Intrum AB (publ) (INTRUM) Earnings Call Transcript & Summary

Welcome to the Intrum conference call. I will now hand the conference over to President and CEO, Andres Rubio. Please go ahead.

Excellent. Thank you, operator, and good afternoon, everyone or good morning, depending on what jurisdiction you're in. This is Andres Rubio. I'm here with Emil Folkesson and Ermin Keric from Carnegie. We wanted to have this phone call after speaking to a number of our external stakeholders recently, and also with all the noise that's been in the media and other forums regarding the company, we felt it was important to come back to the market before we went into our quiet period before our first quarter earnings, and really clarify and remind everyone of kind of the fundamentals and the strengths of our business and our assets, confirm our liquidity position, but also to clarify what we are doing with advisers in addressing our debt capital structure. So those are the 3 topics that I'm going to go through. But we're also following a format today that's a little bit different than we've done traditionally, but we did do recently very successfully with Nordea a few weeks ago. So we're having an external follower of the company, sophisticated follower of the company, in this case, Ermin Keric from Carnegie, moderate the call and really represent the external stakeholders and ask me any and every question he feels fit after I make some comments. So Ermin, good afternoon, and thank you again for agreeing to moderate this call on behalf of our external stakeholders.

Andres, thank you. So as we said, I'll be moderating today's call. [Operator Instructions] But first, Andres, I believe you wanted to open up with some remarks.

Absolutely. Absolutely. Thank you, Ermin. So I wanted to just spend a few minutes probably 10, at most 15 minutes, and then the rest of the call, really leave the majority of the call for Q&A. But reminding everyone of the strength and the fundamentals behind our business, the expected strong cash flows from our assets, the business plan that we have to extract the maximum value over the nearest amount of time on that business as well as assets, confirm, as I said earlier, our strong liquidity position and then also clarify a bit the decisions recently to hire advisers and our process that we're at the beginning of in addressing our capital structure. So if we can switch to the next page, please, I'll go through these 6 points. So first, and I don't feel -- I'm a bit surprised, but I didn't feel I needed to remind people of the strength of our business. But I think it's the fundamentals upon which any other discussion of our company has to be based. So fundamentally, we have a business in the servicing side, which is market leading. It's highly cash generative. And it's growing. And I would add significantly that it is -- it plays a critical role in the European financial infrastructure. So across any of the metrics we've talked about recently, our external servicing income is growing in excess of 10% a year. Our newly signed annual contract value of business last year was 2.5x the year's prior volume, and all of the margins are significantly higher than historical margins. So the momentum that exists in our servicing business is significant, and it's within a growing market where our clients need our services more than ever and will continue to need our services. This is also a large-scale business, a diversified business, which throws off a lot of cash because it doesn't require investment in order to produce cash. And that's a very important element of our business plan going forward. In terms of the role we play in the European financial infrastructure, we have over 80,000 clients. We have an addressable market of SEK 60 billion to SEK 80 billion. We have over SEK 1 trillion of external servicing AUM, which is a growing figure, and we have the top position in almost all of our markets. So this business is the best-in-class, frankly, on a European but perhaps on a global basis, and it throws off a tremendous amount of cash. And that is the fundamental basis upon which all the rest of our businesses and our assets are based. Transitioning to the second point. When we look, and I've said this recently in many of our public calls, when we look at our total liabilities as well as our -- just our assets, not our business but just our assets and the expected cash flow from our assets, 86% of our liabilities are covered by net ERC. I'll walk through the basic numbers for everyone's benefit. Pro forma for the asset sale to Cerberus, we have SEK 25 billion, roughly of book value. That is expected to produce approximately a little bit over 2x in gross multiples. So gross ERC is about SEK 51 billion to SEK 52 billion. We deduct 18% as an indicative cost to collect to get down to net ERC after operational costs to generate that cash flow, to be clear. That gets us down to about a little bit over SEK 42 billion of net ERC. And pro forma for the Cerberus transaction, we have SEK 49 billion of net debt. So 86% of our liabilities are covered by the net ERC from our assets alone. Again, that does not include the cash flow that is generated annually from our servicing business. Then, I think also what we've lost sight of is that there's a lot of steps that we've taken, particularly in the last few years to create additional pockets of value over the medium to long term that are, frankly, we're not getting credit for in the current market but will materialize over the medium term, maybe not in '24, but certainly beginning in '25, '26 and then beyond. And those range from cash flows from JVs. I count the Cerberus retained interest of 35% as a JV, and that's going to produce a significant amount of cash flow. There are JVs in Italy, for example, that in the past, for specific reasons have been written down, but will produce very significant cash flows in the future. There are other securitizations as well as a potential front book, which I've been very clear on and we anticipate announcing something later this year, but those elements alone, those JVs, securitizations, front book partnership and others would produce cash flow of over SEK 10 billion over the coming years. So you're talking about more than 20% of our liabilities over the medium term is value that we have created that is not in the '24 figure necessarily. And if you look at a static analysis today won't show up, but if you look at it as a recurring over time analysis of the cash flow production capability of our platform, they are very meaningful. And this doesn't even include what I think is one of the biggest and more transformational impacts that I'm not sure we've gotten practically any credit for, which is the technological impact on our operations. We made 2 very important technological acquisitions last year. eCollect which is an invoice management and reminder services and payment services platform, purely technological. We also acquired Ophelos, an AI-based autonomous debt resolution platform. The application of these 2 to our 80,000 clients to the 160 million actions we take over every year, will easily, in my opinion, produce a better customer experience, but more importantly, produce delivering a better service but at a lower cost of more than SEK 1 billion on an annual recurring basis. It's not going to be in '24, but that material impact is going to be realized over '25, '26. So you're talking about over SEK 10 billion of just asset cash flows that we've created from initiatives or assets that are -- we're not getting any credit for, and also over SEK 1 billion of recurring profit, not to mention improved product, et cetera, from technology impact. So significant additional pockets of value which will materialize, which will add value to -- and we'll -- and generate cash flow that we can use to repay debt as well as to continue to develop our business. And then finally, and you heard this before I get into liquidity and our process on the debt capital structure, the thing that's very interesting to me is I read all the research reports as well as the press reports that have been plentiful recently. There's no debate about the fact and there's general consensus around the fact that we have the right business plan to extract value from this business and these assets. And that is operational excellence, tech-driven operations, I've already talked about those. Client focus, focusing on delivering more services to more clients, more important services, more value-add services and lead with our client business. And then on the investing side, be capital-light, transition to asset management and also extract value from our existing back book to repay debt and to lower our financial risk. So I think the business plan is the appropriate one, generally speaking, it sounds like most, if not, all external stakeholders agree with that to extract these additional pockets of value, to realize the cash flow to cover our liabilities and to continue to develop what is already a highly cash-generative servicing platform. On liquidity, and there's been a lot of talk about this. I want to be very, very clear, and this is an updated figure. But when we talked last year, we said we are effectively covered in '24 and '25, the most up-to-date figures, pro forma for the service deal, pro forma for our business evolution, et cetera, are that we will have roughly available liquidity of SEK 21 billion, give or take, and we have roughly SEK 22 billion of debt maturities in '24 and '25. That's 93% are covered. Now as I've stated often, and I want to be very clear, this is just a risk metric. This is not to say that we are going to use our liquidity to cover 100% of '24 and '25, that would bring down our liquidity to 0. That is not something we're going to do, but it does give us an ability to look at our near-term maturities and now long-term maturities from a position of strength with significant liquidity as opposed to on the back foot. One of the things that people fail to realize is historically, this business is investing part of this business historically was modeled on 100% borrowing and 100% proprietary investing. Well, that model has 2 drawbacks. It requires to grow your debt stack in order to grow your business. And then it also requires continuous access to the markets. And so what we have done is we've shifted, we've shifted more to a capital-light. We're still in that transition. But ultimately, what we did here was over the near term to make sure that we had enough liquidity to address the market from a position of strength as opposed to requiring near-term access. Now that leads us to the last point, which is a very topical one which a lot of people have asked lots of questions about. But despite the fact that we have a very strong liquidity position and theoretically could cover essentially all our liquidities -- all our maturities, excuse me, until the end of '25, we need to be -- we need to recognize what the market is telling us. The market movements recently, currently indicate that we will not have market access anytime soon on attractive terms. Despite the fact that we have a strong business and great asset that will throw off significant cash flow, the market is indicating that we can't ignore that. So therefore, we are actively taking a proactive and holistic process to analyze our debt commitments and align them with our asset structure and our future cash flows. We've hired leading financial and legal advisers to assist us in evaluating our capital structure, which includes our bank debt, if it backs up our RCF, our Eurobonds and our SEK MTNs. That's the SEK 49 billion I referred to earlier. The objective of this process is to reshape our debt profile, to align our debt maturity with our business strengths and our anticipated cash flows. The outcome of this, which today is still -- we do not know because we're in the beginning stages of it. But I believe that the outcome of this, when we come out the other side of this, we will be enhancing and strengthening our market-leading position, and we will be able to deliver better over the medium to long term for all our stakeholders. So I'm sure there are a lot of questions, but I think in talking to many of our shareholders, bondholders, et cetera, and having -- and talking about these very 4 or 5 -- or sorry, 6 points, they continually said to me, well, I think even coming out given all the noise in the marketplace and the media attention and other things, there's a lack of clarity. And I wanted to just bring it back to basics, I mean, I wanted to bring it back to the fundamentals and remind everyone of points 1 through 4, update everyone on point 5 on liquidity and then further clarify our recent process to hire advisers to actively and holistically address our debt capital structure. So those are the fundamental points we wanted to get across. I'm sure there's many, many questions that they've given you, Ermin. So feel free to shoot questions at me from now going forward, please.

And indeed, there's been tons of questions, but please keep them coming. If you have anything, just drop it in through the browser. Maybe starting on the advisers that you mandated a little bit. So as you alluded to in the start, you had this call about a few weeks ago, where I think you were fairly optimistic on the outlook of the overall business. And then about the week later, you announced that you mandated to advisers to review your funding. So I think one question that's been recurring is if you could walk us through if anything happened to those 2 events that made you act like you did?

Well, actually, the answer is nothing happened between those 2 calls. Before we even had the Nordea call, we had decided to hire financial advisers. Again, the points I just stated, the strength of our business, the liquidity position, all are the same as they were a few weeks ago. Nothing fundamentally has changed. But the market reaction, in general, and the market indication to us of market access, has led us to say that we need to proactively reshape our capital structure. So even the day of or the day around that Nordea call, we had finalized our decision to hire Houlihan Lokey on the financial side as well as Milbank on the legal side. We interviewed 5 financial institutions and 3 law firms. We informed those 5 financial institutions and 3 law firms of our decision more practically 2 weeks ago, so slightly before that Nordea call. We -- so we were -- we had already informed that minute was in the marketplace. We actually let some of the bondholders know as well as all the RCF banks know. And just coincidentally or incidentally, just for everyone's benefit, I have had more than 1 bondholder and 1 bank tell me, well, if you hadn't hired Houlihan and Milbank, we would have. So clearly, what we did was we hired the advisers that we thought would do the best job for us in looking at our situation and evaluating all options. And then last week, we drafted a press release and the timing from a day-to-day perspective was such that we put that out on Thursday. So the answer to that question, Ermin, is that nothing happened between those 2 calls. This is not a process that happens from one day to the next and that we've been in this mode of interviewing and deciding what to do proactively for several weeks now actually.

Understood. And you touched upon a little bit that some of your bondholders have also appointed their own advisers. Do you see that this risk to make the process more stretched out in time, for instance?

Well, thank you for asking that because no, it's the exact opposite, Ermin. I think there's a fundamental lack of understanding as to what this process entails, and I think there's also been some sensationalistic press coverage, saying things like, oh, the creditors are sharpening their weapons. Let's be clear, we hired advisers such that we could get the best possible advice on all alternatives. That's our responsibility. Then we need to engage with our banks, our bondholders and our MTN holders. The bondholders, that you referred to the bondholders, so I'll use them as an example. We have hundreds of bondholders, large bondholders, we have tens of large bondholders. We cannot negotiate with 10, 20 or 30 or 40 bondholders separately. It is a requirement of a process like this, which is why we informed them and the banks that we are hiring advisers for them to hire advisers. It's normal. That way, they can aggregate their views and they can represent to us an aggregated perspective that we can then engage with. So it is natural that they engage advisers, we have advisers. We sit down and we enter into a discussion, which can ultimately lead to an outcome which is agreeable for the vast majority of bondholders, banks and MTN holders because if they don't get organized, then who do we negotiate with? We'd have to negotiate with many, many different bondholders and that doesn't make any sense. So it's a natural evolution that they hire their own advisers such that we can hopefully come to a constructive dialogue and come to a solution that works for them and for us.

And maybe then going more into the details of the actual process, if you could go through a little bit of the time line going forward. So for instance, what are Houlihan exactly doing now, if you would more...

So I'll talk a little bit about the process in general terms. We are analyzing all of our capital structure as well as our latest financial plan and figuring out how to match and align our debt capital structure with our business. When we come to a more evolved, a more definitive view of that and the different alternatives that exist, we're going to sit down with our RCF banks and our bondholders and our MTN holders that's in the coming weeks, and propose solutions. They're going to, with the advice of their advisers, respond, and we're going to ultimately hopefully come to a conclusion that works for them and for us, that is reflective of the market realities, but also is reflective of the strength of our business and the alternatives that are available to us that ultimately puts us in a situation that's acceptable to them and fits for our profile. So I can't put a specific timetable on it. As this evolves and there's concrete milestones that are hit or accomplishments or anything like that, we will come back in due course to the public, but that's the process. That's where we are in the process now. And the next step after we do our own work, which is in the coming weeks, is to engage with these constituents, making any comment about further steps after that or any possible outcome of this process before we even engaged with them, I don't think would be appropriate and it would be premature at the very least, but it probably wouldn't even be appropriate before we engage with them Ermin.

And I think I'll still have to add some questions and -- for what you can say. But I mean, more generally speaking, what kind of measures could you see, as you see it today? Is it primarily just looking at extending debt maturities? Or could it also involve, for instance, on the debt-to-equity swaps?

Yes. I mean, again, I don't want to get into specific alternatives, but it's the full-fledged options that are on the table, extensions, current payoffs, different levels of restructuring. Currently, I can tell you right now, we are not contemplating including equity in the mix. But ultimately, that's a byproduct of the process, but it is not our supposition today.

And when you refer to not including equities, is that from an equity like rights issue perspective or to offer debt to bondholders?

In any form or fashion right now. But again, we're doing our analysis. It's premature for me to comment on that. But it isn't -- we are addressing our debt capital structure to be very clear.

And just then -- I suppose saying hypothetically, if you would extend your debt maturities, do you think that would really resolve the kind of core issue as I think some are participants at least proceeded to have too high leverage?

I mean, again, as you heard from my comments earlier, this business has cash flows from other assets, for example, of SEK 10 billion. That's 20% of our debt. We have -- we could, in theory, pay down SEK 20 billion of our debt over this year and next year. I mean, if we get down to half or less than our current debt stack and continue to have the strong business that we do on the servicing side, excuse me, as well as we have a growing investment business, but with third-party analysis with third-party capital and our performance is better than it is today, then leverage has come down significantly. It's much more manageable. So I don't see -- I see this as a timing issue rather than a fundamental issue because as I've said publicly, and I think my comments indicate, the absolute amount of leverage is significant, and we want to reduce it. I'm not minimizing that. But it is something that I think we can handle if appropriately structured and timed.

And do you think the current debt instruments you have are well functioning to match an ERC curve, for instance, that's spanning over 15 years?

Yes, that's a good question because the ERC is over 15 years, but the weighted average life is much, much shorter. So you're going to get a vast majority of that SEK 50 billion or net SEK 40-something billion over the next 4 or 5 years. So that's one part of it. But, again, I think we absolutely are partners with our senior secured RCF bank holders. We want to continue having that as part of our capital structure. Bondholders have been a big part of our capital structure historically. To some degree, I suspect we will always be in the bond market. And then second, MTNs have been important. Will we add certain things such as kind of private capital in the mix or expand our secured capability? Yes, we're looking at all alternatives and our capital structure will fit what we believe to be the optimal mix for our business going forward.

So I know you don't want to get into too much details, but given that most questions are on the topic of...

Sure, sure, sure. Go ahead. I'll answer what I can.

So I mean, could you give us any flavor to if it's sort of the -- an amendment to the full bond package or the full debt stack or if you're looking at specific maturities primarily when you're now doing this review?

Yes, I can't -- I mean, I really can't answer that right now. Until -- what I can say is what I said earlier, we're addressing this and looking at this holistically, and before we engage with banks and bondholders and MTN holders, my commenting on any part of the maturity schedule or what might be a solution is premature.

And could we talk a little bit about more so from a legal aspect, what sort of acceptance rates are needed to make amendments, if you wanted to...

Again, there are -- our bondholders know our bond covenants and our indentures very, very well. I'm not going to comment on specific thresholds for specific access because that presupposes a desired course of action. And as I said already a couple of times, that's premature.

Could you tell us anything about if you had initial discussions with bondholders and what the feedback has been so far?

Listen, we've had discussions with banks and with bondholders as well as SEK MTN holders and the expression for most of them is support for a solution that works for them and for us. I mean -- and that's why I believe this is an issue which when we sit down with them, we're going to come to a solution that works for them and for us. But beyond that, I can't comment more specifically.

And is it possible to give any ballpark indication for the concessions that Intrum might have to kind of accept in this...

No, that's just the same question in a different format. Ermin, I can't answer that.

Okay. Then there's a lot of questions on equity. I know you previously said that that's not the part of the plan, but how do you see the risk that equity will get diluted in this process?

Again, that's not our supposition. We are addressing our debt capital structure. We believe we have plenty of cash flow to address our debt capital structure. So -- and obviously, but today, when you look at the marketplace and you look at the equity value relative to our desk back, it's quite low. So that's an obvious question, but that's not our supposition. We have plenty of liquidity. We have very strong business that throws off cash. We have assets that produce cash. We have additional pockets of value that throw cash. So the question is, how do we modify our debt maturity schedule to fit that? Today, our supposition is not that we're going to include equity.

Then there are few questions on, we've seen several, including yourself, from management buying shares recently. Just this -- from any inside regulation perspective prevent or limit Intrum from any certain actions in the near term?

Not at all. I mean, again, we're not in a restricted period. I bought shares, others bought shares recently. It's been publicized. I think as a CEO of a company and others can speak for themselves, but I think it's our obligation to look at buying shares on a continual basis over time. It clearly indicates that we believe in the company. So -- and this doesn't restrict us in any form or fashion.

And could you also just confirm that it's all sort of, call it, purely self-finance and there's no downside protection from any structure from the company or major shareholders?

No. I mean I believe -- I'm certainly speaking for myself, but I also know other members of management and other people attached to the company. I don't believe there's been anything from the company that finances that those have been individual purchases to the best of my knowledge.

Perfect. Then there are some questions on the RCF as well. Could you just give us an update on the RCF balance as of today and the remaining capacity?

I don't know, Emil, if you want to address that specifically with the numbers as of today, that would be very helpful.

Today, we have SEK 5 billion available on the RCF. It's a very similar position as the fourth quarter.

And could you say anything about if you would be allowed to draw upon the RCF to repay the 2024 bond maturities?

I mean, again, we can draw upon the RCF for a number of different reasons, for paying off other debt or doing other things. Obviously, when we closed the service deal, that also lowers our ERC, so that reduces the RCF size as well as we have to use those proceeds for something. But we can use those proceeds for anything right now.

And then you have the RCF currently maturing in January 2026, I believe. Have you started any discussions for renewal? And could you give us any update on that?

So yes, it matures in January '26. We normally would be sitting down with them a year or 1.5 years earlier to start talking about that, given the process we're undergoing. Clearly, we have to talk to them now. And we have -- they have -- we've had discussions with them about hiring the advisers, as I said earlier. We've had discussions with them about kind of coming back to them in the coming weeks with what we want to do potentially with them, as well as anyone else in the capital structure. They have expressed support and desire to discuss this as soon as practical. But again, they -- we -- with them, let's also remember that they are senior and secured, and they will be a fundamental stakeholder with whom we will coordinate what we do with the entire capital structure because it does impact that.

And just based on these initial discussions, is there any prerequisites that they have for agreeing to a renewal?

Not yet. I don't have an answer to that right now.

And more generally, do you expect the terms to change to any material degree or the capacity or size of the whole RCF?

Again, we're going to get into that with them in the coming weeks. I think certainly, we're looking in general across all our capital structure to extend, and I suspect that, that will lead to some modification of terms, but more detail than that, I can't comment today.

And generally, just hypothetically, if the RCF would reduce in size and the capacity of the whole structure, would that simultaneously enable you to issue more senior debt that would rank ahead of the senior bonds?

I mean, again, we're getting into a lot of detail. But over time, as we look at the RCF as well as we look at moving beyond this year's maturities, for example, our secured capacity does expand. And that's one of the things we're evaluating in our current evaluation of our debt capital structure. And the answer is yes to that. But what implication that has, we can't comment on that today because we don't know yet.

And could you just give us an update on how much capacity you have to do additional secured funding?

Emil will keep me honest on this, but I believe the additional secured basket is EUR 250 million, of which we have EUR 150 million in the form of 2 bilateral loans, one with a Swedish entity, one with a Greek entity, excuse me. And we have, therefore, EUR 100 million of capacity currently. Is that correct, Emil?

It's exactly correct.

Perfect. Maybe continuing on the investments you've had with banks so far. Do you notice them kind of changing anything in appetite based on the public market turbulence we've seen? Has that impacted that relationship at all?

I think clearly, the noise and the volatility in both our share price and our bond prices is not something -- is something that is a concern to all of us. There is no doubt about it. We have been in close contact with all the RCF banks, in particular, the 4 largest Nordic ones, who really lead the group, and they have expressed support for the business. They have expressed understanding of the business, understanding of the fundamentals also scratching their head a bit at the market reaction. But ultimately, we have both agreed that in the coming weeks, we will sit down and engage proactively to figure out what the right answer is with them and with the other parts of our capital structure. And they've expressed nothing but support.

I believe earlier this year, we saw one of your RCF banks divest their stake. And I think there's been in media, talks about additional at least one more looking to do the same. Is there anything to read into this? Or is this more specific occasions for specific banks?

Yes, I wouldn't read anything into it. You have to ask specific holders their own individual and internal risk positions change. The one you're referring to, I believe, is UBS, which comes from the -- which inherited this in the acquisition of Credit Suisse. And then I think it switched hands to, I believe, Bank of America. But ultimately, every holder of the RCF has to deal with this in the context of their own internal risk parameters, and I wouldn't read anything into that.

Great. I suppose, on the topic of liquidity, you had about SEK 3.8 billion in cash as of year-end last year. Realistically, what kind of level would you be able and comfortable reducing your cash position to [ let it down ]?

No, it's a great question, Ermin, because we do keep high levels of cash. We have a high level of cash production across our entire 20 countries or 20 markets, and it has to flow through our corporate structure. So -- but I believe that we could probably run this, and Emil can tell me if he thinks differently, but probably at SEK 2 billion -- SEK 1.5 billion, SEK 2 billion, something like that as opposed to SEK 3.8 billion, which I think is high.

Perfect. Then moving on to the Cerberus transaction. There's been some questions on why we haven't seen any announcement that, that deal has gone through if there's been any delays?

No, there's no delays to be clear. I've consistently said that we'll close this in the first half, and it's going to be a second quarter event. There are 2 regulatory hurdles that we needed to pass. We've received one regulatory approval. The second one, which is frankly the easier one, because it's just an internal transfer of an entity to reflect our partnership with Cerberus, we have not yet received yet. So -- and regulators, we could receive the approval next week. We could receive it in a few weeks, but it is anticipated to come shortly. And then as soon as that happens, all the conditions have been met, and we will close. So both ourselves and Cerberus expect to close this in the coming few months.

Very clear. Additional questions on Cerberus, also what vintages were sold? And could you talk a little bit more about how these assets were selected?

So again, it was about EUR 1 billion of assets across 13 geographies. They were in 5 different entities, if I remember correctly, Emil, that we're all kind of pre-seasoned assets. They were 2017, '18, '19 and before assets, and we got a great price for it, and we're going to get the -- we ultimately got very close to par. We also -- in the context of this transaction, which was done for liquidity purposes, but also very importantly, was done with our -- 1 of our top 5 clients and our strategic -- and the biggest NPL buyer in Europe, perhaps the world. So it became strategically a very important initiative with a key constituent, a client and a partner. It also accelerated our strategy from taking assets, which were previously 100% debt funded and on our balance sheet. So now we have a partnership stake and we kept all the servicing and we have Cerberus as an even bigger client going forward. So the deal is a fantastic deal. Going back to the fundamental part of your question, it was a broad-based set of assets that sat in certain entities, that facilitated the transaction. Frankly, we didn't spend much time on the selection because it was rather obvious when we looked at our book, what assets facilitated the transaction. And they -- we didn't spend a whole lot of time looking at the selection of assets and we centered on getting the transaction done in the terms.

Thinking about the growing concern, would it be right to think that these older vintages were the one primarily contributing to overcollection?

No. Well, yes and no. I mean, I think they were very good assets. But again, we have assets that perform well above relative to historical underwriting as well as active forecast in other geographies that were not part of the perimeter. So I wouldn't necessarily say that.

Great. Then there's a question. If we take your net debt in relation to your consolidated NPL book, we actually see the LTV expanding following the presentation to north of 200%. How do you think about that as a metric?

So net debt relative to our book value of assets is what you're looking at...

Exactly.

So it is the SEK 49 billion that I referred to earlier versus the SEK 25 billion approximately is what you're saying, right? Well, I think that's a good metric, as I said earlier. But again, these assets have value in our hands because we are able to, given our platform, extract value from them. So you really need to look at it. If you were to liquidate that today, which is -- this is not a liquidation analysis, that's not a static analysis, you have to look at this as a dynamic analysis and us as a recurring entity, you go back to my analysis, which is fundamentally based on that ratio, but also looks at it over time in turning assets into cash flow. Those assets turned into over SEK 50 billion of cash flow, SEK 42 billion or SEK 43 billion of net cash flow relative to SEK 49 billion. That doesn't include the businesses and doesn't include the additional pockets of value I was talking about earlier. So the assets alone, I think, over time, and again, the way that you asked the question, Ermin, the weighted average life is much less than 15 years, even though that's a 15-year ERC, we can more than service this debt.

Perfect. Staying on the topic of liquidity, could you cut your investments to 0? Or is it some of it that's contractual building -- binding and if so, how much?

So it's a good question. We do have some forward flow agreements. And I've been asked the question from bondholders actually, given how successful our buyback was a few weeks ago, why don't we cut it to 0 and actually go buyback more bonds which theoretically is an alternative. We do have -- we've cut back our investments from, call it, SEK 7 billion, SEK 8 billion, SEK 9 billion, which is a historical level, down to SEK 2 billion a year. We've been at that level now since the middle of last year. About half of that or a little bit less than half of that, so probably a little less than SEK 1 billion a year comes from forward flows. The rest are active new purchases, roughly speaking. So that's the level of committed capital to forward flows, about half of the SEK 2 billion. But we could, even within that, lower it significantly from SEK 2 billion to at least SEK 1 billion and not do any discretionary new purchases. And we could, in fact, even look at those forward flows and see ways to reduce it.

Great. Then I think previously at the CMD, you talked about having coverage for the 2024, '25 maturities with organic liquidity. Now I believe you said it was 93%.

Yes.

How do you plan to bridge that 7%? Is that organic growth? Or...

No. But see, this is where I think that's -- you're asking a question is if that was my baseline plan to do. I said it even at the CMD level, that while I have or we have enough liquidity to cover this year's and next year's maturities, that's not our baseline plan because then I would be running my liquidity down 0. No company runs their liquidity down 0, to be clear. So it is a risk metric. The available liquidity over a time period relative to the maturities is an indicator of financial risk. And we committed to as of the middle of last year and then again in the CMD, and even more recently, to reduce our financial risk profile. So I wouldn't look at this as, oh, they need to come up with SEK 1 billion, if we're SEK 1 billion short at the end of '25 because by then, we will have dealt with our capital structure. I always said that I didn't want to have to depend on the marketplace, but that we do depend and our baseline strategy, is to deal with the marketplace from a position of strength and partly extend and refinance and partly payback, et cetera. Now that with the recent market reaction, we're taking a holistic and proactive view with our advisers to address our entire debt capital structure. But I wouldn't look at it that way because we're not going to run down liquidity down to where we would need SEK 1 billion just to pay off our maturities at the end of '25. That's why we're going through this process, to proactively address our capital structure and align it to our cash flows in our business.

Right. That's very clear. An additional question is if you could consider any more asset sales. For instance, you've had tactical markets that you talked about previously. Is that off the table now?

Yes. I mean it's not our intention to do any more asset sales. I think we have enough liquidity. I think they are asset sales because of the shape of the curve are initially slightly increasing in the leverage ratio, even though they decreased your aggregate leverage and improve your cash flow. But -- so ultimately, we made a decision to tactically do this with service, which is also very much for strategic purposes in addition to liquidity purposes, it gives us the position in '24 and '25 of strength, in terms of our liquidity position, but I can't foresee additional asset sales.

Great. Then I think you mentioned it in the start, but how do you view your access to bond markets to date? Do you have it? And what do you think is needed to reach the business being able to issue bonds again?

Well, I mean, it's rather obvious. If your bonds are trading at high teens or 20s yields and trading well below par, I would believe that we don't have access on attractive terms, which as I said earlier, is our interpretation of the market. We can't ignore the market despite the fact that we have enough liquidity for '24, '25, we now need to look at our entire capital structure, and that's the process that we're doing. That's why we've hired advisers. That's why we're going to engage with our banks and bondholders and MTN holders to find a solution that makes sense. And when we come out the other side, I'm certain that we will have both continuous access. We'll have a better funded business, a better rating, we'll come out of the other side much better than we are right now. But today, you have to assume, given where the recent levels of trading that we don't have market access.

That's very clear. So maybe then thinking about alternative funding sources. We touched a little bit about secured funding before. If we could just go back to that for a little while. So which documentation is preventing you from issuing more secured funding currently? Is it the RCF?

Emil, do you want to address that?

Yes. I mean we have the covenant restrictions in the bonds. And those are virtually mirrored in the RCF as well. So it's the complete debt capital documentation that is limiting the secured capacity.

And would it be possible to ask for permission or do you think there would be to unattractive terms to get allowance for it?

I think that goes back to a lot of the points that Andres just mentioned, I mean we are through the process of evaluating debt capital structure, and it's premature to comment on that.

Exactly. I mean that is one of the variables and alternatives, Ermin, that is in the menu of options and menu of potential solutions to get a capital structure that fits our business but also a capital structure that works for our banks, our bondholders and MTN holders.

Great. Then there's a question on the long-term sustainable leverage targets kind of -- and the company has kept the same leverage target ever since the Lindorff merger. Is it really as suitable now given the change in business...

Well, it's a good question because ultimately, I think we need to lower our leverage level. I think given our new business model of a noncapital consuming servicing business really leading the way, continuing to add value through things such as the Cerberus joint venture, the Italian joint venture continuing to inculcate technology, et cetera, have all that cash flow. And then on the asset side, do more of an asset-light asset management business model. I think that we can very easily sustain leverage, but I would like to lower it. You're correct, in that 3.5 or lower has been out there for a very long time. We need to reduce it over the near term, in my opinion. But then once we go below 3.5, we will then figure out what's best at that moment in time for the business.

Is it possible to give any sort of indication for how you would think about the leverage per unit sort of being optimal. If we think about it, for instance, from a LTV perspective on the portfolio business and I don't know, cash EBITDA multiple and servicing business separately, just to get a little bit of sense over time, how you would want to lever the company?

I mean, again, you have to look at these things under our roof holistically because in the marketplace is very different than the way we manage leverage, the servicing business throws off a lot of cash. What is that worth? And what could that handle on leverage? It's significant. There's a lot of external stakeholders who put a lot of value in that business and by definition, and also because it doesn't consume capital. It produces capital. it could sustain a lot of leverage. I'm not going to say specifically if it's x times or y times. And in our portfolio, we're very comfortable with our portfolio and our current capital structure but we do want to bring it down over time. And also, the composition of our portfolio, our investing business is going to be very different in 3 or 4 years than it is today. It's going to include, call it, SEK 20 billion or SEK 30 billion of our own capital, but that's going to anchor a much bigger investing business, which is going to produce asset management fees, performance fees as well as produce more servicing. So it becomes very much a virtuous cycle, if you will, when we grow the servicing business -- sorry, the investing business without our own capital, with third-party capital, it becomes very, very positive for us in terms of it produces fee schedules or fee streams as well as increasing our servicing business. So to us, the combination more than sustains any kind of leverage level we'd anticipate in the future. But it is our target, and we stick to that target to get to 3.5 or lower as soon as possible.

And as everything is currently, do you still expect that to be in 2026, the region...

Yes. As we sit here currently, we expect to hit that during 2026.

And also given everything that's now been in public markets, et cetera, would you still feel comfortable reinstating dividends as soon as you come below that level?

I mean that's our stated policy. I think at that level, it is still our intention, but we will make that decision when we get there. But yes, that is still our stated policy.

Clear. Then there's questions on the credit rating. If there's any direct impact from the rating agencies coming with downgrades more recently?

Yes. I mean, again, part of the market noise and also the market volatility came from the recent downgrades. We -- I scratch my head a bit in thinking that we were downgraded just by virtue of hiring an adviser. Nothing else fundamentally has changed. I somewhat understand that after engaging with the rating agencies in more detail as to their decision, it's more formulaic and mechanical and scenario based. They have a very challenging role to play between issuer and bondholder in times like this with significant volatility. But we continue to speak to them very closely, keep them up to date on everything. They're an important external stakeholder in our business and evaluate our business, and we will continue to keep them in the loop every step of the way. And I suspect and my expectation is that when we emerge on the other side of this process in whatever form or fashion we do emerge, that we will have a better capital structure that reflects our business and therefore, immediately and over time, certainly, but hopefully immediately, we'll have a better rating.

And do you have any target rating that you envisage more long term?

We do not.

Then I think we can move into more questions on the ongoing business. So you've talked a bit about capital partnerships for new investments, could you give us any update on where we are on that?

Sure. We're in negotiations as we said earlier. We expect to announce that later this year. It is a situation where rather than investing just SEK 2 billion, we're going to invest, call it, SEK 7 billion, SEK 8 billion, SEK 9 billion on an annual basis. But the rest -- the difference between SEK 2 billion and the total is going to be coming from third party. The benefit of it is, is that we're going to immediately have a counterparty who strategically is endorsing our ability to not only originate that higher level of assets but also endorses our presence in the market with sellers, as well as endorses our ability to service all that. So it will produce higher level of investments without a higher level of debt capital. It will produce higher level of investments so that we can activate our investment platform that is complementary with our servicing platform in our 20 markets, and that ultimately will produce fees as well as servicing revenue. So again, it is an acceleration in a direction that we want to go in. Long term, we want to be in a more asset management model. This is a very important first step in that regard, a strategic step. And we're in negotiations. All I can say is that we expect to announce something later this year, and we will do so as soon as we have something to announce.

And could you give us any vision or flavor for the size of the portfolio or earnings impact, those kind of partnerships could have in, say, 3 to 5 years?

It could have -- I mean, think about just the aggregate portfolio of, call it, SEK 7 billion, SEK 8 billion, SEK 9 billion, SEK 10 billion a year for 3 years. That's going to produce a portfolio of SEK 2-plus billion, which today we don't have, which has nominal assets much superior to that, that we're going to be servicing that we would have some level of ongoing fees and long-term performance fees. So it would be quite, quite dramatic, actually, in terms of its impact. I don't have specific figures to share at this moment, but it would be quite dramatic, and it would be additive to what we had in the Capital Markets Day plan as we indicated back then.

Excellent. Then could you talk anything about if you've seen any impact from kind of the financial market turbulence on your ability to win new servicing mandates?

It's a great question, and it's a logical question. We have a franchise that's important. We are winning more than ever. We are winning 55% of our new business as opposed to 40% a couple of years ago. We are getting questions, as you would imagine, from our clients. We have a very consistent message, which is consistent with what I delivered here today that all of our market senior representatives are passing on to clients. And we, to date, have not lost any business because of this market turbulence, but it is something we need to be mindful of. Ultimately, I think we have a better value proposition than anyone else in the marketplace, but this turbulence can have an impact on how we're perceived by clients, and we need to stay on top of it.

Great. There's also been some media sources claiming that you've been cutting about 600 FTEs in Spain. Could you tell us more about this, if it's correct...

This is -- okay, so I'll take a small step back to answer your question more generally than specifically address that. But we, last year, embarked upon an important cost-cutting initiative, which we internally call Project Boost, we hit already SEK 800 million run rate by the end of the year, SEK 300 million actual realized last year. That's going to be in excess of SEK 1 billion. As I've said to the market in the past, it's going to be fully realized later this year. The main reason it's only going to be fully realized later this year is because the reduction in head count component, particularly in a market like Spain, which has a very specific procedure and one where we also made an acquisition last year, which further complicates matters. It takes time. It takes negotiations. It's a legal process that's very defined, and that's not going to be completed until later this year. I can't comment on the specific 600, but it's going to be a very meaningful reduction in Spain and it has been on a very meaningful reduction across our entire platform. We will continually, also Ermin, look at other ways of making our platform more efficient in cutting out indirect and overhead costs. We are going, as I've said earlier, to a much more balanced enterprise operating model where we're not going to a 100% centralized management and operation of the business, which was the full expression of ONE Intrum. We are going to much more balanced where we recognize that our regulators, external stakeholders, clients and customers all sit in local markets. And we have a partnership model between the center and the markets where the deliveries in the local management's hands, but it is managed centrally. It's not operated centrally. That in and of itself also means that we don't need as large a center function, and we continue to look ways of reducing those costs. And we're taking other measures to do that as we speak, which will only serve to hopefully make us more efficient and more profitable.

And do you foresee that you can do any additional cost cuts in the near term based on the divestments you've done to Cerberus? I mean, since you're keeping the collections, I suppose, most of the collections...

Yes, the Cerberus deal per se doesn't lead to that opportunity, but I think on a continual basis, Ermin, we have not only an opportunity but an obligation, frankly, to continue to look to ways to make our platform more efficient. When I look at the platform, I see indirect cost and overhead costs that are still too large. And then I also see a fundamental opportunity in our direct cost with the use of technology. Those 2 buckets are something we're going to continue working on and lowering our cost and increasing our profit, not just this year, but for years to come, frankly.

And when could we start seeing a more material margin impact from this type of automation -- if you just -- a follow-up on it directly if you think this will be sustainable or will competitors...

Yes, it's a good question.

You kind of alluded for volumes instead.

Yes. Last quarter, when we had your -- lunch at your office, Ermin you remember, I was asked that exact question. And I think you're going to see a material improvement in the margins start filtering in, in the second half of this year. I think long term, you need to look at the fact that we're becoming more technological, that we're going to become more efficient. Technology allows us to give a better product at a lower cost. We'll share some of that with our clients, but not all of it, to your sustainability point. Long term, you also have to realize that we have 80,000 clients, but 200 -- sorry, our top 50 clients produce 2/3 of our revenue. So we will have a very nice margin with those large clients. But we also -- the other 79,000 were going to be much more automated in our delivery of services. So therefore, the margin should be much higher than we would normally have in a sizable bilateral servicing contract. So when you look at the aggregate, yes, I absolutely believe that over the long term, we're going to be viewed as a more value-added, technologically-oriented provider. We're going to do more things. We're going to move more up and downstream in terms of our services, and that's all going to contribute to sustainability of margin.

Makes sense. And then I think our final question will have to be -- there really some additional questions on the equity side. I suppose that's what we started off with partially in the discussion. But have you had any discussions with your main shareholders if they would be willing to support you?

So our -- yes, I mean, our main shareholders, the larger ones, we're in constant contact with. They understand our direction. They have expressed support. We're not in a situation where we need cash today or next year, so to speak. We are addressing our debt capital structure, but our major shareholders have expressed nothing but support for the management and for the business plan that we have.

Makes sense. And then I think I was told here in the room that you wanted to do some final remarks before we round up today's call. So thank you very much from my side.

No. Thank you, Ermin. You did a great job, and I really like this format because you get to on a uniform basis and kind of an organized basis, field questions and pose them to us. I think this is a great format. We're going to continue doing this in the future. Thank you for taking your turn this time to be the moderator. We will have other external close followers of the company moderate future sessions like this. But I'll go back to the beginning. We wanted to come back and cut through all the noise, reminding people of the strengths of our business and the basics of what we're trying to do in our business, with our assets, with our investing business, the business plan we have. We want to update everyone on our liquidity position, which continues to be very, very strong. And then clarify the process we're undergoing right now with our debt capital structure and why we hired Houlihan and Milbank. We think they're the best. Why we're looking at all options. And then ultimately, we're going to engage in the coming weeks with our banks, bondholders and MTN holders to constructively enter a dialogue that can lead to a solution we can execute on, which is why they need to be organized that works for them and works for us. And I think these points were very important to get out. I heard from a number of external stakeholders that we needed to remind people of this and get these basic messages out because there's so much noise in the marketplace before we went into a blackout period before our first quarter earnings. So I appreciate everyone's time. There are a lot of participants on this call. I appreciate everyone's time and effort in following the company. I hope these messages have been helpful. And again, I appreciate your time and effort in moderating it Ermin. So thank you, everyone.