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Will Macadam

The management team at Lowell GFKL said during an investor call on 30 April that the company would seek to refinance its debt this year, supported by its expedited ABS programme and the a “strong” business performance in 2023.

The UK-based debt purchaser posted cash income of £363m for the quarter ended 31 December 2023, up from £231m in the same period last year. Cash EBITDA was £250m, up from £132m year-over-year.

The company spent £80m on portfolio acquisitions during the quarter, roughly in line with Q4 22.

The rise in revenue also boosted Lowell’s FY 23 figures. Cash income for the year was £1.2bn, up from £971m in 2022, while cash EBITDA was £774m, up from £569m. However, spending on portfolio acquisitions declined by 33% to £319m in FY 23, down from £473m a year earlier.

Lowell faces a maturity on its £396m RCF in August 2025 (from which it has drawn £378m as of Q4 23) and has a £1.1bn maturity wall in November 2025. All of this comes at a time of close scrutiny in the sector, as Lowell’s peer Intrum faces a potential restructuring.

On the Tuesday investor call (transcript here) Lowell’s chief financial offer Jamie Wilson told investors that the company had decided to hold fire on refinancing negotiations until it could produce a “complete” set of numbers for Q4 23.

Those numbers, he said, demonstrated that the business could “trade through different economic cycles”.

On Lowell’s last investor call in November, the management team unveiled its plan to reduce net leverage down to below 3x ahead of expected refinancing negotiations this year.

The plan aimed to improve liquidity and collections efficiency by targeting investment opportunities with a 20% IRR, and by executing an additional off-balance sheet securitisation transaction, known as Wolf III.

The Wolf III transaction was originally slated for Q1 24, but was pulled forward to December 2023. The transaction boosted net cash EBITDA by approximately £135m, helping Lowell close out FY 23 with net leverage at 3x.

Through the Wolf III transaction, Lowell issued £105m in senior notes and £23m junior notes secured against assets it purchased in its 2022 acquisition of Hoist UK, and the firm holds a further £14m in senior notes and £1m in junior notes issued through the deal. The amount outstanding under the the first two Wolf ABS facilities amounts to £396m; Lowell has yet to release figures on its outstandings under Wolf III.

The firm’s pro forma net leverage was even lower at around 2.7x, but that figure reflects a £48m adjustment for the sale of certain DACH portfolios conducted in Q1 24.

As mentioned by my 9fin colleague Matthew Hughes in his last report on Lowell, the company’s short-term leverage can be volatile. For example, Lowell’s leverage rose by 0.5x in Q3 24, when the EBITDA contribution from its first ABS transaction (Wolf I) fell outside of the LTM calculation.

Wilson commented that the company’s third ABS offering was “an important one … because it saw the maturing of the process … this was the first publicly offered and listed securisation we’d done.”

Liquidity was £270m at the end of the year, and the revolver and ABS facilities are doing the heavy lifting here: cash is £78m, and while Lowell has £174m of cash availability from its Wolf securitisations, it only has £18m of remaining capacity under its RCF.

The fact that EBITDA looks good for the fourth quarter is largely down to the Wolf programme, and less the result of operational performance.

The management team estimates that Wolf boosted EBITDA by £135m and cash income by £174m in Q4 23. But if you strip that out, the company’s EBITDA and cash income for the quarter actually declined.

Nevertheless, performance in the UK was solid with cash EBITDA growth of 20%. Performance in DACH countries was still sluggish in Q4 23, but improved year-over-year in EBITDA and cash income terms, as the business recovered from a cyber attack in 2022.

Meanwhile, performance in the Nordics was strong for the year with nearly €100m in additional cash EBITDA and more than €100m of additional cash income attributed to the region.

Source: Lowell FY 2023 Presentation, slides 5 & 7

Though purchasing activity for Q4 was stable year-over-year, Lowell has turned away from investments in DACH countries (see slide 8 in the presentation).

“We are seeing more opportunity to deploy in 2024 in the UK and Nordics because we haven't seen appropriate pricing for deals in DACH, and therefore we've chosen to pull back slightly on our investment in DACH in the short term,” Wilson told investors.

Overall purchasing volumes were lower for the year at £319m, in line with management’s strategy of targeting high-IRR opportunities. That figure was short of management’s Q3 purchasing guidance of around €350m, but in line with a new target of €300m, which the management team says is necessary to maintain a healthy pipeline moving forwards.

Management faced questions during the call over the specifics of its refinancing plans, but refused to provide detail.

Wilson said that the elevated yield on Lowell’s sterling and euro SSNs due November 25 was tied to the “overhang” of the refinancing process.

One investor raised the point that Intrum faced similar pressures on its refinancing process, and ultimately went down the liability management exercise route; Wilson declined to comment.

Overall, the risk of an LME still seems to be front and centre in the mind of the market: all of Lowell’s outstanding senior secured notes are indicated at around 70 following the earnings call.

That’s a slight improvement compared to before the call, but as you can see from the chart above, yields are still well in excess of 30%.

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Lowell banks on a rebound refi — Q4 23 earnings review

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