Burford Capital Ltd Q2 FY2020 Earnings Call

Welcome to the Burford Capital 2020 interim results conference call. My name is Jordan and I will be coordinating your call today. I will now hand over to Chris Bogart, CEO, to begin. Chris, please go ahead.

Thank you very much, Jordan. And hello everybody. Thank you very much for joining us today for this call. As usual, with me are Jon Molot, Burford's Chief Investment Officer and my partner and co-founder, and Jim Kilman, our Chief Financial Officer. This is a very exciting day for us. Not only do we get to talk to you about some terrific results, but we were also able to announce this morning that we are done with the U.S. listing process. We have, in U.S. securities parlance, gone effective with the U.S. Securities and Exchange Commission as of yesterday afternoon, and that lets us have a little period of mechanics now, and then our shares will start to trade on the New York Stock Exchange on October 19, in addition, of course, to continuing to trade in London. So that's the end of a long and multi-month process and we are very pleased with the outcome and I will talk a little bit more about it in a moment. But turning to Burford and what we have been able to accomplish, I am looking at slide three. And really, if you look at the vignettes on that slide, the numbers really speak for themselves here. We had a great half year, really sort of the best in our history for investment performance. Before I even turn to some numbers, let's just set in context what has happened here. Burford has obviously been on a growth trajectory for a number of years. But starting in 2016 was when you really saw a big sharp uplift in our ability to upsize the portfolio and develop a large and robust portfolio of litigation assets. And obviously, within that period, since litigation is not the world's fastest process, we just like you have been waiting for the investments in those vintages to start to produce. And what you saw in the first half of year is that they really delivered. And they didn't just deliver, what they did was underline our ability to produce outsized returns over and over again. Looking just at one group of related cases, we produced $423 million in group realizations. That's a 56% IRR on those investments, and a return on invested capital of 194%. And that just feeds into what is now an 11-year track record at Burford. And within that track record, we have now generated more than $1.6 billion of investment recoveries and that is in our core litigation finance business. That's not including any of the other adjacent strategies like complex strategies, for example, that we also run. And on that $1.6 billion across 11 years, we have produced very consistent IRRs, right now at 32%, and our nominal returns actually went up to 97% return on invested capital. To underline the point that this is the way this business works, this combination of settlements and outsized wins accompanied by a few losses, we now have 23 separate investments in our history that have produced more than 200% return on invested capital. We have done all of this in this six-month period without any contribution from our YPF related assets, really showing the depth and breadth of the overall business. These are not just paper gains, this is cash. Our cash balances have gone up. The large case wins that I refer to have been paying steadily. We have got receivables in the second half that have been paying steadily. Just as a reminder, this is very characteristic in litigation for you to win something and then for there to be a period of time to get the cash. But 85% of the time, our receivables pay within six months. If you look at the receivable balance at the end of last year, the end of 2019, virtually all of those receivables are all paid now. We have got increases in profitability, increases in cash, and more cash coming in the door. Before I turn you over to Jon to hear about the portfolio and our progress in more depth, let me just touch on a couple of non-financial issues. We are very excited to be done with the U.S. listing process. There's no real debate that the combination of the SEC process and the New York Stock Exchange process is the most rigorous regulatory process in the world. That's a significant check for Burford. We are excited not only to have been involved in that process, but with the opportunities that we think await us being able to access the domestic investment capital in the U.S., which has not historically been able to buy Burford stock. We are excited about what that brings us in the future. As you saw, we have expanded our investor relations team to take advantage of that. In addition to Rob Bailhache, who has been with us in various capacities for years, we have added Jim Ballan in the U.S., a long-time specialty finance, investor relations, and sell-side analyst. For those of you in the U.S., we hope that you will work with and get to know Jim. The trading starts on October 19. For those shareholders who have seen the various communications about the mechanics involved in this, I frankly have to apologize on behalf of the stock exchanges. As a former tech executive, I have been pretty taken aback at how cumbersome and archaic these processes can be. We regret the fact that you need to go through a little bit of complexity yourselves for this to happen. We also regret that the language describing this process is not quite our usual crisp, clear prose, but rather was frankly foisted on us by the exchanges. All I can say is that we think the long-term benefit here dramatically outweighs the short-term inconvenience that you will experience. With that, let me turn you over to Jon Molot to talk about the portfolio.

Thanks, Chris, and thanks to all of you for taking the time to speak with us. As Chris says, we are really pleased with being able to report these first-half results to you. I will be speaking to slide four to begin with. But I do want to step back and echo something Chris said, which is we are now 11 years in and we have produced on a fairly consistent basis, very attractive, risk-adjusted returns, right. Our IRRs have hovered around 30%. We have had returns on invested capital that are quite attractive and we have told people in the past we will tick up or tick down depending upon the duration of matters, right. We end up with higher returns on invested capital when things run long and end up going to trial and either produce big wins or, as Chris says, occasionally losses. We will have lower returns on invested capital but still quite attractive ones with attractive IRRs for the matters that settle earlier on. We have generally produced consistent results from period to period, such that no one period after 11 years can you say, oh, that was a fluke. We have enough realizations that everybody understood this is the nature of the business. Probably the other thing that investors would have recognized is that we have grown significantly over the past several years from 2016, 2017, 2018, 2019; we have put out much more capital. We have grown the team. We did it to meet demand because law firms and corporate clients needed our capital. The legal services market had previously been ignored by the capital markets. We saw tremendous opportunity and added people in a very careful way to target the same risk-adjusted returns, ensuring that in meeting the demands of our clients, we included in our portfolio of assets opportunities that were just as attractive as the ones that had come before it. I have been very confident of that process and the team and have said as much on these calls twice a year. But I could understand that for investors, the question they would like to see answered is, okay, you have grown the business quite significantly. We love that. Are you able to generate the same level of returns on this larger asset base that you have historically been able to provide? Have you had to sacrifice quality? Is there some sacrifice in the team? Were you able to really keep up that level of returns just on a broader scale? And I think the answer with these results is a resounding yes. If you look at slide four on the upper left, you see the acceleration of realizations going from 2016 through 2020. Each first half, it's been a larger pool of realizations than the one before. On the lower left, those larger realizations have translated into larger realized gains. It's a significant uptick from 2019 to 2020. The first half of 2017, 2018, and 2019 were quite impressive. We are very pleased with them. You see the realized gains for the balance sheet for the first half of 2020 and it's a big step-up from prior years. On the upper right of slide four, you can see a little bit of what I described as how the portfolio has grown and we have seen realizations from those larger pools. Of course, you are going to see a larger portion of the 2015 vintage generating returns than you would of a later vintage. As for more recent, less mature vintages, you are going to see a larger portion of the deployment still outstanding. With the earlier vintage, a larger portion of the vintage has concluded and has generated realizations with one exception. The vintage of investments put on in 2019 has already delivered substantial realizations in the first half of 2020. In the lower rate of slide four, it's important to note the composition of income from our capital provision assets. We have heard investors who have been very impressed with our results in the past, but they really wanted to see large realizations and wanted to see it from non-YPF assets. If you look at the composition of income in the first half of 2019 broken down into how much was realized versus unrealized, how much came from YPF related assets versus non, you see the balance there. If you look at 2020 in the first half, zero came from YPF assets. It's all from non-YPF assets; the vast bulk is from realizations as opposed to fair value adjustments. You have got $251 million; $65 million is fair value and $186 million of it is realized gains. I would like to say, though, that $65 million in fair value adjustments is nothing to sneeze at and it's something that I am quite pleased about. When we put out an RNS in April, just updating the market on progress in our cases, we pointed out we had already enjoyed some successes in cases, a portion of which were very close to being final and therefore could lead to realizations quite rapidly. Indeed, that's come to pass; we enjoyed those realizations in the first half of 2020, but there were many others that said we enjoyed successes that could be trial wins but would have an appellate process. We were very pleased with the progress in those cases, but we did not expect final realizations during this period. The fair value adjustments, we have said repeatedly over time, only take into account a fraction of the income we would realize when those matters concluded, if they concluded successfully. The fact that we have progress in cases, trial wins, and such from matters that are not fully realized is a positive, not a negative. Investors wanted to see realized gains, and we have delivered there as well. We are just very pleased with how the portfolio has performed in the first half of 2020. Turning to slide five, there's a little more granularity on the breakdown of where the realizations came from. On the left side, you see it broken down group-wide, and on the balance sheet, you see a further breakdown between realizations from our capital provision direct portfolio and the capital provision indirect portfolio. It may be worth a reminder that the capital provision indirect portfolio is a not as long term. It's a shorter or medium duration asset class where we have much greater control over the progress of the litigation and over the ability to settle. We were able to, on four assets which constituted about 70% of the portfolio of outstanding cash as of December 2019, turn those into cash, demonstrating the medium-term liquidity from this strategy, which we have always said was there and we have been able to show. On the right side of slide five, you see further description of those 10 related assets that Chris noted. We enjoyed a great deal of success across 18 different cases. We did speak about this in a prior call and included it in our previous disclosures that we had made a concentrated bet on an asset where we had very high conviction, and we are very pleased that that has resolved favorably in a complete win, generating $423 million of realizations group-wide, of which $279 million is realized gain for the balance sheet. That's $266 million of realizations, $172 of which is gain. The balance sheet numbers don't take into account that on the additional $100 million-plus that the funds would have earned, the balance sheet and you, our investors, would earn performance fees, which is a positive. It's important to see this as yet another example of what we have been saying that outsized returns are part of this business. When we take matters into our portfolio and we have a diverse array of matters, we don't know whether any particular matter is going to be the one that settles early or delivers a decent return. We can recycle that capital and move on or whether it's going to go the distance, in which case if it wins, it could mean a much, much larger return, a home run or it could mean, in a smaller number of cases, a loss. All we know is that when we take these matters into our portfolio, we negotiate deals and price them in such a way that the returns are going to be attractive for early settlements, and we are going to share in truly outsized returns for the matters that go the distance. When we have a matter that generates high returns, Chris mentioned the number of resolutions we have had that have generated returns on invested capital greater than 200%; that's not a one-off. That is just part of our portfolio. When we underwrite a matter, we model all the possible permutations. We model out all the things that can happen, ranging from the very high-end recovery to the complete loss to the settlements in between. We know that high-end returns are one of the possible scenarios, and we have traditionally generated those returns, So we are very pleased. Turning to slide six, as you have grown and you have delivered greater returns on an absolute basis, you see on the right slide that we are up over $1.5 billion of realizations from our capital provision direct portfolio alone, and are you able to maintain the return levels achieved in earlier periods with a smaller portfolio? You see on the left slide, the answer is yes; in fact, the IRR ticked up slightly to 32%. We have had consistent IRRs throughout our history. The return on invested capital has gone up to 97%. We are just really pleased to be able to report these results. I have had confidence in the portfolio throughout, but I am very glad to be able to show you what I've long known. I mentioned earlier that 2019, those investments have contributed significantly to our realized gains in 2020. Think about that. 2019 was a year when, to the outside world, Burford appeared to be under siege. There were people questioning Burford's business model and potential. Meanwhile, our team worked hard. We maintained our relationships with law firms and corporate clients. We continued to put on deals. We maintained rigorous underwriting and put out lots of money, and didn't let the public noise distract us. There’s some irony that during a period when outsiders were questioning whether Burford was doing well, we were working hard. Now you in 2020, whether you're a long-term holder who held stock and maintained faith or you're new, I am really pleased you've been able to benefit from the hard work we put in last year. I am just really pleased with the results. With that, I will turn it back to Chris.

Thanks very much, Jon. I am going to speak to slide seven and eight, but I am going to do that quite quickly because Jon has largely stolen my thunder. But the point to be made here, and you have seen these slides before; these are our efforts to graphically illustrate what Jon and I have been saying orally, that litigation and the way we construct our litigation portfolio has a rhythm to it and a set of reasonably predictable outcomes. When you look at slide seven, you see those three possible outcomes: we make investments, the capital is deployed, and the cases either win, lose, or settle. Those are the only three outcomes. Litigation comes to an end; it's not open-ended, and the process drives it along. 90% of the time, 90% of the dollars that we are putting out are generating high positive returns, either because they are settling fairly rapidly and generating nice IRRs and lower returns on capital or they are going to trial and winning, which takes longer but generates much higher nominal returns. 10% of the time, we lose. That's the nature of the business model, and it's why our returns are high, because there aren't many capital provision businesses out there where every single investment could potentially result in a complete loss of all your capital. Our pricing for our capital is appropriately high to reflect that risk, and people in the legal market understand and appreciate that. Our pricing and these returns are not inconsistent with the historical returns of lawyers who have taken risks in cases. If you turn to slide eight, that shows you that when we do lose, we lose very asymmetrically. Our losses are small compared to the large wins. The right side of this graph shows you all of the big wins, especially the 2020 big wins. To underline our view of this business, we will consistently see this spread of outcomes over time: settlements in the middle, losses to the left, and larger wins to the right. What's difficult from a public market perspective is that we are a buy-and-hold investor. We depend on the litigation process, which does not organize itself neatly for quarterly or semiannual reporting. Judges decide when they decide. We will continue to have terrific periods like we have in the first half of this year and periods where much less happens. We are not yet at the stage of having smooth, predictable outcomes for either timing or merits. That's why we get paid the returns we do. If this business were easy and predictable, banks could do it. You wouldn't be generating these kinds of returns, and you wouldn't need Burford. So, turning to slide nine, let's talk a little bit about COVID. The thing to remember with respect to our business and litigation is that we are not a business like a hotel, restaurant, or airline, where a day without new business means that business is gone forever. A restaurant that doesn't sell a meal tonight doesn't get to sell twice as many tomorrow. But litigation isn't immediate. If there's a disruption, as we had this year, it doesn't cause litigation that wasn't brought to go away. It causes it to be brought later. It's rare for us to see a case that comes and needs to be filed immediately to not become untimely. In many instances, you have six years to sue. There's no rush. We saw a significant freeze in activity in the legal system in March, April, and May. Courts delayed many cases; we had activity in some but saw numbers fall due to people working from home. This isn't a bad thing; we often make more money when things go more slowly. It can be aggravating but enhances returns when we have time-based multiples in our investment matters. From a business perspective, when the world normalizes, you will see a return to historical patterns. If you had asked me six weeks ago about the second half of 2020, I would have been optimistic; it felt like things were coming back. Kids were going back to school, courts were figuring out how to conduct trials, and lawyers returned to offices. Now, with a resurgence in COVID cases, that picture is less clear. Litigation delays will continue, but at the same time, we will continue to see progress. We have a case going to trial in three weeks, but we are seeing delays in other cases. While I expect new business to return somewhat, it wouldn't surprise me if we have a difficult fall on the COVID front and don't experience a V-shaped rebound in the litigation process. As I said, these are delays, not losses. We exist in an environment where 2020 will produce significant disputes for years; many disputes may not even start for years. This experience is similar to what we saw during the financial crisis; it took years for that litigation to materialize. Hence, while there are short-term impacts, we don't see those as cause for long-term concern. Let me turn it to Jim Kilman.

Thanks Chris. Turning to slide 10, although Chris and Jon have talked about how this is a period where significant realizations and realized gains drove our results, it's worth noting that we did have a modest level of unrealized gains during the half as well. As a reminder, we are required under IFRS to fair value our legal finance assets. For a small number of them, primarily our YPF-related assets, we have historical sales-based values to factor into our fair value. Since there were no significant sales transactions or developments on the YPF-related assets during the first half, we have not changed our carrying value for them, which remains at $773 million. Consequently, none of our unrealized gains during the period were YPF-related. For the vast majority of our legal finance assets, we fair value them based on prescribed percentage marks, up or down based on case progress, pretrial rulings, trial outcomes, and appeals. To provide more transparency on these fair value judgments on the portfolio, we have included a new table in Note 13 of our financial statements that provides data on how these percentages have been applied. I encourage you to take a look at that. As Jon touched on, during the first half of 2020, we had positive progress in a number of cases in our capital provision direct portfolio, as you would expect, as our portfolio continues to season and mature. This drove $68 million of unrealized gains during the period. Even with those gains, our total unrealized gain on the capital provision direct portfolio, setting YPF aside, remains modest at only 12% of carrying volume. In our 2019 results RNS, which we issued on April 28, we reported on some significant favorable portfolio case progress in 2020 so far. We thought it would be helpful here today to show how some of that progress translated into results during the first half. The table on the bottom right of slide 10 is designed to do just that. Focusing on the balance sheet, only for a moment, we said in April that we had final matters that could generate $300 million of ultimate cash receipts, and $200 million of income over time. Those are the amounts we expected to receive in total from those matters over their lives. However, during the first half, much of that actually happened. From the matters referenced in the April RNS, we had $272 million of realizations, some of which were receivables at period-end, but all of which are on track to produce cash receipts, and those realizations produced $173 million of realized gain. We also said in April that we had earlier stage matters that we expected to ultimately produce $100 million of income. Those matters are not as far along, so they didn't produce realizations during the first half, but the progress in those cases did drive $42 million of unrealized gain during the period. In aggregate, for the balance sheet, the matters we referred to in April generated $272 million of realizations during the first half and $218 million of income. To be clear, the cases we referenced in April aren't done yet. We would expect to achieve the remaining realizations and income from this group of matters over future periods. Shifting now to focus on cash on slide 11, we lay out our cash generation during the first half of 2020. Although we had significant capital provision direct realizations in the first half, many of those were still receivables at period-end. Our cash proceeds from that part of our portfolio in the period were relatively modest at $46 million. We have been collecting substantially on those receivables as the second half has progressed. Despite the pandemic's impact on the market environment, we were able to generate $170 million of proceeds from our capital provision indirect assets. We have described these in the past as a medium-term source of liquidity for us, and they certainly delivered that in the first half. Our total cash receipts for the first half of 2020 were $224 million, in line with the same period last year and provided significantly more cash than we needed for our expenses and deployments in the period. Importantly, however, the large capital provisions direct realizations during the first half left us with $281 million of receivables at June 30. Those have begun to turn into cash, and as that continues, it bodes well for our cash generation during the second half of the year. To recap our liquidity picture, we turn to slide 12, where you see we ended the first half with $262 million of cash and cash management assets. We had $281 million of receivables at June 30 for a total of $543 million of assets that are either cash or expected to become cash fairly soon, which is why we feel quite comfortable about our current liquidity position. The total of cash and receivables at June 30 was almost twice what we had a year earlier and 73% higher than our highest previous total for a first half period. By September 15 of this year, $86 million of those receivables had turned into cash, and our cash and cash management balance stood at over $300 million. We built up that liquidity without raising any external capital for the balance sheet in almost two years and without issuing any debt since early 2018, indicating the cash generative power of the business. On the right-hand side of slide 12, we lay out some highlights of our capital structure. We remain very conservatively leveraged with a net debt to tangible assets ratio of 14%, dramatically lower than our covenant level of 50%. Our debt structure continues to be longer dated than our average assets. Our debt is laddered, with our nearest maturity almost two years away, and even that could be covered several times over by the cash receipts generated in each of the last several years. Given our liquidity and our rock-solid balance sheet, we feel quite comfortable that Burford is well-positioned for both the opportunities and challenges that lie ahead. With that, I will turn it back to Chris.

Thanks Jim. To wrap up on slide 13, you can tell from that fairly long presentation, we are pretty excited about what has happened so far this year. We think Burford is well-positioned from both a market and financial perspective, especially considering our cash liquidity and access to significant fund capital to capitalize on the opportunities we see ahead. We are thrilled with where things stand right at the moment. Rather than rattle on about our enthusiasm, why don't we pause and take your questions?

Our first question comes via the webcast from Mike Brooks of Aberdeen Standard Investments.

Please, can you provide an update on YPF? What is the potential timetable and scenarios from here and the relevant, if any, from the Argentina debt restructuring?

Thanks Mike. The YPF cases, both the Peterson and the Eton Park cases, are currently pending in the trial court in the Southern District of New York, the Federal Court in Manhattan. As you know, we have won decisively on the question of jurisdiction for the U.S. courts. That was the important first half of this case, which went all the way to the U.S. Supreme Court. Now having won that, the cases are in what we would call a normal litigation posture, proceeding through discovery. After discovery, there will be a period of motion practice followed ultimately by a trial. The court has set a schedule for those cases to move along quite rapidly, and they are moving along as we speak. This is litigation, so there will doubtlessly be twists and turns along the way. Right now, the cases are behaving like normal large dollar contract litigation. As we have long explained, the litigation judgment or litigation debt is entirely unrelated to the sovereign debt picture, which is a contractual set of agreements between lenders and a country. There is no contractual agreement in litigation and arbitration. The two processes operate independently. The debt restructuring doesn't impact these claims, just as the default prior to the restructuring didn't cause anxiety.

We have another question from Laurence Endersen of Capstrive asking.

Congratulations on your progress. Have you seen any major changes in the competitive environment for litigation finances? Is your leadership position widening?

It's an interesting question across the market; there is certainly more capital than ever going into the legal finance market. If you went back some years, much of that capital came from small venture capital players. Some have grown, others have struggled and left the market. New entries have been somewhat constrained this year by the pandemic and liquidity dynamics for their backers. Burford considers itself to have a robust market position, and we don't think that has changed. There is no question we will continue to see entry into this market. From our perspective, that's a very good thing. We think entry is good because the users of litigation finance capital are incredibly diffused, including every law firm and every company with claims. For litigation finance to be a normal part of corporate finance practice, it needs a robust market. If Burford were the only player in this marketplace, it would not be nearly as large. What we've done is welcomed entry and we recently announced the formation of the International Legal Finance Association, the first trade association for this industry. We have taken on a leadership role, which cements our position in the market and normalizes the use of this capital broadly. We think that's a positive for us.

Our next question comes via the phone lines from Julian Roberts of Jeffries. Julian, the line is yours.

Hi. Thanks very much. A couple from me, if it's alright. The first one is, are you able to give us any idea of the credit worthiness of the defendant in the cases behind the newly recognized receivable? Any further expectations around the timing of receipts?

Regarding the credit worthiness of the defendants in the related cases, we have been publishing for a little while now our concentration tables detailing the industries involved; these related cases were in the insurance industry. We have no concerns regarding credit worthiness at all concerning the payers of the judgments there. Timing is purely mechanical; each case is a separate litigation matter pending in its own court. After the comprehensive win we have here, each court has to manage its own process; some are faster than others. There are no substantive issues standing in the way of these cases paying. That's just a question of how quickly each court stamps the papers. Most receivables pay within six months after case resolution. You would have seen more paid by now but these cases resolved very late in the first half. Unfortunately, we don't have external indicators to monitor markets; litigation is pretty local and diffuse. Even logging into the U.S. court system wouldn't illuminate large dollar claims attractive for financing.

Thank you anyway. Thanks for the answers.

Our next question comes from James Hamilton of Numis. James, the line is yours.

Thank you. There are two that I would like you to try to help with if you can, please. Firstly, whilst the pandemic is terrible, my observation is there's a great deal of economic disruption. How do you view this compared to the disruption we saw in the global financial crisis? Specifically thinking about breach of contract where Company A says they want X by Y date, and it didn’t materialize. Additionally, should we expect shifts in the portfolio mix away from complex strategies where you have a lot of flexibility?

When discussing litigation arising from the pandemic, you're really addressing two things: claims caused by the pandemic and the second, economic implications. Regarding breach of contract claims, we're seeing more litigation because almost everyone has faced pandemic-related issues; in contrast, fewer people had claims due to the financial crisis. Companies will likely sue each other over who bears risk. It's important to emphasize that increased economic disruptions could lead to more litigation. Companies, busy with legal budgets, might lack the funds for extra litigation, which relies on litigation finance. We anticipate many litigation finance opportunities arising as companies turned to us for financing due to the pandemic's economic fallout. In terms of portfolio mix and complex strategies, we are opportunistic. If we see attractive opportunities, we will allocate capital accordingly, especially in litigation finance. Conversely, complex strategies rely on a robust M&A market, and that may remain low for some time. Our approach remains cautious; we're focused on quality and financial outcomes.

Our next question comes via the webcast from Peter Webster of Janus Henderson asking.

Given the likelihood of dispute inflation linked to pandemic disruption, are you looking to raise more external capital to fund growth?

We are in the same position we have been in for years with our capital structure and access to capital; we are never forced capital raisers, allowing us to be opportunistic. We have a significant cash balance and debt capacity. We have our private funds, hundreds of millions of dollars available, and likely more accessible capital should we need it. It's not binary; it depends on market conditions. We have operated without raising external capital for the last couple of years, and we don't feel any compulsion to do so.

Next question comes from Andrew Shepherd-Barron of Peel Hunt. Andrew, the line is yours.

Okay. Thank you. Two related questions from me. On the cash, looking at the narrowest definition of cash received in the first half, it is basically capital provision direct's $46 million. If all of those receivables come in the second half, how much would that total in cash this year?

I'll turn the first question over to Jim. Regarding your second question, we don't know with certainty in any period. We are usually aware of when there might be cash coming from a case; it's challenging to predict because we rely on judges deciding and corporate litigants settling. The fourth quarter is historically active for litigation settlements. We can't predict how this fall will unfold. While it's unpredictable, from a business perspective, we make more money when matters take longer. Though we are content with early settlements, matters extending increases our return multiples. There is a tension between market desire for predictability and smoothing and the goal of maximizing cash earnings.

Sure, Andrew. If you take the $46 million in cash from the capital provision direct segment in the first half and assume that virtually all receivables relate to that, you would total $327 million in cash if all receivables paid during the current period. In summary, the net increase in receivables during this period was $262 million, making the equivalent number $308 million.

Our next question comes from Portia Patel of Canaccord. Portia, please go ahead.

Thank you for taking my questions. I have two on capital provision indirect. First, regarding the cash from capital provision indirect, is the P&L contribution relative to cost very low single digits?

You're right; we consciously decided to push to resolve matters at a discount in light of economic conditions during 2020. That resolved concerns regarding credit worthiness. While the capital provision indirect has provided more predictable cash flows at lower returns than our litigation finance returns, it's less significant as we've expressed people's willingness to get cash back quickly. We have always exercised control over how much we want to put into that strategy. Currently, our cash-rich position allows us to manage our investments therein.

Our next question comes via the webcast from John Dalton asking.

The retail bonds continue to trade at elevated yield levels. Has there been any thought given to bond buyback or refinancing?

I agree; the pricing on the bond is concerning and they are an extraordinary deal right now. The pricing doesn't necessarily reflect market reality, as Jon and I have tried buying some of the bonds and were unable to acquire them for the prices suggested. As we discussed our liquidity's importance in our interim report, we are ready to be opportunistic regarding debt capital in both directions. We're prepared to pursue repurchase opportunities, especially given a maturity in a couple of years for one of those bond series.

If there is one more question, I am happy to take it. Otherwise, we can call this to a close.

I enjoyed talking so much that we've gone over an hour. If there's one more question, I'm happy to take it. Otherwise, I think Jon, Jim, and I would like to thank you for participating in this call today and for your support over the last year. This has been a tumultuous time in various parts of the global economy, and we hope these results and our business explanations provide a strong degree of comfort about what this business is and what it can deliver. We look forward to speaking with you about the business in the months and years ahead. Thank you.

Ladies and gentlemen, this concludes today's call. Thank you for joining us. You may now disconnect your lines.