Molson Hart

Burford $BUR thread: Contingent fee litigation is a tough business, but the prize for winning is enormous. I practiced law for two years at a firm that took commercial contingent-fee cases and we represented a litigation funding company - collecting on litigation finance loans!

Lawyers who do this kind of work try to eliminate risk by drilling down to make sure a case is winnable (but it's FAR better to settle both b/c of time value of money and the expense of trial prep and trial) and collectible.

Once they figure that out, if they can't finance the case themselves, the best source of funding is older, wealther contingent fee lawyers. These guys are the "whales" of that business, they have millions in capital to work with, and they understand the risks and returns.

So the first Q I have if I see someone other than lawyers funding a case is, "Why did they 'sell' this one?" I'm sure there are great cases that need big $$, but whales in this bus. will figure out how to pay for it - and BELIEVE me they will not let returns get away from them.

Second, returns in contingent fee lit are high but uncertain and to use H Hendry's formulation, "If you have operating leverage, then rule #1 is you must have NO financial leverage." I can't believe they fund this business with debt. That should have been a dealbreaker.

Third, I maintain that contingent fees are highly cyclical. In the middle and top of the cycle, defendants have money to settle or pay cases. On the way down, not only is all the money gone but they also owe everyone else at the same time.

These are just reasons I thought this was a bad idea. I don't know how Burford will work out and I still haven't gotten through Muddy's report. But one thing I can say is there are no ongoing operations in a business like this, so you have to evaluate it asset-by-asset.