Tuesday 09 February 2016 by William Arnold Company updates

Positive news as Cash Converters signs new funding and banking facilities

Cash Converters (CCV) has announced it has signed agreements to replace its funding and transactional banking facilities.  This comes after its incumbent bank Westpac gave notice in August that it was withdrawing from the sector

We previously signalled that replacing funding should not be an issue given CCV is a profitable company with strong cashflow on an underlying basis.  The key risk was finding a new transactional bank (which encompasses services such as trading accounts, payments, cash and merchant facilities) given the majors were out and second and third tier domestics were probably uninterested on the same grounds. The confirmation that these uncertainties have been removed is therefore credit positive.  However the new facilities do allow greater gearing and therefore risk.

With this key unknown removed, CCV bonds are offering attractive value at an indicative 7.90% yield to maturity in September 2018. CCV is due to release its 1H16 results on 16 February after which we will seek to catch up with management.

$100m loan securitisation facility

  • Provided by Fortress Investment Group. CCV has a prior relationship with as Fortress which provided a $40m facility to CCV’s Green Light Auto business
  • Five year term (three year loan period and an option for a two year extension at CCV’s discretion)
  • Starts in March
  • Drawdown requirements are less restrictive than the current facility with no interest cover or gearing ratios to be met. This is credit negative as it allows greater levels of secured debt to be incurred which will also rank before bondholders.However, the bond covenant package is still in force and restricts gearing and interest cover under certain circumstances
  • Dividends are also unrestricted under the new facility which is also credit negative.A final dividend for FY15 was not declared because Westpac’s covenants were triggered.The bond does have dividend restrictions however this is much more accommodative at a maximum of 100% of NPAT

Transactional banking facilities

  • CCV has signed a five year agreement with a service provider who they have not named. I assume the bank has not been named on their request given the sensitivities around the banking the sector
  • The switch is expected to be completed by July