Lowell - on liquidity and refinancing

All, 

The company have of course been buying less portfolios in Q1 than was the case last year. So much was to be anticipated. To get the good news out of the way: 1) Collections have held up better than perhaps expected, although management refused to reveal the full damage as per the month of April on a stand-alone basis and more importantly 2) the company is beginning to show some signs of improved profitability (although that is to be expected with fewer new purchases).

As for the trouble:

- At £70m Lowell are investing at the required rate to keep their balance sheet stable, but after an initial increase in profitability, earnings are going to have to decline.

- On a Q120 run-rate and with CapEx squeezed to £16m annualised, Lowell are still struggling to cover interest payments. 

- Management are advertising the opportunity in the next cycle, but Lowell does not have the liquidity to partake in it. How will it raise that liquidity with impending maturities, low current levels and such a tight NCF? 

- Leverage is apparently going to rise. We are not using this method with Lowell, so cannot opine, but if it's based on Cash EBITDA it would make sense to us.

Thus with the company re-levering, freeing up limited cash at a flat re-purchsasing rate, the RCF significantly drawn and the opportunity lying principally in portfolios not yet purchased, we are wondering how Lowell will a) refinance and b) raise the liquidity to partake in the new cycle of profitable purchases.

Thus bar an injection from the shareholder, we see few scenarios in which the SUNs will be bought back or otherwise be refinanceable and are thus looking to pare them against one of the SSNs on the basis that the worse is yet to come for Lowell.

Wolfgang