Encore Capital Group Inc · NASDAQ:ECPG
Encore Capital — Debt Investor Presentation (September 2020)
47 slides from Encore Capital's debt investor presentation, Sep 1, 2020
Slide 1: Encore Capital Group, Inc. Investor Presentation September 2020
Exhibit 99.1 Encore Capital Group, Inc. Investor Presentation September 2020 Proprietary and Confidential
Slide 2: Cautionary Note About Forward-Looking Statements
CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS This presentation has been prepared by Encore Capital Group, Inc. (“Encore” or the “Company") and the market price of the notes, could be materially adversely affected. You should not place solely for informational purposes. For the purposes of this d
Slide 3: Today's Presenters
TODAY’S PRESENTERS President & CEO, CEO, Cabot Encore Ashish Masih Craig Buick 30 11 31 4 EVP & CFO, Encore Jonathan Clark 34 5 Managing VP, Managing VP, Corporate Global Treasury & Development & Corporate Treasury, Encore Development Scott Goverman Tomas Hernanz 34 9 19 4 Years of experience Years
Slide 4: Executive Summary
EXECUTIVE SUMMARY ` We are excited to present to you today our strategy and value proposition for the combined business of Encore Capital Group, Inc. and Cabot Credit Management ` Encore has been in the business of purchasing debt for over 25 years, the Company operates internationally with approxim
Slide 5: Transaction Overview
Transaction overview Company overview Credit highlights Appendix TRANSACTION OVERVIEW Description ` New global funding structure with Encore Capital Group, Inc. serving as the parent entity of the new borrowing group ` Structure leverages the combined Encore global ERC base, including Cabot ` Propos
Slide 6: Proposed Global Funding Structure
Transaction overview Company overview Credit highlights Appendix ENCORE CAPITAL GROUP PROPOSED GLOBAL FUNDING STRUCTURE Sources and Uses Sources $m Uses $m New Global RCF drawn at closing 739 Cabot existing RCF 203 New Secured Financing 300 Encore existing RCF 488 Encore existing Term Loan 164 Non-P
Slide 7: Simplified Organization Chart
Transaction overview Company overview Credit highlights Appendix SIMPLIFIED ORGANIZATION CHART Pre-transaction Post-transaction Current Encore/MCM Restricted Group New Restricted Group Will Include All Entities Current Cabot Restricted Group Currently Unrestricted RCF (USD) New Stretch Facility Roll
Slide 8: 2. Company overview and update
2. Company overview and update 8 Proprietary and Confidential
Slide 9: Encore at a Glance
Transaction overview Company overview Credit highlights Appendix ENCORE AT A GLANCE Business Overview Main trading brands ` Based in San Diego, CA, Encore Capital Group, Inc. (“Encore” or the “Company”) provides debt recovery solutions for consumers across a broad range of assets ` Purchasing debt f
Slide 10: Encore Is a Leader in the Global Debt Purchasing & Recovery Sector
Transaction overview Company overview Credit highlights Appendix ENCORE IS A LEADER IN THE GLOBAL DEBT PURCHASING & RECOVERY SECTOR Peers(1) In USDm (2) ERC 1 8,382 6,942 6,352 5,089 2,622 2,177 (180m) (Total ERC) (Total ERC) (180m) (180m) (120m) (3) 1% Revenue mix 9% 4% 17% 7% 9% 25% Servicing Purc
Slide 11: Steady Progress on Three Strategic Priorities
Transaction overview Company overview Credit highlights Appendix WE ARE MAKING STEADY PROGRESS ON THREE STRATEGIC PRIORITIES Market Concentrating on the U.S. and the 1 U.K. markets, where we have the Focus highest risk-adjusted returns 2 Competitive Innovating to continually enhance Advantage our co
Slide 12: Major Focus on Most Valuable Markets - U.S. and U.K.
Transaction overview Company overview Credit highlights Appendix OUR MAJOR FOCUS IS ON OUR MOST VALUABLE MARKETS - THE U.S. AND THE U.K. Our major focus is on our most BusinessB model transformation has We are growing our ERC while 1 valuable markets – U.S. and U.K. 2 driven operational efficiencies
Slide 13: Impact of COVID-19 on the Business
Transaction overview Company overview Credit highlights Appendix IMPACT OF COVID-19 ON THE BUSINESS Encore’s 2020 YTD results reflect strong continued earnings growth trajectory ` In Q1, anticipated collection delays due to the COVID-19 pandemic caused us to change our collections forecast in line w
Slide 14: 3. Credit highlights
3. Credit highlights 14 Proprietary and Confidential
Slide 15: Encore – A Highly Attractive Credit Story
Transaction overview Company overview Credit highlights Appendix ENCORE – A HIGHLY ATTRACTIVE CREDIT STORY Encore attributes Regulatory & Disciplined Scale & Consumer Data and analytical compliance capital efficiency focus leadership excellence allocation Large market size These factors make Encore
Slide 16: A. A leading operator in our core U.S. and U.K. markets
A. A leading operator in our core U.S. and U.K. markets with attractive long term growth prospects & strong competitive advantages 16 Proprietary and Confidential
Slide 17: Focus on Markets with Attractive Structural Characteristics
Transaction overview Company overview Credit highlights Leading operator Appendix FOCUS ON MARKETS WITH ATTRACTIVE STRUCTURAL CHARACTERISTICS Attributes that we believe make a market attractive 1 ` Ability to develop sustainable scale Large, consistent ` Consistent, long term flow of front-book oppo
Slide 18: Core Markets Underpinned by Large, Established Consumer Sectors
Transaction overview Company overview Credit highlights Leading operator Appendix OUR CORE MARKETS ARE UNDERPINNED BY LARGE, ESTABLISHED CONSUMER SECTORS Key markets in the U.S. & Europe (Unsecured outstanding consumer credit, US$ billions). Core markets 992 256 177 162 97 81 16 U.S. U.K. Germany Fr
Slide 19: The Market Opportunity Is Significant
Transaction overview Company overview Credit highlights Leading operator Appendix THE MARKET OPPORTUNITY IS SIGNIFICANT… Population: 329m Population: 67m Total Unsecured Consumer Credit Total Revolving Debt Outstanding (1) Outstanding $1.1tn $297bn(3) Credit Card Net Unsecured Credit Net Charge-Off
Slide 20: New NPL Generation Likely to Grow Significantly
Transaction overview Company overview Credit highlights Leading operator Appendix … WITH NEW NPL GENERATION LIKELY TO GROW SIGNIFICANTLY Unsecured consumer lending and total charge-off rate ` Banks’ charge-off rates and loan loss allowances at highest level ` Rapid consumer credit growth in the U.K.
Slide 21: Fewer Scaled Players Will Benefit from the Current Credit Cycle
Transaction overview Company overview Credit highlights Leading operator Appendix FEWER SCALED PLAYERS WILL BENEFIT FROM THE CURRENT CREDIT CYCLE AS A RESULT OF INDUSTRY CONSOLIDATION 2011 Today 2011 Today RMS Source: Company and peer websites, annual filings and press releases. 21 Proprietary and C
Slide 22: We Benefit from Strong Competitive Advantages
Transaction overview Company overview Credit highlights Leading operator Appendix WE BENEFIT FROM STRONG COMPETITIVE ADVANTAGES • Mature markets entail high legal, ` State-by-state regulation – often ` FCA authorization required for regulatory and compliance obligations demands licensing servicing /
Slide 23: B. Scale, operational differentiation and compliance excellence
B. Our scale, operational differentiation and compliance excellence drive strong risk adjusted returns 23 Proprietary and Confidential
Slide 24: Market-Leading Scale and Operational Differentiation Deliver Returns
Transaction overview Company overview Credit highlights Scale & differentiation Appendix OUR MARKET-LEADING SCALE AND OPERATIONAL DIFFERENTIATION DELIVER MARKET-LEADING RETURNS Operating return on portfolios for leading debt purchasing Leading ERC across U.S. and U.K.(3) players(1) (US$ millions) Se
Slide 25: Superior Data Analytics Drives Consumer-Centric Approach
Transaction overview Company overview Credit highlights Scale & differentiation Appendix SUPERIOR DATA ANALYTICS DRIVES OUR ENHANCED CONSUMER CENTRIC APPROACH ` ~109 million accounts ` ~9 million accounts Data assets ` ~60 million consumers ` ~1.7 billion transaction records ` On average, we have an
Slide 26: Consumer Focus Has Improved Liquidation Effectiveness
Transaction overview Company overview Credit highlights Scale & differentiation Appendix CONSUMER FOCUS AND OPERATIONAL ENHANCEMENTS HAVE IMPROVED LIQUIDATION EFFECTIVENESS Past Today Maximized collections with Optimize lifetime liquidation large scale, high speed approach with high touch, focused a
Slide 27: Risk Management and Compliance Is a Competitive Advantage
Transaction overview Company overview Credit highlights Scale & differentiation Appendix OUR FOCUS ON RISK MANAGEMENT AND COMPLIANCE IS A COMPETITIVE ADVANTAGE Encore is highly focused on regulatory compliance Encore’s issuer certification program is a key differentiator MCM averages roughly 35 issu
Slide 28: Highly Experienced Operator in Tightly Regulated Environment
Transaction overview Company overview Credit highlights Scale & differentiation Appendix HIGHLY EXPERIENCED OPERATOR IN TIGHTLY REGULATED ENVIRONMENT Leading track record of regulatory approval U.K. consumer satisfaction index(1) (Comparison with selected banks) ` First large U.K. CMS company to rec
Slide 29: C. 20+ years of experience, diversified back-book
C. 20+ years of experience have created a large, diversified back-book generating resilient cash flows 29 Proprietary and Confidential
Slide 30: Highly Diversified Back-Book
Transaction overview Company overview Credit highlights Resilient business Appendix HIGHLY DIVERSIFIED BACK-BOOK 2020 pre-2014 Estimated remaining collections, US$ millions 8% 10% 2019 Short-tailed curve in U.S. reduces performance 2014 risk 8% 9 15% Long-tailedLong tailed ccurve r e in EEurope rope
Slide 31: Back-Book Resilience During Periods of Economic Stress
Transaction overview Company overview Credit highlights Resilient business Appendix DEMONSTRATED BACK-BOOK RESILIENCE DURING PERIODS OF ECONOMIC STRESS Unprecedented stress during financial crisis Extract from Encore 2008 10-K: “The United States and global economies are currently in turmoil. In the
Slide 32: Financial Crisis Provided Opportunities for MCM
Transaction overview Company overview Credit highlights Resilient business Appendix FINANCIAL CRISIS PROVIDED SIGNIFICANT OPPORTUNITIES FOR MCM AND HIGHLIGHTED BACK-BOOK RESILIENCE MCM increased its level of investment at attractive returns… … and significantly improved its collection efficiency Pur
Slide 33: U.K. Payers Are Resilient
Transaction overview Company overview Credit highlights Resilient business Appendix U.K. PAYERS ARE RESILIENT – PAYING ACCOUNTS COMPRISE MORE OF OUR U.K. COLLECTIONS POST CRISIS Cumulative performance of 2005 vintage vs IC(1) estimates Greater proportion of collections from resilient sources Overall
Slide 34: D. Strong operating performance and discipline
D. Strong operating performance and discipline support Encore’s healthy financial profile 34 Proprietary and Confidential
Slide 35: Credit Strength Demonstrated by Conservative Leverage Profile
Transaction overview Company overview Credit highlights Financial profile Appendix CREDIT STRENGTH DEMONSTRATED BY CONSERVATIVE LEVERAGE PROFILE Net leverage Net Debt / Adjusted EBITDA(1) 4.8x Net Secured Debt / Adjusted EBITDA(1) 44.4x.4x Leverage through the bonds(2) 4.1x 3.9x 3.1x 2.5x 2.0x 4.0x4
Slide 36: Stronger Money Multiples and Greater Operational Efficiency
Transaction overview Company overview Credit highlights Financial profile Appendix DEPLOYING CAPITAL AT STRONGER MONEY MULTIPLES AND ACHIEVING GREATER OPERATIONAL EFFICIENCY… Global collections multiples Overall cost-to-collect(3) ` MCM deployments at consistently improving multiples since 2015 as `
Slide 37: Strong Cash Flow Generation
Transaction overview Company overview Credit highlights Financial profile Appendix … TO ENABLE STRONG CASH FLOW GENERATION Illustrative estimated excess cash flow generation waterfall For the twelve months ended June 30, 2020 (US$ millions) 35 175 Collections applied 36 to principal 740 882 Adjusted
Slide 38: Liquidity Characteristics of Encore's Business
Transaction overview Company overview Credit highlights Financial profile Appendix LIQUIDITY CHARACTERISTICS OF ENCORE’S BUSINESS ` Compared to other financial services companies, Encore has a high cash conversion rate: ` For every $1 of gross collections, we generate ~$0.50 in cash before portfolio
Slide 39: Encore – A Highly Attractive Credit Story
Transaction overview Company overview Credit highlights Appendix ENCORE – A HIGHLY ATTRACTIVE CREDIT STORY A leading operator in our core U.S. and U.K. markets with attractive long term growth A prospects and strong competitive advantages Our scale, operational differentiation and compliance excelle
Slide 40: Conclusion
Transaction overview Company overview Credit highlights Appendix CONCLUSION Combination leverages the size of Encore and Cabot to create a Global leader Broad geographic footprint across the most mature markets Sophisticated compliance and regulatory stakeholder management Diversified asset base and
Slide 41: Appendix
Appendix 41 Proprietary and Confidential
Slide 42: Key Performance Indicators
Transaction overview Company overview Credit highlights Appendix KEY PERFORMANCE INDICATORS Operating (all figures in USD 000s) 31-Dec-17 31-Dec-18 31-Dec-19 31-Mar-20 30-June-20 30-June-20 (LTM) (2) (2) (2) (2) 84m ERC 6,013,943 6,284,688 6,875,307 6,948,213 6,877,976 6,877,976 (2) 180m ERC 6,955,3
Slide 43: Limited Near Term Debt Maturities
Transaction overview Company overview Credit highlights Appendix LIMITED NEAR TERM DEBT MATURITIES Disciplined construction of capital stack with well spread debt maturities post-transaction Amended Private Placement Notes (Encore) 2021 Convert (Encore) 2022 Convert (Encore) 2025 Convert (Encore) 20
Slide 44: Estimated ERC Replenishment Rate Calculation
Transaction overview Company overview Credit highlights Appendix ESTIMATED ERC REPLENISHMENT RATE CALCULATION ERC Replenishment Rate Calculation Footnotes and definitions For the twelve-month period ending June 30, 2020 1) Average 12-month ERC represents management’s estimate of the amount of ERC th
Slide 45: Reconciliation of Adjusted EBITDA
Transaction overview Company overview Credit highlights Appendix RECONCILIATION OF ADJUSTED EBITDA Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In $ Thousands) Six Months Ended 2017 2018 2019 1H2019 1H2020 GAAP net income (loss), as reported $ 78,978 $ 109,736 $ 168,909 $ 86,264
Slide 46: Reconciliation of Net Debt
Transaction overview Company overview Credit highlights Appendix RECONCILIATION OF NET DEBT Reconciliation of Net Debt (Unaudited, In $ Thousands) 31-Dec-19 30-Jun-20 GAAP debt 3,513,197 3,353,730 Add back: Debt issuance costs and debt discounts 73,237 63,017 Less: Cash and cash equivalents (192,335
Slide 47: Cabot Current Capitalisation Table
Transaction overview Company overview Credit highlights Appendix CABOT CURRENT CAPITALISATION TABLE Capitalisation table Current In GBP million 30-Jun-20 (£m) x EBITDA(1) LTV(2) Maturity LTM Adjusted EBITDA 342 84-month Estimated Remaining Collections 2,256 £375m super senior RCF 164 0.5x 7% 2023 To
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