Pioneer Credit refinancing ‘good for debt industry’

Analysts at JPMorgan have given debt collector Pioneer Credit’s refinancing package the tick of approval.

Analysts at JPMorgan have given debt collector Pioneer Credit’s refinancing package the tick of approval. Picture: AFP

Analysts at JPMorgan have given debt collector Pioneer Credit’s refinancing package the tick of approval, saying it will be a positive for the industry.

It follows months of turmoil for the company and the debt collection industry, with many players forced into confrontation with their lenders.

In April, senior lender Carlyle Group almost demanded Pioneer Credit return $141.6m of debt it had loaned.

But last week Pioneer Credit announced it had finalised a refinancing of its senior debt facility with the Carlyle Group.

The deal was advised by Azure Capital and K&L Gates and syndicate leader Nomura and includes a $169m term facility and $20m purchasing facility maturing on September 30 2022, with an option to extend to the following July under conditions.

The weighted average reinterest rate is 11 per cent over the Bank Bill Swap Bid Rate with a 2.5 per cent commitment fee and a 2 per cent exit fee.

There is also a top up fee to an internal rate of return of 14.5 per cent, excluding upfront fees and including the value of warrants.

JP Morgan analysts said that although the debt package announcement came with the issuance of warrants to new lenders and options to current management that will be dilutive to existing shareholders, it was a positive for the industry.

“We see the financing as a positive for industry structure and particularly Credit Corp with the worst case scenario of the Australian purchase of debt ledgers (PDL) market internalising back to the banking sector due to inadequate competition and price transparency now unlikely,” they wrote.

The analysts also said the additional capital constraints on Pioneer Credit would result in it purchasing debt at a more “rational” price than past practice.

However, they also noted concern over diversion within the industry regarding the extent to which debt purchasing will decline over the next two years as government stimulus tails off.

“Pioneer Credit has written down its PDL asset on a scenario weighted basis assuming an average reduction in cash collections of 7.6 per cent for the next 2 years,” they wrote.

“This forecast is in stark contrast to Credit Corp which wrote down its PDL asset in Jul-20 assuming an average reduction in cash collections of 18% over the next 2 years.

“Given the likely limited marginal cost associated with reduced collections, the difference in the impact to earnings from these two assumptions is significant, highlighting the continued disparity in the PDL carrying value of the two companies.”