Intrum turns down again – SEB warns of liquidity shortage
Intrum bounced back in Thursday trading after recording eight straight days of decline. On Friday, however, the share continues to be heavily pressured in the wake of SEB scrapping its buy advice. Storbanken warns that the debt collection company may have liquidity problems in the next year if things do not change.
Next year refinancing is covered by the sale to Cerberus. And the next two years by sale to Cerberus + Cash flow from operations projected. Which is a bit more risky.
What I find strange is that they find no banks to refinance them more, as in some countries like France, banks refinance nearly everything, and net debt / ebitda of 4.6 is no big deal usually.
That is the problem with not being Swedish and not understanding this country.
"Expected net cash proceeds of SEK8.2bn (EUR711m) will be paid in full at closing (1H24) and used to redeem debt and improve the group’s liquidity. According to the CEO and the press release, cash proceeds will “mostly likely” be used likely repay drawings under the RCF due 2026 (SEK14.5bn as of 30 September 2023). Drawings under the RCF had kept on increasing amid negative FCF and the group having no more access to the commercial paper market. While the CEO stated that the transaction enhances the group’s ability to meet its debt maturities in 2024 and 2025, the RCF came first, before the senior unsecured notes €469m 3.125% 2024, the SEK1.5bn FRN St+3.19% due 2027, and the senior unsecured notes due 2025.
Pro forma the disposal, the group will still have SEK6.2bn RCF drawn and sizeable debt due in 2024 (SEK7.5bn) and 2025 (SEK13.4bn), while the size of its RCF (€1.8bn as of 30 September) will be reduced in accordance with the decrease of 84m ERC. The size of the RCF is restricted to 35% of 84m ERC. The group has not communicated its 84m ERC as of 3Q23, but stated that ERC 120m was down 15% pro forma the disposal. Accordingly, we estimate the size of available RCF is reduced by c. 15% from €1.8bn to €1.5bn, i.e. SEK17bn. This would imply c. SEK11bn of RCF available pro forma the transaction.
Assuming that the group extracts the same amount of cash from its retained book value post disposals (71%), we calculate up to SEK18bn of cash proceeds from the remaining book value of owned NPL (SEK26bn), which is in itself not sufficient to redeem SEK20.9bn debt due in 2024-2025."
Interesting but the groups makes 3b-4b servicing business Ebitda per year and will likely do more with the servicing on the cerberus portfolio, which it also retains 35%.
Joint venture books, higher servicing volumes, lower own book & debt and tech investments further improving servicing business is strategy which can work. It is not too far fetched.
Excellent article. Have you read short thesis for Intrum? If you have please share. I think Intrum is solid deleveraging case. I have undestood that short thesis is focusing on book value math and quality of those debts.
Thanks! I have not. Deleveraging is a good case, but with stopping investments it can be a problem as the ebitda is going down, unless they can find more investment partnerships. Intrum has valuable process and knowledge.
$asps is arguably even in a worse place, I wonder where the vulture € are to be made in the next credit down cycle
Yes, ASPS was a bad experience for me back in the days!
Have you carefully considered liquidity issues?
This comes from Dagens Industri (translated):
Intrum turns down again – SEB warns of liquidity shortage
Intrum bounced back in Thursday trading after recording eight straight days of decline. On Friday, however, the share continues to be heavily pressured in the wake of SEB scrapping its buy advice. Storbanken warns that the debt collection company may have liquidity problems in the next year if things do not change.
Next year refinancing is covered by the sale to Cerberus. And the next two years by sale to Cerberus + Cash flow from operations projected. Which is a bit more risky.
What I find strange is that they find no banks to refinance them more, as in some countries like France, banks refinance nearly everything, and net debt / ebitda of 4.6 is no big deal usually.
That is the problem with not being Swedish and not understanding this country.
On liquidity, Spread Research wrote on 24/01 :
"Expected net cash proceeds of SEK8.2bn (EUR711m) will be paid in full at closing (1H24) and used to redeem debt and improve the group’s liquidity. According to the CEO and the press release, cash proceeds will “mostly likely” be used likely repay drawings under the RCF due 2026 (SEK14.5bn as of 30 September 2023). Drawings under the RCF had kept on increasing amid negative FCF and the group having no more access to the commercial paper market. While the CEO stated that the transaction enhances the group’s ability to meet its debt maturities in 2024 and 2025, the RCF came first, before the senior unsecured notes €469m 3.125% 2024, the SEK1.5bn FRN St+3.19% due 2027, and the senior unsecured notes due 2025.
Pro forma the disposal, the group will still have SEK6.2bn RCF drawn and sizeable debt due in 2024 (SEK7.5bn) and 2025 (SEK13.4bn), while the size of its RCF (€1.8bn as of 30 September) will be reduced in accordance with the decrease of 84m ERC. The size of the RCF is restricted to 35% of 84m ERC. The group has not communicated its 84m ERC as of 3Q23, but stated that ERC 120m was down 15% pro forma the disposal. Accordingly, we estimate the size of available RCF is reduced by c. 15% from €1.8bn to €1.5bn, i.e. SEK17bn. This would imply c. SEK11bn of RCF available pro forma the transaction.
Assuming that the group extracts the same amount of cash from its retained book value post disposals (71%), we calculate up to SEK18bn of cash proceeds from the remaining book value of owned NPL (SEK26bn), which is in itself not sufficient to redeem SEK20.9bn debt due in 2024-2025."
Interesting but the groups makes 3b-4b servicing business Ebitda per year and will likely do more with the servicing on the cerberus portfolio, which it also retains 35%.
But I did not know the limitations on the RCF.
With regards to bank financing;
Banks use Intrum to offload loans. So, I guess they would re-build the same exposure, if they’d provide financing to Intrum.
Joint venture books, higher servicing volumes, lower own book & debt and tech investments further improving servicing business is strategy which can work. It is not too far fetched.
Excellent article. Have you read short thesis for Intrum? If you have please share. I think Intrum is solid deleveraging case. I have undestood that short thesis is focusing on book value math and quality of those debts.
Thanks! I have not. Deleveraging is a good case, but with stopping investments it can be a problem as the ebitda is going down, unless they can find more investment partnerships. Intrum has valuable process and knowledge.