Portfolio Lead Advisory Services Weekly Digest - Edition 24

The performance of debt purchasers and loan servicers remain mixed as leading companies have announced their interim results over recent weeks.

The pandemic has had a significant impact on the industry resulting in reduced current and forecast collections driven by payment moratoria and other support mechanisms put in place by national governments and regulators, as well as the forecast negative economic outlook for key jurisdictions across Europe. With the impact on forecast collections, debt purchasers took varying degrees of write-downs on the estimated remaining collections in Q1 and Q2 ranging from 2% to 11% of the carrying book value, impacting their results year to date. It remains to be seen whether further write-downs are required, with some market participants taking a more prudent approach than others. Reduced cash collections means that leverage remains elevated, with an average Net Debt/EBITDA ratio of greater than 3x across European players, as many debt purchasers have accumulated debt as part of their portfolio expansion initiatives over recent years.

On a positive note, leading players including Arrow Global, B2 Holdings and Hoist have returned to profitability for the 3 months ended 30 September 2020, whilst Intrum has increased revenue and net earnings year-on-year. Portfolio purchases have generally been more limited due to depressed transaction activity and the need to preserve liquidity, however, significant opportunities are presented by the new NPL pipeline with rational competition and margin improvements expected in the coming quarters.

In Q3, Arrow Global also announced €0.3bn of further capital raised for its inaugural pan-European credit opportunities fund, bringing total capital committed to €1.5bn as it shifts to a more capital-light model and increases funds under management with a target of €10bn by 2025. Lowell Group has recently refinanced its outstanding notes and facilities alongside an equity injection by its sponsor, Permira, whilst earlier this year Cabot parent Encore announced a reorganisation.

With the recent announcement of positive results from vaccine trials, equity prices have generally seen some improvement, with an outlook of cautious optimism.


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