XML 24 R14.htm IDEA: XBRL DOCUMENT v3.21.1
Borrowings
 3 Months Ended
Mar. 31, 2021
Debt Disclosure [Abstract]  
Borrowings Borrowings
The Company is in compliance in all material respects with all covenants under its financing arrangements as of March 31, 2021. The components of the Company’s consolidated borrowings were as follows (in thousands):
March 31,
2021		December 31,
2020
Global senior secured revolving credit facility$520,505 $481,007 
Encore private placement notes136,780 146,550 
Senior secured notes1,622,407 1,651,619 
Convertible notes and exchangeable notes422,500 583,500 
Cabot securitisation senior facility482,377 478,131 
Other24,921 24,398 
Finance lease liabilities9,953 8,288 
3,219,443 3,373,493 
Less: debt discount and issuance costs, net of amortization(67,515)(91,859)
Total$3,151,928 $3,281,634 
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 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.
Global Senior Secured Revolving Credit Facility
In September 2020, the Company 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 March 31, 2021, 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 LTV 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 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 March 31, 2021, the outstanding borrowings under the Global Senior Facility were $520.5 million. The weighted average interest rate of the Global Senior Facility was 3.25% for the three months ended March 31, 2021. The weighted average interest rate of the previous Cabot Credit Facility was 3.55% for the three months ended March 31, 2020. The weighted average interest rate of the previous Encore revolving credit facility was 4.58% for the three months ended March 31, 2020. Available capacity under the Global Senior Facility was approximately $529.5 million as of March 31, 2021.
Private Placement Notes
In August 2017, Encore entered into $325.0 million in senior secured notes with a group of insurance companies (the “Private Placement Notes”). As of March 31, 2021, $136.8 million of the Private Placement Notes remained outstanding. The Private Placement Notes bear an annual interest rate of 5.625%, mature in August 2024 and require quarterly principal payments of $9.8 million. The covenants and material terms for the Private Placement Notes are substantially similar to those for the Global Senior Facility.
Senior Secured Notes
The following table provides a summary of the Senior Secured Notes ($ in thousands):
March 31,
2021		December 31,
2020		Maturity DateInterest Payment DatesInterest Rate
Cabot 2023 Notes$311,779 $309,034 Oct 1, 2023Apr 1, Oct 17.500 %
Encore 2025 Notes410,466 426,752 Oct 15, 2025Apr 15, Oct 154.875 %
Encore 2026 Notes413,466 409,827 Feb 15, 2026Feb 15, Aug 155.375 %
Encore 2028 Floating Rate Notes
486,696 506,006 Jan 15, 2028Jan 15, Apr 15, Jul 15, Oct 15
EURIBOR +4.250%(1)
$1,622,407 $1,651,619 
_______________________
(1)Interest rate is based on a three-months EURIBOR (subject to a 0% floor) plus 4.250% per annum, resets quarterly.
The Senior Secured Notes are secured by the same collateral as the Global Senior Facility and the Private Placement Notes. The guarantees provided in respect of the Senior Secured Notes are pari passu with each such guarantee given in respect of the Global Senior Facility and Private Placement Notes. Subject to the intercreditor agreement described above under “Global Senior Secured Revolving Credit Facility,” Super Senior Liabilities that are secured by assets that also secure the Senior Secured Notes will receive priority with respect to any proceeds received upon any enforcement action over any such assets.
Convertible Notes and Exchangeable Notes
The following table provides a summary of the principal balance, maturity date and interest rate for the Company’s convertible and exchangeable senior notes (the “Convertible Notes” or “Exchangeable Notes,” as applicable) ($ in thousands):
March 31,
2021		December 31,
2020		Maturity DateInterest Payment DatesInterest Rate
2021 Convertible Notes(1)
$— $161,000 Mar 15, 2021Mar 15, Sep 152.875 %
2022 Convertible Notes150,000 150,000 Mar 15, 2022Mar 15, Sep 153.250 %
2023 Exchangeable Notes172,500 172,500 Sep 1, 2023Mar 1, Sep 14.500 %
2025 Convertible Notes100,000 100,000 Oct 1, 2025Apr 1, Oct 13.250 %
$422,500 $583,500 
_______________________
(1)The 2021 Convertible Notes matured on March 15, 2021 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 the 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 March 31, 2021 are listed below:
2022 Convertible Notes2023 Exchangeable Notes2025 Convertible Notes
Initial conversion or exchange price$45.57 $44.62 $40.00 
Closing stock price at date of issuance$35.05 $36.45 $32.00 
Closing stock price dateFeb 27, 2017Jul 20, 2018Sep 4, 2019
Conversion or exchange rate (shares per $1,000 principal amount)21.9467 22.4090 25.0000 
Free conversion or exchange dateSep 15, 2021Mar 1, 2023Jul 1, 2025
Stated interest rate3.250 %4.500 %3.250 %
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.
As discussed in “Note 1: Ownership, Description of Business, and Summary of Significant Accounting Policies,” the Company adopted ASU 2020-06 on January 1, 2021 using a modified-retrospective approach. The Company’s convertible and exchangeable notes are no longer bifurcated to a debt component and an equity component, instead, they are carried as a single liability, which reflects the principal amount of the convertible and exchangeable notes. The interest expense recognized on the convertible and exchangeable notes is based on coupon rates, rather than higher effective interest rates. The Company has not adjusted prior period comparative information and will continue to disclose prior period financial information in accordance with the previous accounting guidance.
Interest expense related to the Convertible Notes and Exchangeable Notes during the periods presented was as follows (in thousands):
Three Months Ended March 31,
20212020
Interest expense—stated coupon rate$4,923 $5,799 
Interest expense—amortization of debt discount— 3,044 
Interest expense—Convertible Notes and Exchangeable Notes$4,923 $8,843 
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 exchange prices of the 2023 Exchangeable Notes, the Company maintains a hedge program that increases the effective exchange price for the 2023 Exchangeable Notes. 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):
2023 Exchangeable Notes
Cost of the hedge transaction(s)$17,785 
Initial exchange price$44.62 
Effective exchange price$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 March 31, 2021, the outstanding borrowings under the Cabot Securitisation Senior Facility were £350.0 million (approximately $482.4 million based on an exchange rate of $1.00 to £0.73, the exchange rate as of March 31, 2021). 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 £381.9 million (approximately $526.4 million based on an exchange rate of $1.00 to £0.73, the exchange rate as of March 31, 2021) as of March 31, 2021. The weighted average interest rate was 3.11% and 3.52% for the three months ended March 31, 2021 and 2020, respectively.
Cabot Securitisation is a securitized financing vehicle and is a VIE for consolidation purposes. Refer to “Note 8: Variable Interest Entities” for further details.