Encore Capital Group Inc.
) announced the pricing of its $100 million convertible senior
notes due 2017 at 3% per annum. The interest, however, will be
paid semi-annually on May 27 and November 27 each year.
Encore Capital had announced the private offer for these
senior convertible notes earlier this week. The offer is expected
to end on November 27, 2012, subject to the fulfillment of
certain closing conditions.
The notes will be sold only to qualified institutional buyers
as defined by the amended Rule 144A under the Securities Act of
1933. Moreover, the initial buyers have the option of buying
additional notes worth $15 million.
The senior notes are unsecured and can be converted into cash
or equity shares, depending on the fulfillment of certain
conditions and occurrence of events. The conversion price is
based on the volume-weighted average price of the shares, which
is calculated using the daily share prices over an observation
Initially, the holders of the notes will receive 31.6832
shares for every $1,000 principal value held by them. This
conversion rate translates into a conversion price of about
$31.56 per share, representing a premium of around 25% on the
closing price of $25.25 of Encore Capital's shares on November
Encore Capital also undertook some hedge and warrant
transactions related to the notes with certain financial
institutions. Moreover, in the event of additional purchase by
the initial buyers, the company will take on additional hedge and
Encore Capital expects to raise $96.5 million as net proceeds
from the offer. About $10 million from the proceeds are projected
to be used to cover the costs of some hedging transactions, while
another $25 million will be set aside for repurchasing the
converted shares from the buyers of these notes.
An additional amount of $61.5 million will be used to repay
debt taken under the revolving credit facility. Any residual
amount will be used for general corporate expenses. Further, the
proceeds from any additional purchase by initial buyers will be
used to pay the expenses related to additional hedge transactions
and for corporate purposes.
The senior notes will increase Encore Capital's debt-equity
ratio to 1.66 from 1.43 as of September 30, 2012. Moreover,
additional purchase by the initial buyers will raise the
debt-equity ratio of the company to 1.69. This compares
unfavorably with the substantially lower debt-equity ratio of
0.37 of peer
Portfolio Recovery Associates Inc.
) as of September 30, 2012.
Encore Capital currently carries a Zacks #3 Rank (short-term
Hold). We maintain a long-term 'Neutral' recommendation on the
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