Intrum AB (publ) has agreed to sell a material portion of its investment portfolio to affiliates of Cerberus Capital Management L.P. (“Cerberus”) for approximately 98 percent of book value as per economic transfer date, 30 September 2023. Intrum will retain a 35 percent ownership stake in the purchasing entity (the “Investor”) owning these assets and has entered into a minimum of 5-year exclusive agreement to retain the servicing of the full portfolio. Intrum’s expected net proceeds at closing, of SEK 8.2 billion, will be used in full to reduce debt.
Background and rationale
The transaction includes assets in 13 of Intrum’s 20 jurisdictions across Europe. Altogether, the portfolio consists of mainly unsecured assets across approximately 10,000 portfolios, representative of Intrum’s exposure in the relevant jurisdictions and a fair representation of the overall back book. The entities that own these portfolios will be acquired by the Investor, in which Cerberus will hold a 65 percent ownership stake and Intrum will hold a 35 percent ownership stake. The Investor will be leveraged on attractive terms which are non-recourse to Intrum’s other investments or balance sheet.
Intrum continues to deliver on the near-term measures introduced at the Capital Markets Day (“CMD”) in September 2023 to reduce leverage and de-risk its financial platform. This transaction represents a significant step towards becoming more capital light as it meaningfully exceeds the previously indicated asset disposals of SEK 6 billion (including both a back book sale plus country exits) presented at the CMD. This larger transaction meaningfully enhances Intrum’s liquidity and ability to meet debt maturities in 2024 and 2025, without relying on debt market access.
The increased size and transaction terms demonstrate the attractiveness of Intrum’s granular and diversified assets combined with its market-leading servicing capabilities. In addition, the transaction meaningfully reduces absolute debt and near-term refinancing risk whilst growing the company’s strong client servicing franchise and increasingthe services provided to one of the largest NPL investors in Europe.
Andrés Rubio, President and CEO of Intrum, commented:
“This transaction is an important step that will allow us to de-lever our balance sheet, while maintaining exposure to the asset and the full servicing perimeter. The transaction is an important step to a more capital light business model – reduced balance sheet intensity while leveraging our servicing capabilities and increasing our highly valued recurring servicing income. This is also a first meaningful step on our path towards becoming a full-service asset management platform with third party capital majority funding our proprietary origination of consumer NPL asset investments. In Cerberus, a leading investor in the field and one of our largest and most important clients, we have a strong partner going forward.”
David Teitelbaum,Head of European Advisory Offices and Head of Global FIG Advisory, Cerberus European Capital Advisors, commented:
“Intrum has established itself as a European leaderincredit management services, havingbuilt a unique and granular asset book over the years. We are pleased to acquire a controlling interest in this sizeablepan-European loan portfolio and help Intrum progress its strategic evolution to a servicing-led business. Aligned with our strategy of partnering with industry-leading businesses around the globe, this marquee transactionmarks animportant step inourcontinuedcollaboration with Intrum."
Preliminary pro forma financials
The completion of the transaction will generate a non-cash accounting loss of SEK approximately 845 million. Of which SEK 219 million is attributable to the discount to the book value of the portfolio and SEK 626 million represents a reversal of Investing and Servicing profit recognised between the economic transfer date and closing, including a positive currency effect and reversal of tax liabilities.
Intrum’s cash EBITDA is expected to be approximately 20 percent lower in 2024. The net debt will be reduced by approximately SEK 8.2 billion which will positively impact net financial items cost by SEK approximately 570 million p.a. assuming proceeds repay current RCF loans at current interest rate levels.
Pro forma for the transaction, Intrum’s Q3 2023 leverage ratio stands at 4.6x with proforma cash EBITDA of SEK 11.0 billion and net debt of SEK 50.7 billion. The pro forma Q3 2023 book value amounts to SEK approximately 26 billion.
As a result of the transaction Intrum has achieved the balance sheet intensity financial target of SEK approximately 30 billion. The impact on Intrum’s cash EBITDA is expected to extend the time to meet the leverage target of 3.5x from YE2025 to 2026, although management is actively pursuing alternative measures to regain the accelerated path and meet the leverage ratio target by year-end 2025.
Closing conditions and regulatory approvals
The completion of the transaction is subject to certain technical and customary regulatory conditions and is expected to complete in the first half of 2024.
Advisors
Intrum was advised by Akin and PwC.
Cerberus was advised by Linklaters and EY. Goldman Sachs has also entered into an agreement to provide financing for the transaction.
Invitation to conference call
Andrés Rubio, President and CEO of Intrum, will participate in a conference call and webcast on 23 Januaryat 09:00 am CET.
If you wish to participate via webcast, please use this link. Via the webcast you are able to ask questions in written.
If you wish to participate via teleconference, please register on the link below. After registration you will be provided phone numbers and a conference ID to access the conference. You can ask questions verbally via the teleconference. To participate via teleconference, please register here.
For further information, please contact:
Emil Folkesson, CFO Office and Investor Relations Director
+46 70 744 69 82
ir@intrum.com
The estimates in this communication are mostly based on Q3 2023 published results with a EUR/SEK exchange rate of 11.53. This information is information that Intrum AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact person set out above, at 19:00amCET on 22 January 2024.
About Cerberus Capital Management, L.P.
Founded in 1992, Cerberus is a global leader in alternative investing with approximately USD 60 billion in assets across complementary credit, private equity, and real estate strategies. We invest across the capital structure where our integrated investment platforms and proprietary operating capabilities create an edge to improve performance and drive long-term value. Our tenured teams have experience working collaboratively across asset classes, sectors, and geographies to seek strong risk-adjusted returns for our investors.
As an expert in financial transactions and business strategy, I bring a wealth of knowledge and experience to the analysis of the recent development involving Intrum AB's sale of a significant portion of its investment portfolio to affiliates of Cerberus Capital Management L.P.
Now, let's delve into the key concepts mentioned in the article:
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Transaction Details:
- Intrum AB is selling a substantial portion of its investment portfolio to Cerberus affiliates for approximately 98 percent of the book value as of the economic transfer date, September 30, 2023.
- Intrum will retain a 35 percent ownership stake in the purchasing entity (the "Investor") and has entered into a minimum 5-year exclusive agreement to retain servicing of the full portfolio.
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Portfolio and Assets:
- The transaction encompasses assets in 13 of Intrum’s 20 jurisdictions across Europe.
- The portfolio comprises mainly unsecured assets across approximately 10,000 portfolios, providing a fair representation of Intrum’s exposure in the relevant jurisdictions.
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Ownership Structure:
- Cerberus will hold a 65 percent ownership stake in the Investor, while Intrum retains a 35 percent ownership stake.
- The Investor will be leveraged on attractive terms that are non-recourse to Intrum’s other investments or balance sheet.
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Financial Impact:
- Intrum's expected net proceeds at closing are SEK 8.2 billion, which will be used to reduce debt.
- The transaction is a strategic move to reduce leverage and de-risk Intrum’s financial platform, aligning with the near-term measures introduced at the Capital Markets Day in September 2023.
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Pro Forma Financials:
- The completion of the transaction will result in a non-cash accounting loss of approximately SEK 845 million.
- Intrum's cash EBITDA is expected to be approximately 20 percent lower in 2024, but net debt will be reduced by approximately SEK 8.2 billion.
- Pro forma for the transaction, Intrum’s Q3 2023 leverage ratio stands at 4.6x, with net debt of SEK 50.7 billion.
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Strategic Rationale:
- The transaction is seen as a significant step towards a more capital-light business model, exceeding previously indicated asset disposals.
- The move enhances liquidity, reduces absolute debt, and mitigates near-term refinancing risks.
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CEO Statements:
- Andrés Rubio, President and CEO of Intrum, emphasizes the importance of the transaction in de-leveraging the balance sheet while maintaining exposure to the asset.
- The CEO sees this as a step towards becoming a full-service asset management platform with third-party capital funding.
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Collaboration and Partnership:
- Cerberus acknowledges Intrum’s position as a European leader in credit management services.
- The collaboration with Cerberus is viewed as an important step in Intrum's strategic evolution towards a servicing-led business.
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Financial Targets and Outlook:
- The impact on cash EBITDA may extend the time to meet the leverage target, but management is actively pursuing alternative measures.
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Closing Conditions:
- The completion of the transaction is subject to technical and customary regulatory conditions and is expected to finalize in the first half of 2024.
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Advisors:
- Intrum was advised by Akin and PwC.
- Cerberus was advised by Linklaters and EY, and Goldman Sachs is providing financing for the transaction.
In conclusion, the Intrum-Cerberus transaction represents a strategic move for Intrum AB to reshape its portfolio, reduce leverage, and position itself as a more capital-light business. The collaboration with Cerberus is crucial for both parties, aligning with their respective business strategies and market positions.
