If Andrés Rubio is concerned about the sorry financial state of the large debt collection company he runs, he doesn’t show it in public. The CEO of Sweden’s Intrum AB smiled broadly during an interview with Bloomberg last week to discuss hiring advisers to examine the troubled company’s debt restructuring. “Very positive,” was his opinion of the company’s debt servicing division, a growing business with “tremendous potential.”
For Intrum’s creditors and investors, hit by the collapse in the price of its debt and shares, that mood bears no relation to their own disastrous experience of late. “It’s a company that has communicated very poorly for years,” says Karin Haraldsson, a portfolio manager at Lannebo Fonder, noting that executives were so relaxed on a recent capital markets call that it was “quite strange” when a week later indicated a possible restructuring.
Intrum has gained prominence in Spain as a real estate asset servicer after the purchase from Cerberus of Haya Real State, the largest intermediary of real estate portfolios in Spain from banks. In the last decade it has also taken off as one of Europe’s largest debt collectors, an industry that took off after the financial crisis by acquiring large amounts of “bad loans” from large retail banks, where customers were struggling to pay, and Doing the collections themselves. In the era of cheap money, these companies took out massive loans to fuel their expansion.
Now, like peers like Permira-backed Lowell in the UK and doValue in Italy, Intrum is racing to adapt to a difficult new reality. The flow of potentially defaulted loans that once fueled the business is not as abundant today, as economies are better than feared. And Intrum’s €5.4 billion of debt that paid for its ambitions is quickly becoming a burden on the company. Investors are fed up with repeatedly broken promises to reduce the real estate and debt brokerage’s leverage.
Its travails are another serious test for corporate Sweden, which is already grappling with a troubled trading sector, especially SBB, which has to refinance billions of dollars of debt at a time of higher-than-expected rates. The future of Intrum and similar companies is also crucial for European banks, which have come to rely on these companies to remove bad loans from their balances.
Intrum has begun looking for solutions, including selling 30% of its non-performing loan portfolio to Cerberus Capital Management, but its stocks and bonds have still hit record lows. As prices fall, many conventional debtors are selling and opportunistic buyers, such as hedge funds that profit from troubled situations, are moving in, according to people with knowledge of the matter who spoke to Bloomberg on condition of anonymity.
Some bondholders are teaming up to hire their own lawyers and advisers after the hiring of debt experts from Intrum, Houlihan Lokey and Milbank, raises the chances of a substantial restructuring. A large group including Arini, Bain Capital, BlackRock Inc. and others are already in talks. “This is a company that has not understood the change in the bullish cycle. It has focused on acquisitions, actions and land conquests when it clearly should have worked on its liquidity and debt profile two or three years ago,” explains Helen Rodríguez, Head of EU Special Situations at Creditsights.
S&P, Moody’s and Fitch just cut all of Intrum’s credit ratings to B or B3, in “highly speculative” junk bond territory, and indicated further reductions could be coming. The 2025 bonds are trading at a discounted 69 cents per euro. Short sales represent 24% of Intrum’s free float, according to data from S&P Global Market Intelligence as of March 21.
“It will need a capital injection, there is no other option,” says Michael Falken, chief investment officer at Tidan Capital, who is shorting the shares. “The asset sale puts a temporary patch on a rather stressed capital structure.” Rubio, who joined Intrum’s board five years ago and has held the top job since 2022, says there are no talks with shareholders about such an injection, adding that liquidity from the Cerberus deal covers near-term bond maturities. . and that advisors are there to “directly address” long-term debt: “That’s what this exercise is about. We don’t need cash or anything today.”
Private equity firm Nordic Capital and pension fund AMF, which own almost 40% of the share capital, have declined to comment on Intrum’s situation. JPMorgan analysts have lowered their price target on the stock to 5 crowns, signaling more agony for shareholders clinging to a current price of around 20 crowns.
According to several investors, the company’s problems date back to its 2017 merger with Norway’s Lindorff, another century-old debt collector of a similar style that was owned by Nordic Capital. Before that, Intrum Justitia (its pre-merger name) was listed in Stockholm and was considered an unshowy, well-run company with a solid balance sheet.
At the time, Carnegie analysts called the union a “perfect match.” But any such marriage was brief. To obtain European Union approval, Intrum had to divest the Lindorff business in five countries, representing 30% of the estimated cost synergies. This triggered a drop in stocks. Lars Wollung, veteran CEO of Intrum Justitia, was fired in 2015 after opposing the merger.
Bank server
While Intrum was known for providing debt collection services to banks and businesses for a fee, it quickly immersed itself in the high-margin, capital-intensive activity of acquiring wholesale portfolios of bad loans for itself. One of its largest shareholders from the pre-merger days, who sold his shares, says the merged company’s strategy was an extreme bet on low interest rates, and its main ethos was to take on debt to buy debt.
Ironically, Rubio’s plan to steer Intrum toward safety involves a back-to-basics approach that leans heavily on its original debt collection services, an activity that has typically been staff-intensive but capital-intensive. “We have 80,000 clients, we have all the 25 main banks in Europe,” says the CEO. Unity “will be even more important in the future than it has been in the past.”
For the “investment” side of the business, the part that buys large portfolios of bad loans from banks and other companies, the idea is to look for more companies like Cerberus that can provide the financing while Intrum does the actual collections. “We want to grow our investment business by partnering with third-party capital rather than using our own balance,” he says.
One of the obstacles Europe’s debt collectors face is that when they buy a portfolio of bad loans, only in the first few years can they be more confident that consumers will pay them back. As the loan portfolio ages, “long tail” payments become more difficult to obtain. This meant they had to keep purchasing new portfolios to ensure their loans were fresh, something that was much easier to finance when interest rates were close to zero.
There are also fewer things to buy. After the sovereign debt crisis of the last decade, Intrum acquired bad loans across Europe, including part of a $10.8 billion portfolio from Italy’s Intesa Sanpaolo SpA in a cut-price deal that valued the portfolio at 29% of its Value in books. But Italian banks have improved their situation and stricter rules, a better economy and Covid loan guarantees have greatly reduced the number of new bad loans. It has been the same in other places.
Fears about the industry go far beyond Intrum. Bonds sold by Lowell have fallen sharply as investors worry about the roughly $1.3 billion in debt coming due next year. Italy’s largest debt collector, doValue, is refinancing and is in talks to buy a smaller peer from Elliott Management Corp., a deal that will give the hedge fund a stake in doValue and secure its support for a capital raise. UK’s Arrow Global, bought by TDR Capital in 2021, managed to reduce leverage and make more equity partnerships, but the process took a few years.
While Intrum has hailed the deal with Cerberus for providing enough cash to meet its immediate obligations, creditors are wondering at what cost, with some questioning whether the distressed debt giant will have selected the best loan portfolios. Although the sale improved the Swedish company’s liquidity, it will also increase its leverage because the reduction in debt from the transaction will not offset the loss of income.
Intrum has already pushed back a deadline to reduce its debt to 3.5 times earnings until the end of 2025. The company “always says it plans to deleverage up to three times and never does,” notes Lannebo’s Haraldsson. Some creditors are not yet fully convinced that the company will meet its immediate commitments, especially bonds that mature in 2024 and are currently trading at about 88 cents per euro. That suggests that “market participants see a risk of being included in a potential debt exercise,” says Magnus Thyni, head of portfolio at Swedish asset management company Simplicity AB, which holds bonds maturing in later years.
Rubio rejects the idea that Cerberus took Intrum’s most attractive assets, pointing to the extensive partnership between the two companies as a counterargument, plus the fact that the deal involved miles of portfolios in 13 jurisdictions, and the help offered by the sale . . “We made the deal with Cerberus purely for liquidity reasons to make sure we could meet the maturities this year and next,” he says.
Investors are resigned to a possible restructuring of later-maturing debt, but want the promises in the 2024 bonds to be fulfilled. “I think they will have to pay” in full, says Alberto Gesualdi, partner at Ver Capital in Milan, that has the expiration of that year. “Otherwise it would be a reputational disaster.” Another thorny issue for the company is a large revolving credit line that needs to be extended to keep vital liquidity available. For longer-term debt, all bets are off as Houlihan and Milbank examine whether a deep restructuring is needed. Some investors question whether the debt sale has been overblown, and Intrum’s interim CFO has ruled out a “complete loan restructuring,” but they are still prepared for the worst as they look at a 2026 bond whose value has fallen to just 61 cents. . per euro.
“It seems like they’re doing the right thing now, but why did they leave it so late?” asks Mark Remington, high-yield portfolio manager at EFG Asset Management, an Intrum bondholder. “The most likely way forward is some type of amendment and extension of the bonds, since they have liquidity for short-term maturities,” concludes Thyni. “The problem is that they have to convince the market of their strategy. And that will be a difficult task considering how long they have been talking about reducing leverage without delivering.”
