Encore Capital Group, Inc. (Nasdaq: ECPG) (“Encore”) today
announced the pricing of its offering of $200.0 million aggregate
principal amount of 4.00% convertible senior notes due 2029 (the
“notes”) in a private offering to persons reasonably believed to be
qualified institutional buyers pursuant to Rule 144A under the
Securities Act of 1933, as amended (the “Securities Act”). The
offering size was increased from the previously announced offering
size of $175.0 million aggregate principal amount of notes. Encore
also granted the initial purchasers of the notes a 30-day option to
purchase up to an additional $30.0 million aggregate principal
amount of notes solely to cover over-allotments, if any.
The notes will be senior, unsecured obligations
of Encore, and will accrue interest at a rate of 4.00% per annum,
payable semi-annually in arrears on March 15 and September 15 of
each year, beginning on September 15, 2023. The notes will mature
on March 15, 2029, unless earlier repurchased or redeemed by Encore
or converted. Before December 15, 2028, noteholders will have the
right to convert their notes only in certain circumstances and
during specified periods. From and after December 15, 2028,
noteholders may convert their notes at any time until the close of
business on the second scheduled trading day immediately before the
maturity date. Encore will settle any conversions in cash and, if
applicable, shares of its common stock. The initial conversion rate
is 15.1763 shares of common stock per $1,000 principal amount of
notes, which is equivalent to an initial conversion price of
approximately $65.89 per share of common stock. The initial
conversion price represents a premium of approximately 27.5% over
the last reported sale price of $51.68 per share of Encore’s common
stock on February 28, 2023. The conversion rate will be subject to
adjustment upon the occurrence of certain events.
The notes will be redeemable, in whole or in
part, for cash at Encore’s option at any time, and from time to
time, on or after March 20, 2026 and on or before the 40th
scheduled trading day immediately before the maturity date, but
only if the last reported sale price per share of Encore’s common
stock exceeds 130% of the conversion price for a specified period
of time. The redemption price will be equal to the principal amount
of the notes to be redeemed, plus accrued and unpaid interest, if
any, to, but excluding, the redemption date.
If a “fundamental change” (as defined in the
indenture for the notes) occurs, then, subject to a limited
exception, holders of the notes may require Encore to repurchase
all or part of their notes for cash. The repurchase price will be
equal to 100% of the principal amount of the notes to be
repurchased, plus accrued and unpaid interest to, but excluding,
the applicable repurchase date.
Encore estimates that the net proceeds from the
offering will be approximately $194.1 million (or approximately
$223.3 million if the initial purchasers fully exercise their
over-allotment option), after deducting the initial purchasers’
discounts and commissions and estimated fees and expenses. Encore
expects to use a portion of the net proceeds from this offering to
purchase and surrender for cancellation, in separate privately
negotiated transactions effected through one of the initial
purchasers or its affiliate, concurrently with the pricing of the
offering, approximately $154.8 million aggregate principal amount
of Encore Capital Europe Finance Limited’s 4.500% exchangeable
senior notes due 2023 (the “2023 Exchangeable Notes”) for
approximately $192.5 million, including accrued and unpaid interest
(the “2023 Exchangeable Notes repurchase”).
In connection with the 2023 Exchangeable Notes
repurchase, Encore entered into agreements with the relevant
financial institutions (the “existing option counterparties”) to
terminate a portion of the capped call option transactions that
Encore previously entered into concurrently with the issuance of
the 2023 Exchangeable Notes (the “existing option termination
transactions”) in a notional amount corresponding to the amount of
the 2023 Exchangeable Notes that are purchased in the 2023
Exchangeable Notes repurchase. In connection with the existing
option termination transactions, Encore will receive cash payments
in amounts that depend in part on the market price of Encore’s
common stock at the pricing of the offering.
Encore intends to use approximately $16.1
million of the net proceeds from the offering to fund the cost of
entering into the capped call transactions described below. Encore
intends to use the remainder of the net proceeds for general
corporate purposes, which may include working capital, capital
expenditures, acquisitions or repayment or repurchase of
outstanding debt, which may include Encore’s global senior credit
facility, its 3.250% convertible senior notes due 2025 and any
remaining 2023 Exchangeable Notes, and repurchases of Encore’s
common stock from time to time following the offering. If the
initial purchasers exercise their over-allotment option, then
Encore intends to use a portion of the additional net proceeds from
the sale of the additional notes to fund the cost of entering into
additional capped call transactions as described below.
In connection with the pricing of the notes,
Encore entered into privately negotiated capped call transactions
with one or more of the initial purchasers or their affiliates
and/or other financial institutions (the “option counterparties”).
The capped call transactions will cover, subject to anti-dilution
adjustments substantially similar to those applicable to the notes,
the number of shares of Encore’s common stock underlying the
notes.
The cap price of the capped call transactions
will initially be approximately $82.69 per share, which represents
a premium of 60% over the last reported sale price of Encore’s
common stock of $51.68 per share on February 28, 2023, and is
subject to certain adjustments under the terms of the capped call
transactions.
The capped call transactions are expected
generally to reduce the potential dilution to Encore’s common stock
upon any conversion of the notes and/or offset any potential cash
payments Encore is required to make in excess of the principal
amount of converted notes, as the case may be. If, however, the
market price per share of Encore’s common stock, as measured under
the terms of the capped call transactions, exceeds the cap price of
the capped call transactions, there would nevertheless be dilution
and/or there would not be an offset of such potential cash
payments, in each case, to the extent that such market price
exceeds the cap price of the capped call transactions.
Encore expects that certain purchasers of the
notes may seek to sell shares of Encore’s common stock in the
market and/or enter into various derivative transactions with
respect to Encore’s common stock to establish hedge positions with
respect to the notes. Encore also expects that holders of the 2023
Exchangeable Notes who sell those notes in the 2023 Exchangeable
Notes repurchase may unwind or enter into various derivative
transactions with respect to Encore’s common stock and/or purchase
shares of Encore’s common stock in the market to unwind their
existing hedge positions in connection with the relevant 2023
Exchangeable Notes. In connection with the existing option
termination transactions, Encore expects that the existing option
counterparties and/or their respective affiliates may sell shares
of Encore’s common stock in secondary market transactions and/or
unwind or enter into various derivative transactions with respect
to Encore’s common stock. Encore also expects the option
counterparties to purchase shares of Encore’s common stock and/or
enter into various derivative transactions with respect to Encore’s
common stock concurrently with or shortly after the pricing of the
notes in connection with the capped call transactions. Encore
believes that the market activities described above occurred during
the course of the day on which Encore priced the offering of the
notes, represented a significant portion of the trading in Encore’s
common stock on that day and could have reduced the market price of
Encore’s common stock and, in turn, the initial conversion price of
the notes.
In addition, the option counterparties and/or
their respective affiliates may modify their hedge positions by
entering into or unwinding various derivatives with respect to
Encore’s common stock and/or purchasing or selling Encore’s common
stock or other securities of Encore in secondary market
transactions following the pricing of the notes and prior to the
maturity of the notes (and (x) are likely to do so during any
observation period related to a conversion of notes or following
any repurchase of notes by Encore in connection with any optional
redemption or fundamental change and (y) are likely to do so
following any repurchase of notes by Encore other than in
connection with any optional redemption or fundamental change if
Encore elects to unwind a corresponding portion of the capped call
transactions in connection with such repurchase). This activity
could also cause or avoid an increase or a decrease in the market
price of Encore’s common stock or the market value of the notes,
which could affect holders’ ability to convert the notes and, to
the extent the activity occurs during any observation period
related to a conversion of notes, it could affect the amount and
value of the consideration that holders will receive upon
conversion of the notes.
The offer and sale of the notes and any shares
of common stock issuable upon conversion of the notes have not
been, and will not be, registered under the Securities Act or any
state securities laws, and the notes and any such shares cannot be
offered or sold except pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the
Securities Act and state securities laws. This press release does
not constitute an offer to sell, or the solicitation of an offer to
buy, the notes or any shares of common stock issuable upon
conversion of the notes, nor will there be any sale of the notes or
any such shares, in any state or other jurisdiction in which such
offer, sale or solicitation would be unlawful. Any offer of the
securities will be made only by means of a private offering
memorandum.
About Encore
Encore is an international specialty finance
company that provides debt recovery solutions and other related
services across a broad range of financial assets. Through its
subsidiaries around the globe, Encore purchases or services
portfolios of receivables from major banks, credit unions and
utility providers.
Headquartered in San Diego, Encore is a publicly
traded Nasdaq Global Select Market company (ticker symbol: ECPG)
and a component stock of the Russell 2000, the S&P Small Cap
600 and the Wilshire 4500.
Forward-Looking Statements
This press release includes forward-looking
statements, including statements regarding the completion of the
offering and the expected amount and intended use of the net
proceeds and the effects of entering into the capped call
transactions described above. Forward-looking statements represent
Encore’s current expectations regarding future events and are
subject to known and unknown risks and uncertainties that could
cause actual results to differ materially from those implied by the
forward-looking statements. Among those risks and uncertainties are
market conditions, the satisfaction of the closing conditions
related to the offering and risks relating to Encore’s business,
including those described in periodic reports that Encore files
from time to time with the U.S. Securities and Exchange Commission.
Encore may not consummate the offering described in this press
release and, if the offering is consummated, cannot provide any
assurances regarding its ability to effectively apply the net
proceeds as described above. The forward-looking statements
included in this press release speak only as of the date of this
press release, and Encore does not undertake to update the
statements included in this press release for subsequent
developments, except as may be required by law.
Contact Information
Bruce Thomas Encore Capital Group, Inc.Vice President, Global
Investor Relations(858) 309-6442bruce.thomas@encorecapital.com
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