Encore to Offer Senior Notes

Zacks

Encore Capital Group, Inc. (ECPG) is offering $125 million aggregate principal amount of convertible senior secured notes, schedule to mature in 2021. Additionally, the company will allow the initial purchasers of the notes to buy up to an additional $18.75 million of notes to make up for the excess sales.  

The net proceeds from the transaction will be used to pay the expenses associated with some capped call transactions and for working capital requirements and other general corporate purposes. Moreover, if initial buyers purchase additional notes, Encore is likely to exercise more capped call transactions. The cost of entering into additional capped call transactions will then be paid from the proceeds of the additional note offering. The funds will also be used for general corporate purposes and working capital requirements.

The notes will be convertible into cash, stock or a combination of cash and the company’s stocks on fulfillment of certain conditions. The notes and shares of Encore’s stock will be issued upon the conversion of the notes.

Last month, Encore Capital reported fourth-quarter and full-year 2013 results, wherein interest expenses surged a substantial 187% to $73.3 million for the year. With the above issuance, interest expenses are expected to increase further, thereby weighing on margin expansion. Nevertheless, the company’s solid operational performance generates enough funds to service the debt uninterruptedly.

Total debts of the company also increased in 2013. As of Dec 31, 2013, total debt of Encore Capital stood at $1.85 billion, up 162% from $706 million as of Dec 31, 2012. The $125 million debt issuance is likely to increase the debt burden of the company thereby adversely affecting the financial position of the company.

Encore currently carries a Zacks Rank #3 (Hold). However, other players in the financial services space which look attractive at current levels include Discover Financial Services (DFS), World Acceptance Corp. (WRLD) and Euronet Worldwide Inc. (EEFT). While Discover Financial and World acceptance carry a Zacks Rank #1 (Strong Buy), Euronet carries a Zacks Rank #2 (Buy).

Read the Full Research Report on DFS
Read the Full Research Report on WRLD
Read the Full Research Report on ECPG
Read the Full Research Report on EEFT


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