Tuesday 06 June 2017 by FIIG Research ripples_on_water Company updates

CML Group bonds now available to retail investors

Retail investors can now invest in CML Group March 2022 senior secured fixed rate bonds

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CML Group’s March 2022 senior secured fixed rate bonds are now available to retail investors. The bonds are indicatively offered at a yield to worst of 4.88% which is to the call date on 18 May 2018, and available in AUD10,000 parcels with AUD1,000 increments.

CML raised $40m in senior secured bonds fixed rate bonds – $25m in March 2016 and an additional $15m in May 2016. The 8.00% fixed rate bonds mature on 18 March 2022, and are callable at the company’s option from May 2018 at $104, May 2019 at $103, May 2020 at $102 or from May 2021 at par.

Note that the bond is currently in short supply, however if you would like to register your interest please contact your local dealer.

The issuer

  • CML Group Ltd (CML) is an ASX listed provider of factoring/receivables finance. The group has a market capitalisation of $34.5m as at 29 May 2017, and an equity value of $44.9m given CML has an additional $10.4m of ASX listed convertible notes
  • The notes are secured with a first ranking charge (shared with the 2021 CML $25m floating rate notes) over the business and assets of the CML group, which mainly comprise the receivables book and cash. Further, noteholders are protected by two levels of over collateralisation. Firstly, CML typically only advances 80% against the invoice value, often less. Secondly, the portfolio of receivables is protected by an insurance policy covering credit losses greater than $5,000 for a maximum of 90% (in excess of the 80% maximum advance)
  • The average turnover of the receivables is 43 days, allowing the portfolio to be liquidated rapidly if required
  • The credit policies of CML are overseen by its insurers and PwC, who will provide a quarterly overview of the procedures relating to new loans while the bond remains outstanding
  • CML’s portfolio of assets is covered for credit losses by insurance policies with an insurer rated A- or better
  • The transaction is structured with covenants ensuring that if performance deteriorates, the asset portfolio can be liquidated with the proceeds used to repay debt

Key highlights

  • CML’s primary service is ‘factoring’ or ‘receivables finance’. Factoring is a financing method in which a business sells its accounts receivables/invoices at a discount to a third party funding source to raise capital
  • The notes are backed by CML’s asset book and are protected by reserving requirements, which increase as performance deteriorates
  • The notes are senior secured with a first right to cashflows from assets provided as security, after statutory preferred creditors (employee entitlements). The notes rank equally with CML’s existing senior secured notes
  • The issue sizes of the fixed and floating rate senior secured notes are $40m and $25m respectively, totalling $65m

Notes summary

  • The notes have a final maturity in March 2022. However, the issuer has the right to call the notes from May 2018 at $104, May 2019 at $103, May 2020 at $102 or from May 2021 at par
  • The notes pay a fixed rate of interest of 8%pa between the issue date and the par call date. If the issuer fails to call the notes on the par call date, the notes will pay a fixed interest rate of 9.50%pa between March 2021 and the final maturity date in March 2022. CML has stated it seeks to replace its more expensive forms of funding (potentially the bonds) with cheaper wholesale finance
  • Interest has been and will be paid monthly in arrear
  • The notes rank as senior secured obligations of the issuer and the guarantors. The nature of the security is detailed in the Information Memorandum (IM)
  • Investors have a put option at 101% of the notes’ face value upon a change of control of the issuer or guarantor group
  • The issuer may call some or all of the notes prior to the par call date at a premium to the note face value as determined in the IM. After the par call date, the issuer may call the notes at par.
  • The notes benefit from a covenant package that limits the amount of senior and total debt the issuer can obtain, and ensures that the issuer maintains appropriate levels of over collateralisation reserves relative to the performance of its asset portfolio. The size of these over collateralisation reserves are structured in line with ratings agency criteria for credit enhancement in trade receivables funding transactions, however are not rated by a ratings agency.
  • The notes are not listed on an exchange

The CML Group 2017 research report can be found here.*

The supplemental information memorandum can be viewed here and IM here.

Please contact your FIIG representative for further details on the CML Group March 2022 bond, available to retail and wholesale investors.

Pricing is accurate as of 6 June 2017 but subject to change.

*Note this research report requires a login.