovery case against Ahmedov. It's the case called Ahmedov. And the short seller was making an argument that Burford actually going to lose money. As far as I remember, they will not be able to collect, and also they've been countersued by the person from whom they're trying to take assets over, and eventually Burford got paid.

So there are other examples like that. So I think Burford by now, in my eyes, always had, and now continues to have a very high credibility. So if they say this is a normal discussion, I tend to believe them until proven other. Now, I also believe that, unfortunately, this is noise, because even once some methodology which is different is established by the SEC, I still think most people will be looking and ignoring unrealized games until they realize. Because there is a lot of discussions.

I don't think people would be like, oh, my God, SEC blessed this methodology. It must be great. So that's why I know that it's not possible to do under the accounting rules. But if Buford was simply reporting the historical cost and then only reporting when it's realized, I think investors would be a lot more lenient and not obsessed about fair value accounting. That's what I think. I think investors got such a big dose of rightful skepticism about fair value accounting based on days, that that post-traumatic syndrome is still with investors.

A hundred percent agree. And I cannot blame none of us for that. You know, like, a cat that sits on the hot stove once will never sit on the hot stove again, but it will not sit on the cold stove either. So that's a little bit like that. So I think it's a lot of noise. I think it will be resolved. And remember, the language, there were two things happen, right?

So first, one of the analysts in the question asked about, so when the ECC investigation, Buford never said the word in the word. investigation. And that's number one. Number two, Burford, go read, press release on Patterson Wynn published on April 2nd. There will be a half a page, which sounds like the most pessimistic language in the world. There will be appeal. There will be collectionaries. There will be this, there will be that. Supreme Court may take the case. So you read it like, oh my God, that's all horrible. And to be clear, the case, the case. management team that just had the biggest victory in years, right? They did the same in their

press release about update, about Q4 results. Where being lawyers, they put this massive disclaimer saying, we will try our best to five financials, but we cannot guarantee that we will. And if we will not, then it can be in default. And then we have 60 days, I believe, to queue default. And we don't cure the default can make all that due and payable and like, oh my God. The way someone put it to me is they're like, look, normally when you deal with the company, you know, the CEO is always bullish and the CEO always wants to sound optimistic. And it's kind of the general counsel that's pulling them back and being like, hey, here's all this cautionary language. Here's why you shouldn't be, here's why you shouldn't give seven year out projections and stuff. And what you have to remember

about Burford is the CEO here used to be the general counsel of Time Warner Cable. Like this is a man who is a general counsel. He is a lawyer. So when he goes out, he's going to caveat everything. He never wants to get like he never wants to be the most bullish person on the thing. He's talking like a lawyer would. And investors might not quite be used to that in a CEO who's generally kind of going to lean more on the bullish side and not the exception side. Anyway, this has been fantastic. We have run very long. I did want to talk a little bit about the business. I'll let you go. I just want to say, you want to talk about the business. Okay, let's talk about the business. Well, I was going to say the business is doing very well.

We covered the business pretty extensively in our prior podcast. If you want to do a minute on the business, we can, but then I'm really going to have to hop. Okay. So this is the important thing. In the same release where Burkford announced that they are looking into new methodology to value their assets, they shared information about four cases that are in either final and they've been resolved or they're almost there. And they all happened in the first 75 days of 20, 74, 73, 75 days of 23. And those are all substantial wins or almost wins. One was a settlement paid that was paid to the entire group of 90 million. I don't know how much of that goes to Burford.

It's not disclosed. I suspect that it's a new way between 25 and 50%. And then there was a trial. If paid in full, it hasn't been paid in full, but if paid in full, it will be 67 million. Then there was arbitration award. Arbitration award only goes to funds that Burford manages. But Burford would earn an incentive fee, I assume, on that. And then there was another case for 400 million.

That's a pretty nice big case. Again, it was not disclosed how much Buford has. But if I want to guess, I would say 25%. Because that used to be a formula for a long time, 25, $25.50. Then they changed it. But I guess it's an older case. But again, I can't be wrong. I'm explaining my logic here.

You can adjust my assumptions. So if you put those things together and then apply my 25% assumption way appropriate, it means that Burford should be getting cash proceeds of $139 million. Yep. But that proceeds. That's not gains or revenue. Remember, Burford puts only gains as their revenue line item. But here's an interesting thing.

If you take ROIC of 68%, and you try to say, let's assume this case has got resolved with average RIC, which, by the way, is a big assumption. It can be low, it can be higher. We don't know. then it means that Woolford should probably be reporting gains of 82.9

million in the first quarter alone. For comparison, their first half 2021 revenue was 81 million. Second half, 2021 revenue was 52. And first half 2022 was 79.9.

So that's a big number in one quarter. And they also give a lot of leading indicators, such like 30 final trials being scheduled, which is great, like, leading metric. So I think the business is finally accelerating after COVID, because COVID really put on pause many, many, many, many things. And now we're having this acceleration. I think when you and I were talking back in, I think it was November 2021, if I'm not mistaken. I had a long hair. I remember that. So, uh, I think it was July because I was about to go to Spain.

No, I hear, but Artem, unfortunately, I, we've run so far. over. I really have to hop. But this has been fantastic. You know what? Once we get a settlement or something, maybe we'll have to come on and do a third podcast because the Burford business, we didn't give it a lot of play here. But as you were saying, it's accelerating. It's really interesting. I think it kind of covers all of today's share price. And maybe you get YPF for free. But, you know, people can go listen to the first podcast. Artem, this has been great. I'll include your link to the Muddy Waters defense that you published a few years ago in the show notes. Spenderyeryrd wants to refresh on that. And looking forward to having you on again.

Sounds good. Dr. Ziamad. Hi, Andra. A quick disclaimer. Nothing on this podcast should be considered an investment advice. Guests or the host may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.