REG - Burford Capital Ltd - Statement on YPF Summary Judgment Ruling

Burford CapitalAnnouncement

03/04/2023 07:15

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RNS Number : 0455V  Burford Capital Limited  03 April 2023

 

2 April 2023

 

Released out of hours on April 2, 2023, and queued for release via RNS upon
its reopening on April 3, 2023.

 

 

BURFORD CAPITAL STATEMENT ON YPF SUMMARY JUDGMENT RULING

Court finds liability against Argentina with substantial damages expected to
be awarded

 

Burford Capital Limited, the leading global finance and asset management firm
focused on law, today releases the following statement in connection with the
March 31, 2023 Opinion and Order issued by the United States District Court
for the Southern District of New York (the "Court") in connection with the
summary judgment motions filed by the parties (the "Ruling") in the Petersen
and Eton Park cases against the Republic of Argentina and YPF (the "Case" or
the "YPF Litigation").

 

At a high level, the Court decided that (i) Argentina was liable to Petersen
and Eton Park for failing to make a tender offer for their YPF shares in 2012;
(ii) YPF was not liable for failing to enforce its bylaws against Argentina;
(iii) the various arguments Argentina had made to try to reduce its damages
liability from the straightforward application of the formula in the bylaws
were unavailing; and (iv) a hearing is needed to resolve two factual issues to
enable the computation of damages.

 

In other words, the Ruling was a complete win against Argentina with respect
to liability, with the quantum of what we expect to be substantial damages yet
to be determined, and a loss against YPF. However, no additional damages would
have been payable had YPF also been found liable.

 

Jonathan Molot, Burford's Chief Investment Officer who leads Burford's work on
the Case, commented:

 

"We have been pursuing this case since 2015 and it has involved substantial
Burford management time along with the dedicated engagement of a team of some
of the best lawyers on the planet from multiple law firms and world-class
experts (going up against very good lawyers, and winning). Burford is uniquely
positioned to pursue these kinds of cases and secure wins for clients and
substantial returns for shareholders - not only because of their size and
scale, but because of the internal and external resources we can uniquely
bring to bear. There is no aspect of this case, from strategy to minutiae,
that did not involve an experienced Burford team spending many thousands of
hours getting to this point. This case represents what Burford is all about
and exemplifies the contribution we make to the civil justice system - without
us, there would be no justice in this complicated and long-running case for
Petersen and Eton Park."

 

Christopher Bogart, Burford's Chief Executive Officer, commented:

 

"In our recent shareholder letter, we referred to the YPF-related assets as
one of Burford's four pillars of value and I'm pleased to see this significant
step forward and the value it could create for our shareholders. The Ruling is
a major milestone for Burford and we continue to see momentum in our overall
portfolio and continued demand for our capital and services."

 

Introductory matters

 

As is customary in US litigation, the Ruling was released without prior notice
to Burford or the parties by its posting on Pacer, the publicly available
official US federal court site, at 10:09am EDT on March 31, 2023, and was thus
public immediately upon release. The Ruling is also available in its entirety
on Burford's IR website at http://investors.burfordcapital.com
(http://investors.burfordcapital.com) for the convenience of investors who did
not wish to register for a Pacer account.

 

The public release of the Ruling prompted trading activity in Burford's stock
and at 10:59am EDT the New York Stock Exchange ("NYSE") suspended trading in
Burford's shares pending further information. Burford's Nominated Advisor
advised London Stock Exchange AIM ("LSE AIM") of the Ruling and of the NYSE's
trading suspension and LSE AIM ultimately decided to suspend trading in
Burford's shares at 11:27am EDT.

 

NYSE trading fully resumed at 11:54am EDT and it is expected that LSE AIM
trading will resume at market open at 8:00am BST on Monday, April 3, 2023.

 

While Burford offers in this release its views and interpretation of the
Ruling, those are qualified in their entirety by the actual text of the Ruling
and we caution that investors cannot rely on Burford's statements in
preference to the actual Ruling. In the event of any inconsistency between
this release and the text of the actual Ruling, the text of the actual Ruling
will prevail and be dispositive. Burford disclaims, to the fullest extent
permitted by law, any obligation to update its views and interpretation as the
litigation proceeds. Moreover, the Case remains in active litigation; all
litigation carries significant risks of uncertainty and unpredictability until
final resolution, including the risk of total loss. Finally, Burford is and
will continue to be constrained by legal privilege and client confidences in
terms of the scope of its ability to speak publicly about the Case or the
Ruling.

 

Burford also cautions that there are meaningful remaining risks in the Case,
including further proceedings before the Court, appeals, enforcement and
collateral litigation in other jurisdictions. Moreover, litigation matters
often resolve for considerably less than the amount of any judgment rendered
by the courts and to the extent that any settlement or resolution discussions
occur in this Case no public communication about those discussions will be
possible until their conclusion.

 

The Liability Ruling

 

The Court held that (i) the bylaws "on their face, required that the Republic
make a tender offer" for Petersen's and YPF's shares; (ii) "the Republic
failed to make the tender offer"; and (iii) the failure "harmed Plaintiffs
because they never received the compensated exit" that the bylaws promised.
Indeed, the Court held that "once the Court decides the legal issues, the
relatively simple facts in this case will demand a particular outcome" and
held that "there is no question of fact as to whether the Republic breached".

 

Thus, the Court held that "Plaintiffs were damaged by the Republic because
Plaintiffs were entitled to receive a tender offer that would have provided
them with a compensated exit but did not".

 

The Court rejected the many legal arguments advanced by Argentina; we
summarize only a few here that have received particular attention from
investors in the past:

 

·    The Court rejected the argument that because Argentina had taken
years to finally transfer the legal ownership of the shares it expropriated
from Repsol, Petersen and Eton Park lacked standing because they were no
longer shareholders when the expropriation actually occurred formally. The
Court held that Argentina's argument "relies on a misreading of the Bylaws"
and was "meritless". The Court went on to hold that Argentina's assumption of
control (triggering the obligation to make a tender offer) "could not possibly
have occurred any later than May 7, 2012".

 

·    The Court held that Plaintiffs' claims survived the transfer of their
YPF shares, holding that under both New York and Argentine law their "accrued
causes of action did not transfer" with their subsequent sales of their
shares.

 

·    The Court rejected Argentina's argument that only specific
performance was available for breach of the bylaws, and held that Plaintiffs
have "both the right to pursue damages and the right to elect damages as their
remedy instead of specific performance".

 

As a result, the Court granted Plaintiffs' motion for summary judgment on
liability against Argentina. In other words, without the need for a trial,
Argentina has been held to be liable for its breach of contract in failing to
tender for Plaintiffs' YPF shares as required by the bylaws.

 

As to YPF, Petersen and Eton Park argued that YPF had a duty to enforce its
own bylaws and prevent Argentina from taking control of YPF in a manner
inconsistent with the bylaws. The Court disagreed and held that YPF "was not
obligated to enforce" the bylaws against Argentina. Unless reversed on appeal,
the Court's ruling results in the dismissal of YPF from the case. YPF's
presence in the case was not a source of additional damages; the damages will
be the same whether the case is against just Argentina or YPF as well.
However, YPF's dismissal may alter one potential path of enforcement of an
ultimate judgment.

 

Damages

 

The Court set out its ruling on damages at pages 53-63 of the Ruling and we
refer readers to the actual text of the Ruling. The Court reserved two issues
necessary for the calculation of damages for a hearing, but it provided
significant guidance on how it intends to approach those matters.

 

First, the damages to be awarded will consist of the tender offer price under
Formula D of the bylaws calculated in US dollars (rejecting the argument that
damages should be expressed in Argentine pesos) as of a constructive notice
date that is 40 days prior to Argentina taking control and triggering the
tender offer obligation. The Court said it must decide as a factual matter
whether the operative notice date for the calculation is 40 days before April
16, 2012, when the Presidential intervention decree was implemented, or 40
days before May 7, 2012, when the Argentine legislature took follow up action.
 

 

The calculation of damages using a notice date that is 40 days before the
April 16, 2012 takeover was included in Plaintiffs' publicly filed summary
judgment brief and would imply tender offer consideration of approximately
$7.5 billion for Petersen and $900 million for Eton Park, before interest.
There is no publicly-filed evidence performing the same computation for 40
days before May 7, 2012, but public data would imply tender offer
consideration of approximately $4.5 billion for Petersen and $550 million for
Eton Park, before interest, although further expert analysis will be required
to arrive at precise numbers.  Inevitably, there will be differences between
these hypothetical scenarios and the ultimate reality. Moreover, for the
reasons expressed previously, including the likelihood of a substantial
discount if the Case resolves through negotiated resolution, we do not endorse
these as potential outcomes but present them solely for investor information
based on currently available information - and disclaim any obligation to
update them over time.

 

Second, the Court reserved for future determination the prejudgment interest
rate that would run from the date of the breach in 2012 through the issuance
of a final judgment in 2023, which under any rate would result in a very
substantial amount of interest. The Court accepted that "the commercial rate
applied by the Argentine courts is the appropriate measure" and noted that
Plaintiffs had pleaded that that rate was "between 6% and 8%", but "the Court
reserves judgment on the precise rate it will utilize".  The interest rate
ultimately selected by the Court will then be applied from the date of the
breach until the date of the judgment, and thereafter interest will accrue at
the applicable US federal rate until payment.

 

Moreover, the Court did not resolve claims relating to promissory estoppel and
consequential damages and further consideration will need to be given to those
claims.

 

Next steps

 

The Court has asked the parties to confer about how to take the remnant of
this Case forward and report within 14 days. While we do not yet know
Argentina's position, it would be reasonable to expect the parties to agree on
a short evidentiary hearing to enable the Court to hear evidence from some of
the expert witnesses and then proceed to a decision. Nonetheless, between
scheduling a hearing, providing post-hearing briefing and allowing time for a
decision, it is reasonable to expect that process to occupy some number of
months.

 

There is also a process for seeking reconsideration from the District Court of
its own ruling, although such motions rarely prevail as they are being made to
the same judge who decided the matter originally.

 

Once the Court issues its final judgment, that judgment will be appealable as
of right to the Second Circuit Court of Appeals and based on past practice it
would be surprising if Argentina did not appeal. After seeing Argentina's
appeal, Plaintiffs would decide whether to cross-appeal the dismissal of YPF.

 

The Second Circuit presently is taking around a year to resolve appeals once
filed, although there is meaningful deviation from that mean. The District
Court's judgment would be enforceable while the appeal is pending unless
Argentina posts a bond to secure its performance, which we consider unlikely,
or unless a court grants a relatively unusual stay.

 

Following the Second Circuit's decision, either party can seek review from the
Supreme Court of the United States. The Supreme Court accepts cases only on a
discretionary basis and we believe the likelihood of it accepting a commercial
case of this nature that does not present a contested issue of law is quite
low, particularly given that Argentina has already once in this Case
unsuccessfully sought Supreme Court review.

 

With an enforceable judgment in hand, Plaintiffs will either need to negotiate
a resolution of the matter with Argentina, which would certainly result in
what would likely be a substantial discount to the judgment amount in exchange
for agreed payment, or engage in an enforcement campaign against Argentina
which would likely be of extended duration relying on Burford's and its
advisors' judgment enforcement expertise. Burford will not provide publicly
any information about its enforcement or settlement strategies.

 

Burford's position

 

Burford has different economic arrangements in each of the Petersen and Eton
Park (collectively, "Plaintiffs") cases.

 

At bottom, on a net basis, we expect that the Burford balance sheet will be
entitled to around 35% of any proceeds generated in the Petersen case and
around 73% of any proceeds generated in the Eton Park case.

 

In the Petersen case, Burford is entitled by virtue of a financing agreement
entered into with the Spanish insolvency receiver of the Petersen bankruptcy
estate to 70% of any recovery obtained in the Petersen case. That 70%
entitlement is not affected by Burford's spending on the cases, which is for
Burford's account; it is a simple division of any proceeds. From that 70%,
certain entitlements to the law firms involved in the case and other case
expenses will need to be paid, reducing that number to around 58%.

 

Burford has, however, sold 38.75% of its entitlement in the Petersen case to
third party investors, reducing Burford's net share of proceeds to around 35%
(58% x 61.25%).

 

In the Eton Park case, there is both a funding agreement and a monetization
transaction. The net combined impact of those transactions is that Burford
would expect to receive around 73% of any proceeds. Burford has not sold any
of its Eton Park entitlement.

 

In both Petersen and Eton Park, the numbers above are approximations and will
vary somewhat depending on the ultimate level of case costs by the end of the
Case, as we expect continued significant spending on the Case.

 

 

For further information, please contact:

 

 Burford Capital Limited
 For investor and analyst inquiries:
 Robert Bailhache, Head of Investor Relations, EMEA and Asia - email  +44 (0)20 3530 2023
 (mailto:rbailhache@burfordcapital.com)
 Jim Ballan, Head of Investor Relations, Americas - email             +1 (646) 793 9176
 (mailto:JBallan@burfordcapital.com)
 For press inquiries:
 David Helfenbein, Vice President, Public Relations - email           +1 (212) 235 6824
 (mailto:dhelfenbein@burfordcapital.com)

 Numis Securities Limited - NOMAD and Joint Broker                    +44 (0)20 7260 1000
 Giles Rolls
 Charlie Farquhar

 Jefferies International Limited - Joint Broker                       +44 (0)20 7029 8000
 Graham Davidson
 Tony White

 Berenberg - Joint Broker                                             +44 (0)20 3207 7800
 Toby Flaux
 James Thompson
 Arnav Kapoor

 

 

About Burford Capital

Burford Capital is the leading global finance and asset management firm
focused on law. Its businesses include litigation finance
(https://www.burfordcapital.com/) and risk management, asset recovery and a
wide range of legal finance and advisory activities. Burford is publicly
traded on the New York Stock Exchange (NYSE: BUR) and the London Stock
Exchange (LSE: BUR), and it works with companies and law firms around the
world from its offices in New York, London, Chicago, Washington, DC,
Singapore, Dubai, Sydney and Hong Kong.

 

For more information, please visit www.burfordcapital.com
(http://www.burfordcapital.com) .

 

 

This announcement does not constitute an offer to sell or the solicitation of
an offer to buy any ordinary shares or other securities of Burford.

 

This announcement does not constitute an offer of any Burford private fund.
Burford Capital Investment Management LLC, which acts as the fund manager of
all Burford private funds, is registered as an investment adviser with the US
Securities and Exchange Commission. The information provided in this
announcement is for informational purposes only. Past performance is not
indicative of future results. The information contained in this announcement
is not, and should not be construed as, an offer to sell or the solicitation
of an offer to buy any securities (including, without limitation, interests or
shares in any of Burford private funds). Any such offer or solicitation may be
made only by means of a final confidential private placement memorandum and
other offering documents.

 

 

Forward-looking statements

This announcement contains "forward-looking statements" within the meaning of
Section 21E of the US Securities Exchange Act of 1934, as amended, regarding
assumptions, expectations, projections, intentions and beliefs about future
events. These statements are intended as "forward-looking statements". In some
cases, predictive, future-tense or forward-looking words such as "aim",
"anticipate", "believe", "continue", "could", "estimate", "expect",
"forecast", "guidance", "intend", "may", "plan", "potential", "predict",
"projected", "should" or "will" or the negative of such terms or other
comparable terminology are intended to identify forward-looking statements,
but are not the exclusive means of identifying such statements. In addition,
Burford and its representatives may from time to time make other oral or
written statements which are forward-looking statements, including in its
periodic reports that Burford files with, or furnishes to, the US Securities
and Exchange Commission, other information sent to Burford's security holders
and other written materials. By their nature, forward-looking statements
involve known and unknown risks, uncertainties and other factors because they
relate to events and depend on circumstances that may or may not occur in the
future. Burford cautions you that forward-looking statements are not
guarantees of future performance and are based on numerous assumptions,
expectations, projections, intentions and beliefs and that Burford's actual
results of operations, including its financial position and liquidity, and the
development of the industry in which it operates, may differ materially from
(and be more negative than) those made in, or suggested by, the
forward-looking statements contained in this announcement. Significant factors
that may cause actual results to differ from those Burford expects include,
among others, (i) uncertainty relating to adverse litigation outcomes and the
timing of resolution of litigation matters; and (ii) those discussed under
"Risk Factors" in Burford's annual report on Form 20-F for the year ended
December 31, 2021 filed with the US Securities and Exchange Commission on
March 29, 2022, Burford's interim report on Form 6-K furnished to the US
Securities and Exchange Commission on August 9, 2022 and other reports or
documents that Burford files with, or furnishes to, the SEC from time to time.
In addition, even if Burford's results of operations, including its financial
position and liquidity, and the development of the industry in which it
operates are consistent with the forward-looking statements contained in this
announcement, those results of operations or developments may not be
indicative of results of operations or developments in subsequent periods.

 

Except as required by law, Burford undertakes no obligation to update or
revise the forward-looking statements contained in this announcement, whether
as a result of new information, future events or otherwise.

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