Pioneer Credit’s Securities Resumes Trading on ASX Following the Completion of the Debt Purchase

Pioneer Credit Limited (ASX:PNC) is a provider of high quality, flexible, financial services support which has a track record of consistent earnings growth.

After four months of suspension, the shares of PNC recently resumed trading on ASX. The suspension was lifted following a release by PNC of an announcement in relation to the completion of debt financing. This is regarding an agreement for an entity that is part of the group of entities doing business as ‘The Carlyle Group’ (collectively ‘Carlyle’) to acquire the debt outstanding under Pioneer’s senior secured debt facility from Pioneer's senior financiers.

Pioneer Credit has confirmed about the completion of the Debt Purchase. And in addition to that, Carlyle has agreed to provide additional interim funding of around A$ 28 million to fund ongoing investment in Purchased Debt Portfolios as well as payment of the special dividend.

The company has also advised that due to significant one-off costs happened due to the FY19 audit, it is expecting to report a statutory loss for the period to 31 December 2019.

The very day, the company’s stock resumed trading on ASX, it witnessed a blow of 28% during the intraday trade.

Story Behind PNC Suspension

Pioneer Credit’s shares were temporarily suspended on ASX on 28 August 2019 with the company’s inability to confirm its financial results under the new Amortised Cost classification for the year ended 30 June 2019 (FY19).

Due to the complexities of the change in classification and measurement method of its Purchased Debt Portfolios (PDP’s) and the development of its financial model to calculate the value of its PDP’s under Amortised Cost (AC), the company was not able to determine an appropriate carrying value and its auditors were not yet able to complete their audit.

What all happened after suspension.

Standstill Agreement with its Senior Financiers and the Security Trustee:

On 23 September 2019, the company and various subsidiaries entered into a Standstill Agreement with its Senior Financiers and the Security Trustee. The purpose of the SA includes providing time for the parties to continue their work together to agree a way forward for Pioneer. Pioneer has engaged corporate advisors to seek and assess proposals which include:

· a sale of the company as a going concern;

· pursuing financing options; and/or

· realization of value by way of sale of some of the assets

Pioneer also confirms that during the present term of the SA, no principal repayments or default interest are required to be paid to the Senior Financiers.

Disclosure of Full year results as per AC methodology:

On 30 September 2019, the company announced its full year results, adopting the Amortised Cost (AC) methodology of accounting for the measurement of its Purchased Debt Portfolio (PDP) for the first time, resulting in the Company reporting a Net Profit after Taxation (NPAT) of A$ 4.3 million for the period, however there was no diminution in the Total Expected Liquidations of its PDPs, which captures the expected timing and receipt of forecast cash flows. At 30 June 2019 the Group had net current liabilities of A$ 64.9 million (FY18: net current assets of A$ 72.4 million).

The Company reported record PDP liquidations of A$ 118.5 million, up circa 17 per cent on the prior corresponding period (pcp), driven by the Company’s increased focus on the back book with contributions from accounts older than one-year accounting for 51% of FY19 liquidations.

Confirmation Deed with Pioneer’s existing senior financiers:

On 5 December 2019, the company confirmed that it has entered into a Confirmation Deed with Pioneer’s existing senior financiers (Existing Senior Financiers) and an entity that is part of the group of entities doing business as ‘The Carlyle Group’, under which, among other things, Carlyle has agreed to acquire the debt outstanding under Pioneer’s existing A$ 130 million senior secured debt facility from the Existing Senior Financiers, subject to the entry into substitution and transfer documentation and the satisfaction of other customary conditions precedent.

Scheme Implementation Agreement with BidCo and HoldCo:

The company has also entered into a Scheme Implementation Agreement with Robin BidCo Pty Ltd (BidCo) and Robin HoldCo Holdings Limited (HoldCo), under which, it is proposed that BidCo will acquire 100 per cent of the fully diluted Pioneer shares outstanding for consideration representing a total value of A$ 1.82/Pioneer share by way of scheme of arrangement.

Notably, prior to implementation of the Scheme, the company is planning to pay a fully franked special dividend of up to A$ 0.24 per Pioneer share, subject to the approval from Pioneer shareholders and the Court.

Following this, Pioneer’s Managing Director, Keith made the following undertakings in favour of Carlyle:

· To vote all shares controlled by him (directly or indirectly) in favour of the Scheme (and appoint Carlyle as a proxy for the scheme meeting if requested)

· Not to accept or make any statement to accept or vote in favour of or support, and abstain from recommending, any Competing Proposal as defined in the Scheme Implementation Agreement

· To vote all shares controlled by him (directly or indirectly) against any Competing Proposal

· Not to dispose of any shares controlled by him (directly or indirectly), except in connection with accepting the Scheme

· Not to enter into any new arrangement to acquire any additional Pioneer shares

· Not to grant any security interest over any Pioneer shares controlled by him (directly or indirectly)

In the recent announcement the company has informed that while operational performance for the period to December 2019 has been within expectations, it has been operating under constraints due to the standstill agreement with the previous senior financier.

As at 27 December 2019, PNC stock closed the trading session at a price of A$ 1.780 with a market cap of around A$ 111.58 million. The stock has a 52 weeks high price of A$ 3.250- and 52-weeks low price of A$ 1.650. The stock is trading at a PE multiple of 25.580x with an annual dividend yield of 6.83%.

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