Arrow Global Group PLC (“Arrow Global” or the “Group”), a leading
European purchaser and manager of debt portfolios, today announces the
formalisation of a strategic origination and servicing partnership and
associated acquisitions which strongly reinforce Arrow Global’s position
as a market leader in Portugal.
Origination and servicing partnership with CarVal Investors
Arrow Global has partnered with CarVal Investors (“CarVal”) since 2010 acquiring more than €5 billion face value of portfolio assets across Portugal and the UK. Today’s announcement formalises this partnership in Portugal on the following terms:
· A five year agreement between Arrow Global and CarVal to jointly originate Portuguese investments;
· Arrow Global will acquire Whitestar Asset Solutions (“Whitestar”), a leading Portuguese servicer of secured and unsecured loans, from funds managed by CarVal for a total consideration of €47.8 million payable over two years. Arrow Global will fully consolidate the results for Whitestar following formal completion of the deal, which is expected during April;
· Establishment of a formal five year servicing commitment with CarVal;
· Agreement by CarVal to remain on the board of Whitestar for the duration of the formal strategic origination and servicing partnership;
· Arrow Global will acquire Gesphone - Serviços De Tratamento E Aquisição De Dívidas, S.A. (“Gesphone”), a Portuguese servicer of non-performing loans, and €77 million face value of portfolios for a consideration of €8.3 million, payable over four years;
· Purchase of an additional €565.6 million face value of portfolios for €37 million, in line with our target returns, of which 61% of the purchase price is underpinned by secured assets;
· This brings the Group’s cumulative portfolio purchases in Q1 2015 to £52 million including £20 million sourced from the UK;
· Overall Group 120-month ERC increases to £1.2 billion (84-month ERC increases to £958 million);
· The combined effect of the transactions will be EPS accretive to Arrow Global in 2016, as Whitestar’s contracted pipeline adds further servicing revenues;
· Formalisation of a partnership with CarVal will bring the strengths of both Arrow Global and CarVal together to serve the combined Portuguese client base; and
· A combination of Whitestar and Gesphone will create a scale and servicing capability across multiple asset classes enabling Arrow Global to broaden its market proposition to clients.
Commenting on today’s announcement, Tom Drury, chief executive officer of Arrow Global said:
“The acquisitions announced today reinforce Arrow Global’s position as a market leader in Portugal with over €5.5 billion face value of assets under management, established franchises, a leading domestic servicing capability, experienced management teams and a strong pipeline for further portfolio purchases.
“By partnering with CarVal we strengthen our combined client offering, drawing on the skill and expertise of both organisations. Today’s announcement sees both parties share servicing and origination activities. In addition we have also acquired one of Arrow Global’s major Portuguese servicers, Gesphone.
“We believe Portugal is a particularly attractive market with strong growth characteristics. These acquisitions build on our established presence and enable us to offer an attractive full-service proposition to clients.
“In line with our strategy of geographic expansion and entering new asset classes, these platform acquisitions provide us with the expertise to purchase and service secured and unsecured loan books in Portugal, enabling Arrow Global to benefit both from portfolio returns and from additional servicing profits.
“The combined effect of the transactions will be EPS accretive in 2016, with the contribution expected to grow in future years. These transactions further underpin our confidence in our ability to continue to deliver a ROE in the mid-twenties in the medium term.”
Origination and servicing partnership with CarVal Investors and acquisition of Whitestar
CarVal is a leading global alternative investment fund manager focused on distressed and credit-intensive assets and market inefficiencies. Since 1987, CarVal has opportunistically invested more than $81 billion in 5,300 transactions across 71 countries. Today, CarVal has over $10 billion in assets under management globally. By entering into this strategic partnership CarVal emphasises its commitment to the Portuguese market.
Arrow Global is entering into a strategic partnership with CarVal in Portugal to jointly originate and service loan portfolios. This will enable Arrow Global both to acquire additional portfolios in Portugal and will also provide additional portfolio servicing opportunities.
Arrow Global has agreed to acquire 33% of Whitestar from funds managed by CarVal and management for an initial consideration of €19.9 million. The Group will increase its holding to 75% for a further €17.3 million over the next year and complete the acquisition within 2 years for a final payment of €10.6 million, bringing the total consideration to €47.8 million, which the Directors think is financially attractive with an expected EV/2016 EBITDA of 6 times.
Voting control and economic interest passes to Arrow Global on payment of the initial consideration and CarVal will remain committed to the management of Whitestar through representation on its Board for the duration of the formal strategic origination and servicing partnership.
Whitestar is a market leader in servicing mainly non-performing loans and has established relationships with leading banks and consumer finance companies in Portugal. Whitestar has circa 300 employees and manages portfolios with a face value of €2.3 billion with future portfolio servicing contracts agreed with a face value of circa €1 billion.
Zach Lewy will take a seat on Whitestar’s board on completion of the transaction.
As at 31 December 2014, Whitestar had unaudited gross assets of €9.5 million with a turnover of €18.2 million, profit after tax of €2.1 million and EBITDA of €4.1 million.
Acquisition of Gesphone
Arrow Global will acquire 100% of Gesphone from the management team, for a consideration of €8.3 million, payable over four years, including the acquisition of €77 million face value of portfolios of non-performing loans.
Gesphone, which has circa 40 employees and is based in Lisbon, is a leading servicer of non-performing loans in Portugal. It has serviced portfolios for Arrow Global since 2010.
Zach Lewy will take a seat on Gesphone’s board shortly after completion of the transaction.
As at 31 December 2014, Gesphone had unaudited turnover of €3.5 million, profit after tax of €0.7 million and EBITDA of €1.5 million.
Purchase of portfolios
The purchase of portfolios with a face value of €565.6 million for €37 million will see Arrow Global extend its diversification into new asset classes, with 61% of the purchase price underpinned by secured assets.
The portfolios purchases are principally through the acquisition of securitisation notes referable to the underlying portfolios and bring Arrow Global’s total owned assets under management in Portugal to over €5.5 billion of face value.
Impact on Arrow Global
The acquisition of portfolios brings Arrow Global’s total 120-month estimated remaining collections (“ERC”) in Portugal to €362 million (being circa 24% of Group ERC).
The Group will have circa 340 employees in Portugal and will have strong expertise in consumer loan servicing, secured asset servicing and securitisation. The strategic partnership between Arrow Global and CarVal is expected to provide strong opportunities to acquire portfolios and strengthen Arrow Global’s future pipeline in Portugal. In addition, key management from Whitestar and Gesphone will be joining Arrow Global to further enhance our client offering and origination capability.
Portugal is an attractive market for Arrow Global, with a supportive legal framework and new opportunities arising from the increasing propensity of domestic Portuguese banks to sell non-performing loans.
The acquisitions will be financed from Arrow Global’s existing resources. At the same time, Arrow Global has increased its 2019 revolving credit facility from £100 million to £140 million on the same terms to provide headroom for future investment.
(Source - Arrow Global Press Release)