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Borrowings
 12 Months Ended
Dec. 31, 2020
Debt Disclosure [Abstract]  
Borrowings
Note 7: Borrowings
The Company is in compliance in all material respects with all covenants under its financing arrangements as of December 31, 2020. The components of the Company’s consolidated borrowings were as follows as of the dates presented (in thousands):
December 31,
2020		December 31,
2019
Global senior secured revolving credit facility$481,007 $— 
Encore revolving credit facility— 492,000 
Encore term loan facility— 171,677 
Encore private placement notes146,550 308,750 
Senior secured notes1,651,619 1,129,039 
Convertible notes and exchangeable notes583,500 672,855 
Cabot senior revolving credit facility— 285,749 
Cabot securitisation senior facility478,131 464,092 
Other24,398 54,151 
Finance lease liabilities8,288 8,121 
3,373,493 3,586,434 
Less: debt discount and issuance costs, net of amortization(91,859)(73,237)
Total$3,281,634 $3,513,197 
In September 2020 the Company entered into various transactions, agreements and amendments related to its borrowings including (collectively, the “Financing Transactions”):
•an amended multi-currency revolving credit facility that formerly supported only Cabot that now supports the operations of all operating units;
•an issuance of €350.0 million (approximately $410.8 million) in 4.875% senior secured notes due 2025; and
•an amendment to the terms of the existing Senior Secured Notes (defined below).
Following the Financing Transactions, Encore is the parent of the restricted group for the Global Senior Facility, the Senior Secured Notes and the Private Placement Notes, each of which is now guaranteed by the same group of material Encore subsidiaries and secured by the same collateral, which represents substantially all of the assets of those subsidiaries.
In connection with the Financing Transactions, Encore repaid and terminated the Encore Senior Secured Credit Facilities (defined below) and prepaid a portion of its Encore Private Placement Notes (defined below). The total fees paid to the lenders and third-party costs incurred relating to the Financing Transactions were approximately $49.7 million, a portion of which were capitalized as debt issuance costs. Additionally, certain of the unamortized debt issuance costs prior to the Financing Transaction were written-off. The Company recorded a pre-tax expense of approximately $24.6 million (approximately $18.9 million net of tax) relating to the Financing Transactions, $15.0 million of which was included in loss on extinguishment of debt, $2.7 million was included in interest expense, and $6.9 million was included in general and administrative expense in the Company’s consolidated statements of operations during the year ended December 31, 2020.
Global Senior Secured Revolving Credit Facility
The Company has entered into a multi-currency senior secured revolving credit facility agreement (as amended and restated, the “Global Senior Facility”). In previous periods, the Company referred to this facility as the Cabot Credit Facility. As of December 31, 2020, the Global Senior Facility provided for a total committed facility of $1,050.0 million that matures in September 2024 and included the following key provisions:
•Interest at LIBOR (or EURIBOR for any loan drawn in euro) plus 2.50% per annum, with a LIBOR (or EURIBOR) floor of 0.75%;
•A restrictive covenant that limits the LTV Ratio (defined in the Global Senior Facility) to 0.75 in the event that the Global Senior Facility is more than 20% utilized;
•A restrictive covenant that limits the SSRCF Ratio (defined in the Global Senior Facility) to 0.275;
•A restrictive covenant that requires the Company to maintain a Fixed Charge Coverage Ratio (as defined in the Global Senior Facility) of at least 2.0;
•Additional restrictions and covenants which limit, among other things, the payment of dividends and the incurrence of additional indebtedness and liens; and
•Standard events of default which, upon occurrence, may permit the lenders to terminate the Global Senior Facility and declare all amounts outstanding to be immediately due and payable.
The Global Senior Facility is secured by substantially all of the assets of the Company and the guarantors. Pursuant to the terms of an intercreditor agreement entered into with respect to the relative positions of (1) the Global Senior Facility, any super priority hedging liabilities and the Encore Private Placement Notes (collectively, “Super Senior Liabilities”) and (2) the Senior Secured Notes, Super Senior Liabilities that are secured by assets that also secure the Senior Secured Notes will receive priority with respect to any proceeds received upon any enforcement action over any such assets.
As of December 31, 2020, the outstanding borrowings under the Global Senior Facility were $481.0 million. Since the completion of the Financing Transactions, the weighted average interest rate of the Global Senior Facility was 3.25%. The weighted average interest rate of the previous Cabot Credit Facility was 3.30% and 3.52% for the years ended December 31, 2020 and December 31, 2019, respectively. The weighted average interest rate of the previous Encore Revolving Credit Facility was 3.90% and 5.27% for the years ended December 31, 2020 and December 31, 2019, respectively. Available capacity under the Global Senior Facility was $569.0 million as of December 31, 2020.
Encore Revolving Credit Facility and Term Loan Facility
The Company had a revolving credit facility (the “Revolving Credit Facility”) and term loan facility (the “Term Loan Facility,” and together with the Revolving Credit Facility, the “Encore Senior Secured Credit Facilities”) pursuant to a Third Amended and Restated Credit Agreement dated December 20, 2016 (as amended, the “Restated Credit Agreement”) that was previously used to support the Company’s domestic operations. In connection with the Financing Transactions on September 24, 2020, the Company repaid the Encore Senior Secured Credit Facilities and terminated the Restated Credit Agreement.
Encore Private Placement Notes
In August 2017, Encore entered into $325.0 million in senior secured notes with a group of insurance companies (the “Encore Private Placement Notes”). In September 2020, as part of the Financing Transactions, the Company prepaid approximately $103.7 million of the Encore Private Placement Notes and made a $10.4 million make-whole payment to the holders of notes that were prepaid. The make-whole payment was included in loss on extinguishment of debt in the Company’s consolidated statements of operations during the year ended December 31, 2020. As of December 31, 2020, $146.6 million of the Encore Private Placement Notes remained outstanding. The Encore Private Placement Notes bear an annual interest rate of 5.625%, mature in August 2024 and require quarterly principal payments of $9.8 million. The covenants and material terms for the Encore Private Placement Notes are substantially similar to those for the Global Senior Facility.
Senior Secured Notes
The following table provides a summary of the Senior Secured Notes ($ in thousands):
December 31, 2020December 31, 2019Maturity DateInterest Rate
Cabot 2023 Notes$309,034 $680,118 Oct 1, 20237.500 %
Cabot 2024 Floating Rate Notes— 448,921 Jun 1, 2024
EURIBOR +6.375%
Encore 2025 Notes426,752 — Oct 15, 20254.875 %
Encore 2026 Notes409,827 — Feb 15, 20265.375 %
Encore 2028 Floating Rate Notes506,006 — Jan 15, 2028
EURIBOR +4.250%
$1,651,619 $1,129,039 
In September 2020, as part of the Financing Transactions, Encore issued €350.0 million (approximately $426.8 million based on an exchange rate of $1.00 to €0.82, the exchange rate as of December 31, 2020) in aggregate principal amount of 4.875% Senior Secured Notes due 2025 at an issue price of 98.889% (the “Encore 2025 Notes”). Interest on the Encore 2025 Notes is payable semi-annually, in arrears, on April 15 and October 15 of each year, commencing on April 15, 2021.
In November 2020, Encore issued £300.0 million (approximately $409.8 million based on an exchange rate of $1.00 to £0.73, the exchange rate as of December 31, 2020) in aggregate principal amount of 5.375% Senior Secured Notes due 2026 at an issue price of 100.000% (the “Encore 2026 Notes”). Interest on the Encore 2026 Notes is payable semi-annually, in arrears, on February 15 and August 15 of each year, commencing on February 15, 2021. The Company used the proceeds from this
offering to redeem £286.7 million (approximately $391.7 million based on an exchange rate of $1.00 to £0.73, the exchange rate as of December 31, 2020) of the outstanding £512.9 million (approximately $700.7 million based on an exchange rate of $1.00 to £0.73, the exchange rate as of December 31, 2020) aggregate principal amount of 7.500% Senior Secured Notes due 2023 (the “Cabot 2023 Notes”) at a redemption price of 101.875%, and pay certain transaction fees and expenses incurred in connection with this offering. The Company recognized a loss on extinguishment of debt of approximately $12.8 million (approximately $10.3 million net of tax) associated with this transaction during the year ended December 31, 2020. As of December 31, 2020, £226.2 million (approximately $309.0 million based on an exchange rate of $1.00 to £0.73, the exchange rate as of December 31, 2020) of the Cabot 2023 Notes were outstanding, interest is payable semi-annually, in arrears, on April 1 and October 1 of each year.
In December 2020, Encore issued €415.0 million (approximately $506.0 million based on an exchange rate of $1.00 to €0.82, the exchange rate as of December 31, 2020) in aggregate principal amount of senior secured floating rate notes due 2028 at an issue price of 99.000% (the “Encore 2028 Floating Rate Notes” and together with the Cabot 2023 Notes, Encore 2025 Notes and Encore 2026 Notes, the “Senior Secured Notes”). The Encore 2028 Floating Rate Notes bear interest at a rate equal to the sum of (i) three-month EURIBOR (subject to a 0% floor) plus (ii) 4.250% per annum, reset quarterly. Interest is payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year, commencing on April 15, 2021. The Company used the proceeds from this offering to redeem the outstanding €400.0 million (approximately $487.7 million based on an exchange rate of $1.00 to €0.82, the exchange rate as of December 31, 2020) aggregate principal amount Senior Secured Floating Rate Notes due 2024 (the “Cabot 2024 Floating Rate Notes”) in full and pay certain transaction fees and expenses incurred in connection with this offering. The Company recognized a loss on extinguishment of debt of approximately $13.1 million (approximately $10.6 million net of tax) associated with this transaction during the year ended December 31, 2020. The Cabot 2024 Floating Rate Notes bore interest at a rate equal to the sum of (i) three-month EURIBOR (subject to a 0% floor) plus (ii) 6.375%, reset quarterly.
The Senior Secured Notes are secured by the same collateral as the Global Senior Facility and the Encore Private Placement Notes. The guarantees provided in respect of the Senior Secured Notes are pari passu with each such guarantee given in respect of the Global Senior Facility and Encore Private Placement Notes. Subject to the intercreditor agreement described above under “Global Senior Secured Revolving Credit Facility,” Super Senior Liabilities that are secured by assets that also secure the Senior Secured Notes will receive priority with respect to any proceeds received upon any enforcement action over any such assets.
Convertible Notes and Exchangeable Notes
The following table provides a summary of the principal balance, maturity date and interest rate for the outstanding convertible and exchangeable senior notes (the “Convertible Notes” or “Exchangeable Notes,” as applicable) ($ in thousands):
December 31, 2020December 31, 2019Maturity DateInterest Rate
2020 Convertible Notes (1)
$— $89,355 Jul 1, 20203.000 %
2021 Convertible Notes161,000 161,000 Mar 15, 20212.875 %
2022 Convertible Notes150,000 150,000 Mar 15, 20223.250 %
2023 Exchangeable Notes172,500 172,500 Sep 1, 20234.500 %
2025 Convertible Notes100,000 100,000 Oct 1, 20253.250 %
$583,500 $672,855 
_______________________
(1)The 2020 Convertible Notes matured on July 1, 2020 and the Company repaid the outstanding principal in cash.
The Exchangeable Notes were issued by Encore Capital Europe Finance Limited (“Encore Finance”), a 100% owned finance subsidiary of Encore, and are fully and unconditionally guaranteed by Encore. Unless otherwise indicated in connection with a particular offering of debt securities, Encore will fully and unconditionally guarantee any debt securities issued by Encore Finance. Amounts related to Encore Finance are included in the consolidated financial statements of Encore subsequent to April 30, 2018, the date of incorporation of Encore Finance.
Prior to the close of business on the business day immediately preceding their respective free conversion or exchange date (listed below), holders may convert or exchange their Convertible Notes or Exchangeable Notes under certain circumstances set forth in the applicable indentures. On or after their respective free conversion or exchange dates until the close of business on the second scheduled trading day immediately preceding their respective maturity date, holders may convert or exchange their notes at any time. Certain key terms related to the convertible and exchangeable features as of December 31, 2020 are listed below:
2021 Convertible Notes2022 Convertible Notes2023 Exchangeable Notes2025 Convertible Notes
Initial conversion or exchange price$59.39 $45.57 $44.62 $40.00 
Closing stock price at date of issuance$47.51 $35.05 $36.45 $32.00 
Closing stock price dateMar 5, 2014Feb 27, 2017Jul 20, 2018Sep 4, 2019
Conversion or exchange rate (shares per $1,000 principal amount)16.8386 21.9467 22.4090 25.0000 
Conversion or exchange dateSep 15, 2020Sep 15, 2021Mar 1, 2023Jul 1, 2025
Prior to October 29, 2020, in the event of conversion or exchange, holders of the Company’s Convertible Notes or Exchangeable Notes would receive cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election. The Company’s intent was to settle conversions and exchanges through combination settlement with a minimum specified dollar amount of $1,000 per $1,000 principal amount of notes (i.e., convertible or exchangeable into cash up to the aggregate principal amount, and shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election and subject to certain restrictions contained in each of the indentures governing the Convertible Notes and Exchangeable Notes, for the remainder). As a result, only the conversion or exchange spread was included in the diluted earnings per share calculation, if dilutive. Under such method, the settlement of the conversion or exchange spread had a dilutive effect when, during any quarter, the average share price of the Company’s common stock exceeds the initial conversion or exchange prices listed in the above table.
On October 29, 2020, the Company entered into supplemental indentures for the Convertible Notes and Exchangeable Notes so that in the event of conversion or exchange, the notes are convertible or exchangeable into cash up to the aggregate principal amount of the notes and the excess conversion premium, if any, may be settled in cash or shares of the Company’s common stock at the Company’s election and subject to certain restrictions contained in each of the indentures governing the Convertible Notes and Exchangeable Notes. Only the conversion or exchange spread is included in the diluted earnings per share calculation, if dilutive. There was no dilutive effect relating to our convertible or exchangeable notes during the years ended December 31, 2020, 2019, or 2018.
The debt and equity components, the issuance costs related to the equity component, the stated interest rate, and the effective interest rate for each of the Convertible Notes and Exchangeable Notes at the time of the original offering are listed below (in thousands, except percentages):
2021 Convertible Notes2022 Convertible Notes2023 Exchangeable Notes2025 Convertible Notes
Debt component$143,645 $137,266 $157,971 $91,024 
Equity component$17,355 $12,734 $14,009 $8,976 
Equity issuance cost$581 $398 $— $224 
Stated interest rate2.875 %3.250 %4.500 %3.250 %
Effective interest rate4.700 %5.200 %6.500 %5.000 %
The balances of the liability and equity components of all the Convertible Notes and Exchangeable Notes outstanding were as follows (in thousands):
December 31,
2020		December 31,
2019
Liability component—principal amount$583,500 $672,855 
Unamortized debt discount(19,364)(30,308)
Liability component—net carrying amount$564,136 $642,547 
Equity component$53,074 $83,127 
The debt discount is being amortized into interest expense over the remaining life of the Convertible Notes and Exchangeable Notes using the effective interest rates. Interest expense related to the Convertible Notes and Exchangeable Notes was as follows during the periods presented (in thousands):
Year ended December 31,
202020192018
Interest expense—stated coupon rate$21,857 $23,845 $17,518 
Interest expense—amortization of debt discount10,945 12,780 10,888 
Interest expense—Convertible Notes and Exchangeable Notes$32,802 $36,625 $28,406 
Hedge Transactions
In order to reduce the risk related to the potential dilution and/or the potential cash payments the Company may be required to make in the event that the market price of the Company’s common stock becomes greater than the conversion or exchange prices of the Convertible Notes and the Exchangeable Notes, the Company maintains a hedge program that increases the effective conversion or exchange price for the 2021 Convertible Notes and the Exchangeable Notes. All of the hedge instruments related to the Convertible Notes and the Exchangeable Notes have been determined to be indexed to the Company’s own stock and meet the criteria for equity classification. The Company recorded the cost of the hedge instruments as a reduction in additional paid-in capital, and does not recognize subsequent changes in fair value of these financial instruments in its consolidated financial statements. The Company did not hedge the 2022 Convertible Notes or the 2025 Convertible Notes.
The details of the hedge program are listed below (in thousands, except conversion or exchange price):
2021 Convertible Notes2023 Exchangeable Notes
Cost of the hedge transaction(s)$19,545 $17,785 
Initial conversion or exchange price$59.39 $44.62 
Effective conversion or exchange price$83.14 $62.48 
Cabot Securitisation Senior Facility
Cabot Securitisation UK Ltd (“Cabot Securitisation”), an indirect subsidiary of Encore, has a senior facility for a committed amount of £350.0 million (as amended, the “Cabot Securitisation Senior Facility”). The Cabot Securitisation Senior Facility matures in March 2025. Funds drawn under the Cabot Securitisation Senior Facility bear interest at a rate per annum equal to SONIA plus a margin of 3.06% plus, for periods after March 15, 2023, a step-up margin ranging from zero to 1.00%.
As of December 31, 2020, the outstanding borrowings under the Cabot Securitisation Senior Facility were £350.0 million (approximately $478.1 million based on an exchange rate of $1.00 to £0.73, the exchange rate as of December 31, 2020). The obligations of Cabot Securitisation under the Cabot Securitisation Senior Facility are secured by first ranking security interests over all of Cabot Securitisation’s property, assets and rights (including receivables purchased from Cabot Financial UK from time to time), the book value of which was approximately £397.7 million (approximately $543.3 million based on an exchange rate of $1.00 to £0.73, the exchange rate as of December 31, 2020) as of December 31, 2020. The weighted average interest rate was 3.23% and 3.74% for the years ended December 31, 2020 and 2019, respectively.
Cabot Securitisation and Cabot Securitisation II are securitized financing vehicles and are VIEs for consolidation purposes. Refer to “Note 8: Variable Interest Entities” for further details.
Finance Lease Liabilities
The Company has finance lease liabilities primarily for computer equipment. As of December 31, 2020, the Company’s finance lease liabilities were approximately $8.3 million. Refer to “Note 11: Leases” for further details.
Maturity Schedule
The aggregate amounts of the Company’s borrowings, maturing in each of the next five years and thereafter are as follows (in thousands):
2021$211,499 
2022198,573 
2023526,502 
2024511,963 
20251,008,727 
Thereafter916,229 
Total$3,373,493