Buyers line up as Europe’s biggest debt collector divests units

Bloomberg

A long list of potential buyers has expressed interest in the Nordic and Baltic businesses that Intrum Justitia AB and Lindorff need to divest to proceed with their merger, according to Intrum’s chief executive officer.
CEO Mikael Ericson says he is confident the two firms can sell Lindorff’s entire business in Denmark, Estonia, Finland and Sweden, as well as all of Intrum’s business in Norway, within the six-month time frame set by the European Commission. Selling all five entities to one single buyer, which is another requirement set by the commission, is actually “easier than selling separate units,” he said in a phone interview.
“We wouldn’t have done this if we didn’t think that it was possible,” Ericson said. “And yes, we’ve had a lot of incoming calls, so we are very confident that we’ll be able to do the divestments in a good way, and at a good price.”
Shares of Intrum Justitia slumped 12 percent on May 18 after the company revealed the divestment plan. The five units to be sold represent roughly one-third of the total cost synergies of 800 million kronor ($92 million) that the merger was expected to bring, Intrum said then.
Combined, the units marked for divestment have about 850 employees. On a group, pro forma basis, they accounted for 14 percent of net revenue and 13 percent of earnings before interest, taxes, depreciation and amortization in the 12 months through March.
Since winning commission approval for the merger on June 12, the five units have already been separated from the combined company, Lindorff said on June 15, when it named its Chief Financial Officer Trond Brandsrud as head of the so-called Carve-Out Business.
Intrum is also making progress with other parts of the merger. On June 16, it said it had successfully issued the equivalent of 3 billion euros ($3.4 billion) of senior unsecured bonds at an average yield of about 2.85 percent for an average maturity of about 5.6 years. It will use the proceeds to repay Lindorff’s debt, as well as an existing revolving credit facility used by Intrum. The money will also cover related fees and expenses.
The company has entered into a new revolving credit facility of 1.1 billion euros, it said.
“The important thing with this bond issuance was to refinance the combined company, and establish a long-term and market-leading capital and cost structure in the company, and we really feel that we’ve accomplished that,” Ericson said in the interview.
“This is an acknowledgment, recognition, and acceptance of the merger with Lindorff, that we’ve been able to refinance the combined company with an average rate of somewhat below 2.85 percent.”
S&P Global Ratings on June 12 cut its long-term credit rating on Intrum to BB+, one step below investment grade, from BBB-.
The downgrade reflected S&P’s view that “initial operational hurdles outweigh improvements in Intrum’s business risk profile” as well as concerns about the merger’s impact on the financial risk profile and the effect on margins from increasing competition.
Asked whether Intrum believes it can raise its credit ratings, Chief Financial Officer Erik Forsberg said in a phone interview that “junk status is a very harsh term — we have a rating one step below investment grade.”
“This junk status is the same rating as many large companies in Sweden have,” Forsberg said. “We still think we have a very high creditworthiness, and this has been proven by the transactions” that were concluded, the CFO said.