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AFCP 2019-1 A Note

AFCP 2019-1 A note | <1 year at 6% | 15% Subordination

The desk can offer AUD850k of the Australian Factoring Company (now Butn ASX: BTN) 07/2019 issued warehouse notes at 6% yield to the first call in 07/2022.

Butn is a specialist debtor invoice financier which has issued bonds via a special purpose vehicle. The company has reported strong monthly results with no losses to date. The underlying receivables are generating strong income to support debt investors with substantial excess spread available to provide additional protection if required.

Two factors drive our base case for a call in July next year:

  1. The improved credit profile of the issuer since the 07/2019 issuance. AFC is now part of a listed company, Butn, that has raised AUD32.5m across a pre-IPO and IPO raising in the last 12 months. As a listed entity, not only is AFC/Butn far better capitalised with ongoing access to equity if required, but it is also subject to far more stringent disclosure and compliance requirements.
  2. A commercially punitive stepped-up coupon of 12% if the notes are not redeemed at the first call. For context, the AFC 2018 tranche was recently repriced at 6.20% until 29/10/2023. As per below, given the large amount of subordination protecting senior lenders, an investor would likely welcome a non-call and 12% coupon from 07/2022-23.

Key Features

  • The A Note benefits from 15% subordination (AUD3.75m) and roughly AUD191k of excess spread generated in the last quarter.
  • The coupon is 8% until 01/07/2022. If not called, the coupon increases to 12% until 01/07/2023. The AFC 2018 vintage was recently repriced @ 6.20% until 29/10/2023 final maturity.
  • The recent AMAL trustee statement indicates zero losses or arrears.
  • The pool is exceptionally granular: 7,094 receivables at an average size of AUD5,442 for 60 days.
  • The largest debtor in the pool is Woolworths, with 25% of outstanding receivables.

Chart 1. Structure

Source: IAM Capital Markets

Chart 2. Pricing

Source: IAM Capital Markets

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