Download Company Overview - Cabot Credit Management

Cabot Credit Management
Investor Presentation
September 2012
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e s
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presentation is onlyy directed at p
persons who ((i)) are outside the United Kingdom
g
or ((ii)) have p
professional experience
p
in matters relating
g to investments ((being
g investment p
professionals falling
g within Article 19(5)
( )
This p
of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended, (the “Financial Promotion Order”)); (iii) are persons falling within Article 49(2)(a) to (d) (high net worth companies,
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Agenda
 Transaction Summary
 Company Overview
 Key Credit Considerations
 Financials
 Investment
I
t
t Highlights
Hi hli ht
 Appendices
3
Offering Summary
Amount
£265m (GBP only)
Issue
Senior Secured Notes
Ranking
Pari Passu with all present and future senior secured indebtedness of the Issuer
Issue Ratings
BB/B1 (S&P/Moody’s)
Maturity
7 years
Call protection
NC 3, 35% equity claw-back, Gilts+50 bps make whole during non-call period
S
Security
i
Secured
S
db
by a fifirst-ranking
ki lilien over allll shares
h
and
d substantially
b
i ll allll material
i l assets off the
h IIssuer and
d the
h
Guarantors. Security to be shared with Super Senior Secured RCF
Use of proceeds
Repayment of the Existing Senior Facilities Agreement and (part) repayment of Shareholder Loans
Ch
Change
off control
t l
I
Investor
t putt @ 101 % ((subject
bj t tto lleverage ttestt – no CoC
C C if LTV<50% prior
i tto 18 months
th ffrom iissue d
date)
t )
Key covenants
Incurrence covenants customary to HY offering; basket for super senior secured debt is the higher of
£50m or 10% of ERC
Distribution
RegS/144A (no registration rights)
4
Transaction Overview
 Proposed refinancing transaction
Sources & uses
Sources
Notes offered hereby
£m
-
Issue £265m Senior Secured bond
265.0
-
Refinance existing banking facility and distribution to
CCM to allow partial repayment of Shareholder Loan
Notes
Total sources
Uses
R
Repayment
t off nett senior
i facility
f ilit outstanding
t t di
265.0
£m
-
£50m revolving Credit Facility
-
Provides incremental liquidity and financial flexibility to
160 9
160.9
Fees
14.1
Repayment of shareholder loans
90.0
Total uses
 New revolving Credit Facility (RCF)
265.0
acquire portfolios
 Rationale for refinancing
-
Longer term financing – more appropriate given longer
term nature of the assets
-
Additional operational flexibility
-
Appropriately leveraged business
5
Transaction Overview (cont’d)
Illustrative debt to ERC analysis (£m)
Pro forma capitalization table as at 30-Jun-12
£m
x Adj. EBITDA1
(18)
(0.2)x
Undrawn
-
New senior secured notes
265
2.7x
Net debt
247
2.5x
Facility
Cash
Super senior RCF
1 PF
6014
1503
4513
LTM Company Consolidated Adj. EBITDA of £97.0m as at 30-Jun-12
 Conservative 2.7x Gross Debt to Company Consolidated
Adj EBITDA1
Adj.
–
265
2.5x Net Debt to Company Consolidated Adj. EBITDA
 Significant asset over collateralisation with gross 84-month
ERC2 226% of the Issue at closing
–
Ill t ti nett ERC3 is
Illustrative
i 170% off th
the iissue
 Significant embedded cash flow beyond 84 month ERC
–
We will typically collect approximately 20% of the total
cash we collect on a portfolio after the initial 84-month
period
 High level of available liquidity
Bond
84 Month Gross
ERC
25% Cost of
Collections 3
Illustrative net 84
Month ERC
High Yield issuance is 44% of 84 month ERC
1
Adjusted EBITDA represents cash inflow from operating activities adjusted to exclude the effects of working capital adjustments including foreign exchange loss on investments, Apex
integration costs and loan portfolio acquisitions. Adjusted EBITDA also represents profit/(loss) on ordinary activities after taxation adjusted to exclude the effects of tax on profit/(loss) on
ordinary activities, interest receivable and similar income, interest payable and similar charges, depreciation and goodwill amortization, fair value movements on loan portfolios (including
related amortization),
), gain
g
on settlement of loan notes and related interest liability,
y, Apex
p integration
g
costs,, and the impairment
p
of g
goodwill
2 Estimated remaining collections, which represents the expected gross cash proceeds of our purchased assets over an 84-month period
3 25% represents an illustrative assumption of the full cost of collections over a 7 year period, which is used to calculate the net 84 month ERC shown above
4 ERC was £618m as at 31-Jul-12
6
Corporate and financing structure
AnaCap Calcium L.P.
Calcium Holdings S.à r.l.
Cabot Management
B loan notes
Cabot Credit Management
Limited (“Parent”)
Restricted group
£265mm senior secured
Notes
A loan notes
Cabot Financial Limited
(“Company”)
Cabot Financial Holdings
G
Group
Limited
Li it d
Cabot Financial
(Luxembourg) S.A.
Cabot Credit Management Group
Limited
£50mm New Senior
Credit Facilities
Cabot Financial Debt Recovery
Services Limited
Apex Credit
Management
g
Limited
Cabot Financial (Europe)
Limited
Cabot Financial (UK) Limited
Proceeds loan
Financial Investigations and
Recoveries ((Europe)
p ) Limited
Other Subsidiaries
Guarantors
7
Agenda
 Transaction Summary
 Company Overview
 Key Credit Considerations
 Financials
 Investment
I
t
t Highlights
Hi hli ht
 Appendices
8
Management Team Representatives
801 years of collective sector experience. Management2 owns 23% of Cabot Credit Management
Neil C
Clyne
y
CEO
Glen Crawford
Managing
Director
 Joined Apex Credit Management as Chief Executive Officer in November 2007 and assumed the same role for Cabot Credit
Management following the merger in April 2011
 30 years of financial services experience – previously Global Auto Director of GE Money with responsibility for 30 business units
across the world
 Under Neil’s leadership, Apex was recognised by the Sunday Times “Buyout Track 100” for businesses with the fastest growing
profits and the Sunday Times “Top 100 Best Companies to Work For” as well as achieving Investors in People Gold status




Founding director of Cabot Financial in April 1998
Retained role as Managing Director with CCM following merger of Cabot Financial with Apex.
Led successful MBO’s of Cabot Financial in 2004 and 2006 as well as multiple refinancings
Over 10 years previous experience as a corporate lawyer
Chris
Ross-Roberts
CFO
 Recently recruited to the Board of CCM
 Previously Group Finance Director of BPP Holding PLC
PLC, a former FTSE 250 company that was successfully sold to Apollo Global
Inc in August 2009
 Over 17 years of Board level experience working both in the listed environment and with Private Equity, including a period as
CEO of Alexander Mann
 A chartered accountant, Chris spent 9 years at Arthur Andersen
Steve Mound
COO
 Joined Apex Credit Management as Chief Operating Officer in May 2008
 28 years financial services experience – previously with Co-operative Bank and Littlewoods Shop Direct Group
 Significant operational experience running collections and recoveries operations and has been involved in numerous debt sale
transactions, acting as both buyer and seller
 Board member of the Debt Buyers & Sellers’ Group within the CSA
Roger Davis
Non-Exec
Chairman
1
2
 Previously CEO of Barclays UK Retail Banking operation and a member of the Board of Barclays PLC
 Joined Cabot Credit Management as Non-Executive Chairman in October 2011
 Currently Chairman of GEM Diamonds and NED of Experian PLC, where he also chairs the Remuneration Committee
Combined years of financial services experience for executive directors
Management refers to combined executive team, not only the persons presented on this slide
9
The Cabot Credit Management Story1
13 Year unbroken track record of steady, profitable growth
1998
Cabot Financial
founded in 1998
and one of the
first entrants into
the UK debt
purchase
h
market
k t
2006
MBO of Cabot
Financial completed,
backed by Nikko
Principal Investments
2004
MBO of Cabot
Financial
completed,
backed by BPE
and Vision
Capital
2000
Apex Credit
Management
founded as a
DCA
2011
Cabot Credit
Management
(‘CCM’) formed
through merger of
Cabot Financial
and Apex Credit
Management
2007
Apex Credit
Management
acquired by funds
advised by AnaCap
Financial Partners
Acquired Irish
business (Cabot
Financial Ireland)
1998
2004
2000
2006
2007
2011
(£ in millions)
£128
Pro-forma UK Debt Purchasing Collections
£0
£2
£8
£13
1998
1999
2000
2001
£34
£21
2002
2003
£42
2004
£57
2005
£67
2006
£80
2007
£90
2008
£103
£107
2009
2010
£142
LTM
£68
YTD
2011
30-Jun-12
Source: CCM
1 Pro forma including Apex collections pre Cabot acquisition
10
Cabot Credit Management

The U.K.’s #1 acquirer and manager of defaulted consumer debt from financial
services firms based on value of debt portfolios on balance sheet
•


•
3.3m purchased accounts under management
•
Unmatched
U
t h d track
t k record
d off 13 years off purchasing
h i
and
d collections
ll ti
experience
Well established and focused business model driven by analytical rigor and
operational excellence
•
Purchasing activities focused on semi
semi-performing
performing & primary financial
services debt in the UK Market
•
Extensive investment in best-in-class operations, analytics and
compliance
•
Unblemished regulatory and compliance record
Substantial Asset underpinning and cash flow generation
•

£6.7bn face value of UK debt acquired to date comprised of 905 portfolios
sold by a wide variety of sellers (in excess of 50) and acquired for an
aggregate investment of £586m (8.7% average Acquisition Price)
£601m 84-month ERC (£618m as at 31-Jul-2012)
Complementary DCA expertise providing increased proprietary deal flow,
broader collections experience (thereby improving propensity models),
reinforcement of compliance standards and additional economies of scale and
operational flexibility
Collections and Revenues split
2011 Collections: £209 million1
Overseas,
£20.5m
(9.8%)
UK Contingency
Collections,
£52.6m
(25.2%)
UK Debt
Purchase,
£135.6m
(65.0%)
2011 Revenues: £148 million1
O
Overseas,
UK Contingency, £6.1m
(4.1%)
£7.4m
(5.0%)
UK Debt
Purchase,
£134.4m
(90.9%)
Note: All figures as at 30-Jun-12, unless otherwise stated
1 14 month period to 31-Dec-11 including Apex from April-11
11
Market Leader in UK Financial Services
Focus on Financial Services debt...
...which is increasingly semi performing...
Portfolio investments by sector type
Portfolio investments by underlying portfolio type
Last three years3
Since inception
Other1
Primary
P
i
£170m
(29.0%)
£11m
£11
(1.9%)
Primary
£
£15m
(9.7%)
Semi p
performing
g
£215m
(36.7%)
Secondary
and Tertiary
£45m
(29 9%)
(29.9%)
Financial Services
£574m
(98 1%)
(98.1%)
Semi performing
£91m
(60 4%)
(60.4%)
Secondary and Tertiary
£201m2
(34 3%)
(34.3%)
1 Other
Total = £586m
incl. Catalog and Telecoms
2Includes
£6m of non-standard
Total = £151m
3Based
on Cabot spend, excludes assets
purchased by Apex
...drives ERC4 (£m)
124
108
Year 1
4 Represents
Year 2
£601m 84 month ERC as at 30-Jun-12
94
Year 3
81
Year 4
72
Year 5
64
58
Year 6
Year 7
Backbook forecast to generate £232mm
of cash over the next 24 months
12
Profitable and highly cash generative business model
Illustration of Cabot’s business model - Based on semi-performing portfolio
Face value
100p
p
X
Purchase
price
11 6 ¹
11.6p¹
Collections
multiple
X
23 ²
2.3x²
-
Full
servicing
cost
25%³
=
Net
collections
20.1p
Gross cash
on cash
multiple
over 10year is 2.9x
Cabot Credit Management
typically experiences
significant collections
outside of the 7-year
period shown in this
illustration.
Building long-term payment solutions with customers is at the core of our
business model. We focus on maximizing the total collected income over
the lifetime of the debt, rather than on short-term collections potential
1
Average price paid for all semi-performing portfolios acquired in the 12 months period ended 30-Jun-09.
Over a 84 month period.
3 25% represents an illustrative assumption of full cost of collections. The marginal collection costs of semi-portfolios is lower at 8%.
2
13
Largest UK debt purchaser by portfolio size (£m)
(£ in millions)
FV of Loans on Balance Sheet
£m
ERC
£m
275
601
185
384
77
n.a.
73
n.a.
55
n.a.
… with unrivalled scale in financial services1
£6.5bn face value of U.K. financial services debt acquired with +£573m acquisition spending
Over 827 portfolios acquired
+2 8 million accounts with high average customer balances of £2.3k
+2.8
£2 3k
Extensive, long-standing relationships with multiple vendors across the sector
c.15% lead share of market
1
Full portfolio: £6.7bn face value of UK debt acquired, comprised of 905 portfolios with average balance of £2.0k and acquired for an aggregate investment of £586m
Lowell as of 30-Nov-11, Marlin as of 31-Dec-11, 1st Credit as of 31-Dec-11, CapQuest as of 31-Mar-11
Note: FV of loans on balance sheet and ERC for other comparable
p
companies
p
from p
public reports
p
14
Agenda
 Transaction Summary
 Company Overview
 Key Credit Considerations
 Financials
 Investment
I
t
t Highlights
Hi hli ht
 Appendices
15
Overview of Key Credit Strengths

1
Strong asset backing, cash generative book
•
•
•
•

2
Exceptional access to desirable market exhibiting growth characteristics
•
•
•

3
Focus on lower risk, semi-performing portfolios producing stable cash flow
£601m 84-month
84 month ERC backbook forecast to generate £232m of cash over the next 24 months
Strong backbook providing strength and resilience, which is supported and maintained by continued portfolio
purchases
Significant additional cash flow embedded post 84-month ERC
Significant supply anticipated
Strong relationships with key vendors in its core UK market segments
Professionalism in relationship management and execution augments origination capabilities
Di i li d acquisitions
Disciplined
i iti
approach
h
•
•
•
•
Quantitative, objective approach to pricing based on collections and returns expectations
Highly automated and predictive pricing models benefiting from a wealth of cross-cycle collections data
Pricing committee with significant market knowledge, experience and expertise
Pricing models demonstrate high level of accuracy

4
“Best in-class” collections platform

5
• Significant scale and operational flexibility
• State-of-the-art technology platform optimises collections and contact strategies
• Sophisticated collections flow maximises customer contact
Exemplary compliance control and governance
•
Strong compliance track-record that provides competitive advantage in portfolio origination
Note: All figures as at 30-Jun-12
16
Agenda
 Key Credit Considerations
1

Strong
g asset backing,
g, cash generative
g
book
2

Exceptional access to desirable market exhibiting growth characteristics

3
Disciplined acquisition approach
4

“Best-in-class” collections platform
5

Exemplary compliance control and governance
17
1
Strong asset backing, cash generative book
Focus on Establishing Long-Tail Payment Plans Which Improve
Predictability of Collections

Portfolio “layering” effect creates stable, diversified cash flows – back book has 84 month ERC of £601m
- Over £232m of cash projected to be generated from current portfolios over the next 24 months

High degree of predictability given large proportion of set-up arrangement plans and predictable payment methods
- 80% of annual collections in for the twelve months ended June 30, 2012 were through arrangements
Monthly historical cash generation by vintage
Monthly estimated remaining collections by vintage
84 month collection history to June 2012 (£m / month)
84 month estimated collections as at June 2012 (£m / month)
2002 and p
prior
2004
2006
2008
2010
2012
14
12
10
2003
2005
2007
2009
2011
Apex
2002 and p
prior
2004
2006
2008
2010
2012
14
12
10
8
8
6
6
4
4
2
2
0
2003
2005
2007
2009
2011
Apex
0
0
12
24
36
48
60
72
84
0
12
24
36
48
60
72
84
Focus on setting up long-tail payment plans generates strong annuity streams
Source: CCM management accounts
18
Strong asset backing, cash generative book
1
High Cash Flow Conversion
Based upon 2011 example (£m)
Cash conversion1
(56.7)
97.3%
0.4
(2.5)
147.9
89.0
40 0
40.0
Turnover

Overheads
Capex
Other items
Cash before debt and
tax service
2
Portfolio investment to
maintain ERC status
quo
Cabot’s existing portfolio book generates significant cash collections at low servicing costs:
– 62% Adj. EBITDA margin (after all servicing costs)
– 97% average conversion
i iinto
t cash
h fl
flow b
before
f
d
debt
bt service
i and
d ttax d
during
i llastt ttwo fifiscall years
1
(Adjusted EBITDA less capital expenditures and other items) / Adjusted EBITDA
£40m figure is an approximation as this is dependent on the type of portfolio acquired, the phasing of portfolio purchases and the collections being achieved on all portfolios
2 The
19
1
Strong asset backing, cash generative book
Significant Additional Cashflow Embedded Post 84 Months ERC
Money multiples by vintage (1998–2004)1
Below 84 months
3.70x
3.20x
2.70x
3 34
3.34x
3.30x
0.72x
0.55x
Over 84 months
3.09x
2.91x
2.91x
0.36x
0.47x
0.61x
2.92x
0.26x
2.20x
1.93x
0.08x
1.70x
1.20x
2 30x
2.30x
2.62x
2.74x
2.44x
2.74x
2.66x
1.85x
0.70x
0.20x
-0.30x
1998
1999
2000
2001
2002
2003
2004
% collected after
month 84
21%
22%
17%
16%
12%
9%
4%
11% off our collections
ll ti
iincome for
f the
th 12 months
th tto 30-Jun30 J
12 was derived from accounts that were over 84 months old
at 30-Jun-11
We will
W
ill typically
t i ll collect
ll t approximately
i t l 20% off the
th total
t t l cash
h
we collect on a portfolio after the initial 84-month period
¹ All vintages with full 84 months history
20
Agenda
 Key Credit Considerations
1

Strong
g asset backing,
g, cash generative
g
book
2

Exceptional access to desirable market exhibiting growth characteristics

3
Disciplined acquisition approach
4

“Best-in-class” collections platform
5

Exemplary compliance control and governance
21
2
Exceptional access to desirable market exhibiting growth characteristics
The UK Non-Performing Loan Market is in a Phase of Market
Recovery Growth
Face value of non-performing debt sold (£bn)
14
(£bn)
12
Reduced Activity
Explosive growth
10
7.7
8
7.0
5.0
3.9
4
2
8.7
6.0
6
1.9
1.5
1.5
2001
2002
2003
Return to Growth
8.22
31
3.1
YTD
3.9
2.3
0
2004
2000-2008
Explosive growth

Fourfold increase of
volumes sold from £1.9bn to
£8.7bn per annum resulted
– Increasing competition by
new entrants from 20012008
– Cheap funding driving
prices up
YTD as of 30-Jun-12
2006
2007
2008
2009
2008-2009
Reduced activity



2
2005
Reduced demand:
– Limited funding availability and increased cost of
funding
– Reduced competition with surviving players
successfully perform in establishing niche
– Underperformance of back-book
back book and increasing
use of long-term settlements (Set-ups)
Reduced supply:
– Sellers delaying sale in favour of outsourced
debt-collection first
Market halved from £8.7bn p
peak in 2008 to
£3.9bn in 2009, with lower prices from peak to
trough
2010
2011
2012F
2010 onwards
Return to growth






Lenders actively re
re-considering
considering sale due to
price stabilisation
Requirement for banks to clear backlog of
debt for sale subsequent to hiatus from the
summer of 2008 to early 2010
Increasing demand, mainly on paying / semi
semiperforming and tertiary segments
Funding becoming more available, primarily
to established players
Increased regulatory scrutiny
Competition
p
not expected
p
to return to
2006/2007 levels due to increased barriers:
– Funding
– Compliance
22
2
Exceptional access to desirable market exhibiting growth characteristics
Strong Relationships with Key Vendors in its Core UK Market

Banks undergo complex due diligence and compliance processes before selling debt to a debt purchaser, hence have
strong preference for maintaining stable and long-standing relationships with debt purchasers with whom they are
comfortable
f t bl

CCM’s best-in class origination and acquisition processes are well recognized and appreciated by key vendors
Vendor concerns
Comments
CCM’s experience
Financial stability
 Sellers conduct financial due diligence on buyers to
determine their sustainability
 Accredited for CSA Collector
Accreditation Initiative
 Reputational
p
risk is at the forefront in the minds of the
vendors
 During 2011, CCM’s clients spent 67
days auditing the group’s compliance and
governance model
Due diligence /
Compliance
Business
practices and
ease of
interaction
 Originators typically conduct due diligence prior to entering
into a debt sale relationship
 Vendors are seeking to maintain relationships with a
smaller number of DPs
 Having a reputation for being able to transact purchases on
a sustainable basis and a track record of regulatory
compliance
li
iis a kkey consideration
id ti ffor certain
t i vendors
d
and
d
may represent a considerable challenge for new entrants
 Active engagement with external bodies
such as the Credit Services Association,
the Debt Buyers and Sellers Group, the
g Association and the
Finance and Leasing
Money Advice Liaison Group (which
multiple regulators are part of) to promote
best practices
 Established, long-standing relationships
with over 50 financial services firms and
other vendors
Reputation validation by other vendors is often a part of any bidding process and CCM benefits from outstanding
references from both its supplying and its lending banks
23
Agenda
 Key Credit Considerations
1

Strong
g asset backing,
g, cash generative
g
book
2

Exceptional access to desirable market exhibiting growth characteristics

3
Disciplined acquisition approach
4

“Best-in-class” collections platform
5

Exemplary compliance control and governance
24
3
Disciplined acquisition approach
Robust and Disciplined Acquisition Process Priced Through Sophisticated
Analytical Model Augmented with Extensive Experience
 Quantitative and objective approach to pricing based
on collections and returns expectations
p
driven by
ya
highly automated Pricing Suite
• Individual customer pricing drives the two core models
 Outputs of core models validated by additional
analysis
• Related asset model – substantial competitive
advantage as 3.3m account database means typically
CCM has interaction with 10-25% of customers in a
new portfolio
 CCM’
CCM’s P
Pricing
i i S
Suite
i iis d
deployed
l
d with
i h commercial
i l iinputs
and overlays agreed by the pricing committee (which
prices every acquisition, regardless of purchase value)
• Significant depth in organisation and experience of
pricing portfolio
• 4 executive directors with over 24 years combined
pricing experience
• 6 professionals in origination and pricing have over
42 yyears of experience
p
Vendor Data
Received
Quick Data
Analysis
Final Bid
Initial
Pricing
Pricing
Committee
Post Pricing
Analysis
Post Pricing
Analysis
Pricing
Committee
Revised
Pricing
Vendor Due
Diligence
Initial Bid
 Latest Pricing Suite validated and tested in 2010
before its promotion to live model in 2011
Robust and predictive pricing process utilising highly sophisticated data-driven Pricing Suite that is regularly
updated
p
and consistently
y monitored
25
3
Disciplined acquisition approach
Actual Collections vs. Pricing Model Collections Show High Level of
Accuracy
2009 Actual vs
vs. Pricing Model
Actual
2010 Actual vs
vs. Pricing Model
Pricing Model
25
Actual
Pricing Model
Actual
35
40
30
35
20
Pricing Model
30
25
15
2011 Actual vs
vs. Pricing Model
25
20
20
15
10
15
10
10
5
5
5
116.8% of PM
0
99.9% of PM
103.5% of PM
0
0 4 8 12 16 20 24 28 32 36 40
0
0
4
8
12
16
20
24
28
0
4
8
12
16
Note: Each graph shows cumulative actual collections since acquisition vs. collections predicted by the pricing model during same period
Source: CCM management information
26
Agenda
 Key Credit Considerations
1

Strong
g asset backing,
g, cash generative
g
book
2

Exceptional access to desirable market exhibiting growth characteristics

3
Disciplined acquisition approach
4

“Best-in-class” collections platform
5

Exemplary compliance control and governance
27
4
“Best in-class” collections platform
Significant Scale and Operational Flexibility
Call centre
operations



Other
support
functions




Kings Hill Collections (200 FTE), Stratford-Upon
Avon Collections (202 FTE), Trace (39 FTE)
Dialler and telephony support
Support operations
3rd party management
Quality Assessment Team
Customer Assurance (complaints team)
Hardship (3rd party debt advice)
Dublin

 50-seat call center
Outsourced
processes







Other
Outsourcing

Stratford-Upon Avon

 300-seat call center
Stralfors — Mail & Printing
Grant Thornton – IVA Management
Phillips & Cohen – deceased collections
“Specialised” external agents
Litigation
Pre-approved panel of door-to-door collection
agencies
Pre-approved panel of agents for the service of
statute barred accounts
Internal Audit responsible for auditing all external
agent suppliers
– Doorstep collections
– Trace & Collect
Processes are rigorously reviewed to ensure they
are efficient and compliant
Daily processing of files to external agents to
maximize efficiency
Kings Hill,
Hill Kent
 400-seat call center
28
4
“Best in-class” collections platform
State-Of-The-Art Technology Platform Optimises Collections and Contact
Strategies
Proprietary
collection
ll ti platform
l tf

Proprietary collections system based on fully-integrated communications system incorporating predictive
di li and
dialing
d IInteractive
t
ti V
Voice
i M
Messaging
i
Data
warehouse
h

Currently introducing an integrated data warehouse across CCM DCA and DPA business driving
performance
f
reporting
ti

Low cost collections model: Currently investing in rolling out SAS Analytics and Business Intelligence
platform deployment throughout the business

First adopter of Nexidia speech analytics in the UK collections sector to retain first mover advantage

Uplift in internal productivity benchmarks since system was adopted in Cabot platform
SAS Analytics &
Business
Intelligence
Integrated
telephony
platform and
speech analytics

CCM’s technology has been recognised through industry awards on multiple occasions
The Customer Contact Innovation award for Integrated Outbound was awarded to Apex Credit
Management Ltd for the way in which their use of SAS and speech analytics have transformed debt
collection strategies and data segmentation — Professional Planning Forum Awards, 2011
29
4
“Best in-class” collections platform
Sophisticated Collections Flow Maximises Customer Content


Sophisticated collections
flow with trace interventions
at all key decision points
Collections that
reach litigation
phase are now
outsourced
TRACE
Highly structured collection
process supported by
extensive data set
LITIGATION
CABOT COLLECTIONS
BOOK
ON
New Business–Non Payers
Account Management–Payers
F.I.R.E.1
External Agents
NON STANDARD COLLECTIONS
Hardship
Bankruptcy
& IVA
Probate
Trace Points
Maximising customer contact at each stage of collections life cycle is the key to CCM’s low cost
collection strategy
1 Financial
Investigations and Recoveries (Europe) Ltd
2 Cumulative
30
Agenda
 Key Credit Considerations
1

Strong
g asset backing,
g, cash generative
g
book
2

Exceptional access to desirable market exhibiting growth characteristics

3
Disciplined acquisition approach
4

“Best-in-class” collections platform
5

Exemplary compliance control and governance
31
5
Exemplary compliance control and governance
Widely Recognized as an Industry Leader in Compliance
Track record of excellence with regulators

Company of reference within the industry for its highly
regarded compliance framework

Impeccable track record – no requirements imposed by
any regulator

3.3m customer telephone contacts and 400,000
customer letters issued per month (as of June 2012)
−

1
Very low number of FOS and ICO complaints
p
g under 0.003% of total accounts with 11
representing
cases resolved in favour of plaintiff in 2011 1
Reasons for compliance success

Rigorous approach to recruitment - comprehensive
process including qualification requirements, interviews,
skill testing

Comprehensive training programs – 4 weeks in Training
R
Room
and
d 8 weeks
k on th
the C
Collections
ll ti
Fl
Floor ((regular
l
interactive refresher training sessions and tests)

Comprehensive quality control procedures including:
−
Compliance Analytics: Dedicated teams monitor and
analyse adherence / investigate customer complaints
−
Regulatory Interactions: Contact with regulators takes
place via active collaboration (e.g. board
representation at CSA & Debt Buyers and Sellers
Group). All licenses are up to date
−
Regular Audits: internal audit conducted on external
agents, service suppliers and internal operations.
Consensual collections approach focussed on maximizing
collections over natural life of portfolio
14 month period to 31-Dec-11 including Apex from April-11
32
Agenda
 Transaction Summary
 Company Overview
 Key Credit Considerations
 Financials
 Investment
I
t
t Highlights
Hi hli ht
 Appendices
33
Financial Results Summary
Consolidated Historical Revenues (£m)

Compelling business model
– Specialise in UK Financial Services, largest
section of UK market
– Focus on semi performing financial debt with
long annuity streams and lower volatility

Strong revenue and EBITDA growth
– Scale benefit driving operational efficiency
– Pricing discipline ensuring strong revenue gains

Highly cash generative
– Generated £93.6m of cash 2 for the year to 3030
Jun-12

Strong ERC growth
– Business requires only £40m of purchases to
maintain ERC3

Key growth drivers
– Large stocks of defaulted unsecured stock on
b kb
bank
balance
l
sheets
h
– Banks managing down their risk weighted assets
– Limited funding availability
Consolidated Apex & Cabot
89.1
88.3
FY2009
1
FY20101
147.9
150.3
14 months
to Dec-11
12 months
to Jun-12
Adj t d EBITDA (£m)
Adjusted
(£ )
56.5
91.5
96.3
14 months
to Dec-11
12 months
to Jun-12
51.9
1
FY2009
FY2010
1
84-month ERC – Net debt ((£m))
84 month ERC
Net debt
120 month ERC
740.6
636.4
102.9
1
FY2009
1
600.7
378.9
349.7
93.5
1
FY2010
135.1
110.6
14 months
to Dec-11
12 months
to Jun-12
Fiscal year ending 31-Oct; 2 Cash = adjusted EBITDA less capex and other items; 3 ERC is a projection and based on historical and current data, trends and assumptions and such
cannot be guaranteed - £40m figure is highly dependent on phasing and yield assumptions
34
Agenda
 Transaction Summary
 Company Overview
 Key Credit Considerations
 Financials
 Investment
I
t
t Highlights
Hi hli ht
 Appendices
35
Investment Highlights
1 Strong

g asset backing
g and highly
g y cash g
generative book

2 Clear market leader in UK debt purchasing with unrivalled scale

3 Favourable market conditions exhibiting growth characteristics
4 Excellent access to market

5 Disciplined pricing approach


Long-term,
term, ethical collections approach
6 Long
7 Best-in-class compliance control and governance

8 Strong financial profile

36
Agenda
 Transaction Summary
 Company Overview
 Key Credit Considerations
 Financials
 Investment
I
t
t Highlights
Hi hli ht
 Appendices
37
AnaCap Financial Partners - Specialist Financial Services Sponsor
Introduction
to AnaCap
 Specialist private equity firm advising its dedicated funds on investing in European financial services
• Founded in 2005 by Joe Giannamore and Peter Cartwright, each with 20+ years experience in financial
services as owners/ operators and investors. Partners collectively have over 100 years of experience in
European Financial Services
• Credit Opportunities Strategy launched in 2010 to invest in diversified portfolios of performing and nonperforming consumer and SME debt,
debt including mortgages,
mortgages NPLs,
NPLs leases,
leases trade and other receivables
 As of July 31, 2012, €1.7bn of capital committed across the Private Equity and Credit Opportunities strategies
• Team of 28 investment professionals with direct experience in financial services operations, consulting,
corporate and structured finance
 Operationally
p
y engaged
g g g
growth investor utilising
g operational,
p
, risk and liability
y management
g
expertise
p
to actively
y
engage portfolio companies post-acquisition
Selected
Investments
38
Basic Business Model
Return dynamics of a hypothetical semi-performing portfolio (illustrative purposes only)
Face Value of portfolio purchased
£8.6m
Purchase Price
£1.0m
1
Aggregate Gross Collections over 84-month period
£2.3m
Gross cash-on-cash Multiple
2.3x
2
Months to break even on investment
31
1
Note that we typically experience significant collections outside of the 84-month period shown in this illustration.
2 Assumes
Ass mes marginal ser
servicing
icing costs of 8
8.0%
0% for a semi
semi-performing
performing portfolio as described above.
abo e If we
e applied the full
f ll servicing
ser icing costs of o
ourr entire book
book, which
hich were
ere appro
approximately
imatel 25%
for 6 months ending 30-June-2012, the months to break even on investment would be 41.
Cash conversion
Twelve months to 30-Jun-12
Adjusted EBITDA1
LTM (£’000)
96 339
96,339
Normalised Bond Interest Payments2
3
Normalised Tax Payments
4
Normalised Long Term Capital Expenditure
27,825
7,135
2,000
Interest Tax and Capital Expenditure
36 960
36,960
Adjusted EBITDA less tax, interest and capital expenditure
59,379
Portfolio Purchases to Maintain 84-month ERC5
40,000
Surplus cash generation to grow business without use of RCF or further debt
19,379
1
Assumes fair value movements of £39,240.
2 Assumes that the interest on the Notes is fully tax deductible.
3 Assumes that the interest on the Notes offered hereby is fully tax deductible. We also assume a tax rate of 25%.
4 We expect our capital expenditures in 2012 to be unusually large, due to costs relating to the Apex integration. The above illustration represents our typical long-term average capital
expenditure costs going forward, excluding such Apex integration costs.
5 Approximate value dependent on phasing and mix of portfolios acquired.
39
Financial Results Summary
Cash flow from operating activities
Years ended 31-Oct
(£ in thousands)
Net cash inflow/(outflow) from operating
activities
Returns on investments and servicing
of finance
Taxation
Capital expenditure and financial
investment
Acquisitions and disposals
C h iinflow/(outflow)
Cash
fl /( tfl ) before
b f
use off
financing
Financing
Increase/(decrease) in cash in the
period
Fourteen months ended
31-Dec
Twelve months ended
30-Jun
2009
2010
2011
2012
30,548
14,976
(11,889)
23,631
(6,768)
131
(5,801)
1,554
(8,601)
(159)
(8,531)
(5,053)
(1,662)
—
(1,333)
—
(2,774)
3,821
(4,677)
—
22,249
(22,593)
9,396
(9,298)
(19,602)
31,092
5,570
486
(343)
98
11,490
5,856
Fourteen months ended
31-Dec
Twelve months ended
30-Jun
Reported UK Loan Portfolio purchases
Years ended 31-Oct
(£ in thousands)
Reported UK Loan Portfolio purchases
2009
27,292
2010
37,784
2011
101,378
2012
68,322
40
Glossary, Terms and Abbreviations
Adjusted EBITDA
Represents net cash inflow/(outflow) from operating
activities adjusted to exclude the effects of working capital
adjustments, Apex integration costs, loan portfolio
acquisitions and non-cash retranslation adjustments.
Adjusted
j
EBITDA also represents
p
p
profit/ ((loss)) on ordinary
y
activities after taxation adjusted to exclude the effects of
tax on profit/(loss) on ordinary activities, interest
receivable and similar income, interest payable and
similar charges, depreciation and goodwill amortization,
fair value movements on loan portfolios, gain on
settlement of loan notes and related interest liability, loss
on sale of fixed asset investment, Apex integration costs,
and the impairment of goodwill.
Backbook
All debt portfolios owned at the relevant point in time
CCM
Cabot Credit Management
CSA
UK Credit Services Association
Customer
A consumer who has defaulted on a credit account that
was purchased from a vendor by a DP (as defined below)
DCA
Debt Collection Agency
Debt Purchase
The purchase of debt portfolios at a discounted price
ICO
UK Information Commissioners Office
OFT
Office of Fair Trading
RVM
Proprietary revaluation model
SAS
A business intelligence, data mining and automation
product
Settlement
Payment against an outstanding debt balance not
defined as a set-up arrangement
Set-Up arrangement
Monthly repayment plan agreed with a Customer with
more than three repayments
Trace or Tracing
The action of attempting to find the correct contact
details of a customer. Tracing is based on significant
information analysis
Vendors/Clients
Financial institution or other organisation which sells
debt to Debt Purchasers
Debt portfolio definitions
DP
84-Month ERC
FOS
Debt Purchaser
Estimated remaining collections on out purchased Loan
Portfolios over an 84-month period, which represents the
expected future gross cash collections of our purchased
Loan Portfolios (as defined in the offering memorandum)
over an 84 month period. Note that figures represent UK
Portfolios only.
UK Financial Ombudsman Service
Semi-performing /
paying
Debt portfolios in which over 50% of accounts have
made a payment in the last three or four months
immediately prior to the portfolio purchase
Primary or fresh
debt
Debt portfolios in which the weighted length of time
from default to purchase is less than 12 months
Secondary and
Tertiary
Debt portfolios in which the weighted length of time
from default to purchase is more than 12 months
Non-standard
Specific cases, including IVAs
41