Intrum - 11th hour?

All,

Please find our updated analysis of Intrum here.

As the originally laid out time frame for the restructuring is coming to an end and competitor Lowell is exchanging instruments, we have brushed up on Intrum with a brand new, much simpler model and a perceived 11th hour hole in the game theory - surely not to play a role? While our model has come out more constructive than we had expected, we use metrics like Asset Cover, EV Cover and FCF/Interest cover to determine just how attractive the creditor package promises to be.

Investment Rationale:

- Since successfully trading the curve of Intrum's bonds last year, we have not stepped back into this capital structure again, even though that means we've missed the rally since the start of 2025. However, even now that the process is most likely going to conclude, we feel the balance sheet remains overleveraged and that at a price of 87c/€ the bonds are fully priced through the EV of the business, even though there is still share capital behind them (to be diluted by 10% and included in today's bond price).

- Although we consider the company just about able to service its future interest burden, 1) our FCF / Interest Coverage of only 1.2x is too low, 2) the uncertainty of future projections after much accounting upheaval too great and 3) the asset coverage of merely ~25% is too irrelevant to trade the bonds at these prices. 

- We prefer shorting the reinstated bonds on the other side of this transaction over buying them now, even as our model is more constructive on Intrum's earnings prospects than we thought it would be. 

- Even as we are almost coming to the end of the restructuring, we at least theoretically perceive an 11th hour execution risk that could stem from discord between the Majority Backstop Providers.

Key Insights:

- Now that the bondholders represent a united front and can deliver or withhold a deal, the tables have turned somewhat. They can in theory re-open negotiations, as the restructuring is not yet complete; the lock-up expires tomorrow, with equity rights exercisable until the day after. A minority within the Majority Backstop Providers could theoretically block an extension to secure better equity terms, and - if we were invested - we'd be pushing for that. Despite the fatigue from a long process and uncertainty around CDS triggers in a non-consensual scenario, we are wondering if all the Majority Backstop Providers have sold CDS, or, if shareholders therefore push back, there is now room to extract economics from each other. (Game Theory).

- The transition from Debt Purchasing (DP) to Credit Management Services (CMS) earnings has preserved margins better than expected. However, too large a shift toward CMS would make the firm reliant on Cerberus and peers, risking Intrum’s evolution into a low-margin execution platform in a commoditised market. That outcome hasn’t materialised yet, but caution remains warranted (Recent Trading).

- The restructuring entails minimal debt relief: a 10% haircut for 10% equity—primarily benefiting CDS holders. Long-term value creation (even for shareholders) would have been better served with a more substantial write-off and equity conversion (Restructuring).

- The redistribution of maturities will preserve creditor alignment should another restructuring become necessary (Restructuring).

- Intrum’s bond prices imply full enterprise value with no discount, despite weak asset coverage—estimated at only ~25% of bond value (Sum of the Parts).

- On current trading, Intrum can generate modest profits and cautiously grow its book. Collections at ~2.4x GMM would support interest payments, but profitability in this sector tends to be cyclical (Model). That said, Free Cash Flow / Interest Coverage remains marginal, barely reaching 1x—indicating continued overleverage (Model).

- Declining European interest rates have reduced the discount applied to ERC vs. book value. We no longer apply significant further value adjustment (ERC).

Here to discuss this name with you,

Wolfgang

E: wfelix@sarria.co.uk
T: +44 203 744 7003
www.sarria.co.uk