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Borrowings
 6 Months Ended
Jun. 30, 2023
Debt Disclosure [Abstract]  
Borrowings Borrowings
The Company is in compliance in all material respects with all covenants under its financing arrangements as of June 30, 2023. The components of the Company’s consolidated borrowings were as follows (in thousands):
June 30,
2023		December 31,
2022
Global senior secured revolving credit facility$850,689 $661,738 
Encore private placement notes48,850 68,390 
Senior secured notes1,532,098 1,485,888 
Convertible notes and exchangeable notes347,655 272,500 
Cabot securitisation senior facility443,828 423,522 
Other18,633 23,512 
Finance lease liabilities3,930 5,675 
3,245,683 2,941,225 
Less: debt discount and issuance costs, net of amortization(42,258)(42,404)
Total$3,203,425 $2,898,821 
Encore is the parent of the restricted group for the Global Senior Facility, the Senior Secured Notes and the Encore 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 May 2023, the Company amended the Global Senior Facility to extend the termination date of the facility from September 2026 to September 2027. In addition, the size of the facility was increased by $40.0 million to $1,180.0 million. As of June 30, 2023, the Global Senior Facility provided for a total committed facility of $1,180.0 million that matures in September 2027 and includes the following key provisions:
•Interest at Term SOFR (or EURIBOR for any loan drawn in Euro or a rate based on SONIA for any loan drawn in British Pound), with a Term SOFR (or EURIBOR or SONIA) floor of 0.00%, plus a margin of 2.50%, plus in the case of Term SOFR borrowings, a credit adjustment spread of 0.10%;
•An unused commitment fee of 0.40% per annum, payable quarterly in arrears;
•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 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 June 30, 2023, the outstanding borrowings under the Global Senior Facility were $850.7 million. The weighted average interest rate of the Global Senior Facility was 7.51% and 3.32% for the three months ended June 30, 2023 and 2022, respectively. The weighted average interest rate of the Global Senior Facility was 7.30% and 3.08% for the six months ended June 30, 2023 and 2022, respectively. Available capacity under the Global Senior Facility, after taking into account applicable debt covenants, was approximately $310.5 million as of June 30, 2023.
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”). As of June 30, 2023, $48.9 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 $9.8 million. The covenants and material terms for the Encore Private Placement Notes are substantially similar to those for the Global Senior Facility.
Senior Secured Notes
The following table provides a summary of the Company’s senior secured notes (the “Senior Secured Notes”) ($ in thousands):
June 30,
2023		December 31,
2022		Issue
Currency		Maturity DateInterest Payment DatesInterest Rate
Encore 2025 Notes$381,868 $375,325 EUROct 15, 2025Apr 15, Oct 154.875 %
Encore 2026 Notes380,424 363,019 GBPFeb 15, 2026Feb 15, Aug 155.375 %
Encore 2028 Notes317,020 302,516 GBPJun 1, 2028Jun 1, Dec 14.250 %
Encore 2028 Floating Rate Notes
452,786 445,028 EURJan 15, 2028Jan 15, Apr 15, Jul 15, Oct 15
EURIBOR +4.250%(1)
$1,532,098 $1,485,888 
_______________________
(1)Interest rate is based on three-month EURIBOR (subject to a 0% floor) plus 4.250% per annum, resets quarterly.
The Senior Secured Notes are secured by the same collateral as the Global Senior Facility and the Encore Private Placement Notes. The guarantees provided in respect of the Senior Secured Notes are pari passu with each such guarantee given in respect of the Global Senior Facility and Encore Private Placement Notes. Subject to the intercreditor agreement described above under the section “Global Senior Secured Revolving Credit Facility,” Super Senior Liabilities that are secured by assets that also secure the Senior Secured Notes will receive priority with respect to any proceeds received upon any enforcement action over any such assets.
Convertible Notes and Exchangeable Notes
The following table provides a summary of the principal balance, maturity date and interest rate for the Company’s convertible and exchangeable senior notes (the “Convertible Notes” or “Exchangeable Notes,” as applicable) ($ in thousands):
June 30,
2023		December 31,
2022		Maturity DateInterest Payment DatesInterest Rate
2023 Exchangeable Notes$17,655 $172,500 Sep 1, 2023Mar 1, Sep 14.500 %
2025 Convertible Notes100,000 100,000 Oct 1, 2025Apr 1, Oct 13.250 %
2029 Convertible Notes230,000 — Mar 15, 2029Mar 15, Sep 154.000 %
$347,655 $272,500 
In March 2023, Encore issued $230.0 million aggregate principal amount of 4.00% convertible senior notes that mature on March 15, 2029 in a private placement transaction (the “2029 Convertible Notes”). Interest on the 2029 Convertible Notes is payable semi-annually.
The Company used a portion of the net proceeds from the issuance of the 2029 Convertible Notes to repurchase, in separate privately negotiated transactions, approximately $154.8 million aggregate principal amount of its 2023 Exchangeable Notes for approximately $192.5 million. The repurchase met the criteria for an induced conversion and accordingly, the Company recognized expense of $2.7 million, representing the fair value of the consideration paid to certain holders of the 2023 Exchangeable Notes in excess of the fair value which they were otherwise entitled to receive pursuant to the existing conversion terms on the respective settlement dates. The amount is included in Other income, net, in the Company’s condensed consolidated statements of income during the six months ended June 30, 2023. The remaining excess above the principal amount of the repurchased 2023 Exchangeable Notes was recognized in the Company’s stockholder’s equity.
Additionally, in March 2023, the Company received proceeds of approximately $28.5 million from the unwind of the capped call options associated with the repurchased portion of the 2023 Exchangeable Notes. Since the capped call options were determined to be equity instruments, the partial unwind of the capped call options was recorded as an increase in
stockholder’s equity in the condensed consolidated statements of financial condition as of June 30, 2023. In addition, the Company recognized approximately $0.7 million of interest expense in the condensed consolidated statements of income during the six months ended June 30, 2023 to record the write-off of unamortized debt issuance costs associated with the 2023 Exchangeable Notes repurchased.
The 2023 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.
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 may enter into hedge programs that increase the effective conversion or exchange price for the Convertible Notes and the Exchangeable Notes. In connection with the issuance of the 2029 Convertible Notes, the Company entered into privately negotiated capped call transactions that effectively raised the conversion price of the 2029 Convertible Notes from $65.89 to $82.69. The cost of the capped call transactions was approximately $18.5 million. This cost, net of tax effect, was included as a reduction to stockholder’s equity in the condensed consolidated statements of financial condition as of June 30, 2023. As of June 30, 2023, the Company had two hedge programs that increase the effective exchange price for the 2029 Convertible Notes and the 2023 Exchangeable Notes. The hedge instruments have been determined to be indexed to the Company’s own stock and meet the criteria for equity classification. The Company recorded the cost of the hedge instruments as a reduction in stockholder’s equity, and does not recognize subsequent changes in fair value of these financial instruments in its consolidated financial statements. The Company did not hedge the 2025 Convertible Notes.
Certain key terms related to the convertible and exchangeable features as of June 30, 2023 are listed below ($ in thousands, except conversion or exchange price):
2023 Exchangeable Notes2025 Convertible Notes2029 Convertible Notes
Initial conversion or exchange price$44.62 $40.00 $65.89 
Closing stock price at date of issuance$36.45 $32.00 $51.68 
Closing stock price dateJul 20, 2018Sep 4, 2019Feb 28, 2023
Initial conversion or exchange rate (shares per $1,000 principal amount)22.4090 25.0000 15.1763 
Adjusted conversion or exchange rate (shares per $1,000 principal amount)(1)
22.5264 25.1310 15.1763 
Adjusted conversion or exchange price(1)
$44.39 $39.79 $65.89 
Adjusted effective conversion or exchange price(2)
$62.13 $39.79 $82.69 
Excess of if-converted value compared to principal(3)
$1,681 $22,187 $— 
Conversion or exchange dateMar 1, 2023Jul 1, 2025Dec 15, 2028
_______________________
(1)Pursuant to the indentures for the Company’s 2025 Convertible Notes and 2023 Exchangeable Notes, the conversion and exchange rates were adjusted upon the completion of the Company’s tender offer in December 2021.
(2)As discussed above, the Company maintains a hedge program that increases the effective exchange price for the 2023 Exchangeable Notes to $62.13 and the 2029 Convertible Notes to $82.69.
(3)Represents the premium the Company would have to pay assuming the Convertible Notes and Exchangeable Notes were converted or exchanged on June 30, 2023 using a hypothetical share price based on the closing stock price on June 30, 2023. The premium of the 2023 Exchangeable Notes would have been reduced to zero with the existing hedge program.
In February 2023, in accordance with the indenture for the 2023 Exchangeable Notes, Encore Finance irrevocably elected “combination settlement” with a specified dollar amount equal to $1,800 per $1,000 principal amount of the 2023 Exchangeable Notes for all exchanges of the 2023 Exchangeable Notes that occur on or after March 1, 2023, the free exchange date, which effectively will result in an all cash settlement for the 2023 Exchangeable Notes so long as the stock price does not exceed $79.91 at any time during a 40-day observation period beginning on the 41st scheduled trading day immediately preceding the maturity date. None of the 2023 Exchangeable Notes have been exchanged.
In the event of conversion, the Convertible Notes are convertible 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.
Interest expense related to the Convertible Notes and Exchangeable Notes was $3.3 million and $2.8 million during the three months ended June 30, 2023 and 2022, respectively. Interest expense related to the Convertible Notes and Exchangeable Notes was $6.2 million and $6.5 million during the six months ended June 30, 2023 and 2022, respectively.
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 September 2026. Funds drawn under the Cabot Securitisation Senior Facility bear interest at a rate per annum equal to SONIA plus a margin of 3.00% plus, for periods after September 18, 2024, a step-up margin ranging from zero to 1.00%.
As of June 30, 2023, the outstanding borrowings under the Cabot Securitisation Senior Facility were £350.0 million (approximately $443.8 million based on an exchange rate of $1.00 to £0.79, the exchange rate as of June 30, 2023). 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. As of June 30, 2023, this included receivables purchased from Cabot Financial UK from time to time, the book value of which was approximately £362.0 million (approximately $459.0 million based on an exchange rate of $1.00 to £0.79, the exchange rate as of June 30, 2023). As discussed in Note 4, “Derivatives and Hedging Instruments,” the Company uses interest rate cap contracts to manage its risk related to the interest rate fluctuations in its variable interest rate bearing debt. The weighted average interest rate of the Cabot Securitisation Senior Facility including the effect of the hedging instruments was 5.25% and 3.95% for the three months ended June 30, 2023 and 2022, respectively, and 5.25% and 3.70% for the six months ended June 30, 2023 and 2022, 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.