Encore Capital Group Announces New Global Funding Structure

Encore Capital Group, Inc. (NASDAQ: ECPG), an international specialty finance company, today announced that it has taken important steps toward its goal of operational simplification and funding optimization.

Currently, Encore’s two primary operating units, Midland Credit Management (“MCM”) in the U.S. and Cabot Credit Management (“Cabot”) in the U.K., have legally separate funding structures. On September 1, 2020, Encore initiated a process to combine the two balance sheets into a unified funding structure. In this configuration, Encore would become the parent of a restricted group consisting of all subsidiaries of Encore against which all covenant performance would be measured. Key transactions to implement the new structure include the following (collectively, the “New Financing Transactions”):

  • An amended multi-currency revolving credit facility that supports the operations of both MCM and Cabot, with an increased total commitment of $1,050 million, an extension of maturity to 2024 and with Encore and all its material subsidiaries (including Cabot) as guarantors;
  • a new stretch facility with a committed amount of up to $300 million; and
  • an amendment to the terms of the existing Cabot senior secured notes to, among other things, add Encore and its material subsidiaries as guarantors and have Encore become the parent of the restricted group.

The effectiveness of the New Financing Transactions is dependent upon satisfaction of certain conditions, including receipt of consents from at least a majority of the holders of Cabot’s £513 million 7.5% Senior Secured Notes due 2023 and €400 million Senior Secured Floating Rate Notes due 2024, pursuant to a consent solicitation commenced on September 1, 2020 (the “Consent Solicitation”).

Assuming the conditions to the effectiveness of the New Financing Transactions are satisfied, Encore intends to repay and terminate its current domestic revolving credit facility and term loan facility and repay a portion of its outstanding senior secured notes.

Through the New Financing Transactions and the Consent Solicitation, Encore is seeking to achieve a unified financing strategy to combine Cabot’s balance sheet with that of the wider Encore group, which the Company believes will fully leverage the combined size of Encore and Cabot, maximize financial flexibility by utilizing a global borrowing base, enhance access to capital markets and result in a strengthened credit profile for both existing and prospective Encore group lenders and investors.

The resulting global balance sheet strength and funding diversity will position Encore to take advantage of attractive opportunities arising from an anticipated change in the credit cycle.

Encore provided an update on cash collections on a year-to-date basis through July 2020, with Encore global cash collections at 100% of the ERC forecast for the period based on the reported December 31, 2019 ERC forecast. Within this total, U.S. performance was at 107%, U.K. performance was at 94%, and other geographies’ performance was at 67%, each compared to the ERC forecast for the period based on the reported December 31, 2019 ERC forecast. Additionally, Encore reported that collection figures for the month of August are trending in line with year-to-date July figures.

Upon successful completion of the New Financing Transactions, Encore expects to record related charges in the third quarter of 2020 totaling approximately $18 million after tax.

Encore continually evaluates different financing alternatives and may decide to enter into new secured credit facilities, increase the commitments available under the existing facilities or access the debt capital markets (including offering senior secured notes) to replace commitments or refinance drawings under the stretch facility agreement.