Butn Limited (ASX: BTN) and its nominated subsidiary Australian Factoring Company has appointed IAM Capital Markets and Trustees Australia Limited, together IAM and each a subsidiary of Income Asset Management Group Ltd (ASX: IAM), as Joint Lead Managers to exclusively engage investors regarding the funding arrangement for the newly created AFC 2022-1 trust.
The notes will pay quarterly coupons at a margin of 3-month BBSW + 7.00% for the class A note and 3-month BBSW + 10.25% for the class B note. Delivering expected first coupons of 9.97% and 13.22% respectively and implied yields to maturity of 11.36% and 14.61%.
The new dual tranche offering will initially comprise AUD $12.75mm class A notes and AUD $1.50mm class B notes with the issuer retaining the AUD 750k class C notes.
Indicative Terms
About Australian Factoring Company
AFC was formed in 2015 following the acquisition of four businesses: Bendigo & Adelaide Bank Automotive Factoring Book, Active Factors, Avoca Factors, and Action Funding. The annual originations of AFC is now over AUD275m with the receivables book exceeding AUD55m. AFC is part of a listed company called Butn (ASX: BTN), which is subject to ongoing ASX disclosure and compliance and has raised equity to help grow the business.
AFC operates in five key segments:
- General Business Invoice Factoring
- Automotive and Builder Insurance Factoring
- End-to-End Supply Chain Finance
- Real-Estate Commission Advances
- Mortgage Broker Commission Advances
Factoring, receivables factoring, debtor financing or supply chain financing is when a company buys a receivable or funds a purchase from another company. The financing company purchases the receivable at a discount in order to allow the buyer to make a profit upon the settlement of the debt or funds the purchase with a margin allowing the company to make a profit on payout or factoring. Essentially factoring transfers the ownership of accounts receivable to another party that may then take over the receivables management relating to the outstanding debt.
The pool will consist of predominantly receivables from segments [1-5]. Most receivables are from segment [1] and [2] – General Business (particularly in the Fast Moving Consumer Goods Space) and Automotive Segments. This results in most debtors (by dollar amount) with blue chip retailers and APRA approved insurance companies.
Part of the historical pool was/is purchasing receivables from automotive/smash repair businesses for insurance confirmed repairs. The insurer is the end obligor and has approved the repairs, making this a high-quality credit transaction often with an APRA approved, rated insurance company as the obligor.
AFC Products:
AFC products typically turnover every 30, 60 or 90 days, and their entire debtor book turns over on average every 60 days. Thus, arrears and losses are generally low. If arrears do occur, they are monitored daily and then charged back to the client in a timely manner.
Protections against overdue invoices include:
- The client effectively buys back the invoice either with a cash payment or by utilising the proceeds from factoring a subsequent invoice;
- Utilising the invoice’s retention (discounted portion of the factored invoice) to reduce the outstanding exposure;
- Remittances received on behalf of the client for invoices/debtors that were not factored can be utilised; and
- Company security and director guarantees can be leveraged where required.
Non recoverable write offs are low. Since 1 July 2015, over AUD1bn of originations have been funded on balance sheet with cumulative non recoverable write offs over that period of only AUD700,000 or 0.07% of cumulative originations.
Additional information
Transaction Timeline
• General bookbuild Open/Close 28 September / 5pm 30 September
• Transaction Funding date (EFT & DD): 5th October
• Transaction Settlement: 7th October
Please speak to your IAM Capital Markets relationship manager to register your interest in the transaction.
