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Earlypay – Trade Finance Facility

EPY released an ASX update during December 2022 outlining its position of the RevRoof receivership and adjustment of FY23 guidance. Please note that this is an evolving situation and we will provide updated information when it becomes available

What we know:

  • The RevRoof balance at the end of November was $6.2m. EPY have repurchased $1.8m and hence the balance at the end of December was $4.4m;
  • future RevRoof purchases will depend on the progress of receivership. EPY may purchase a further $1.6m by the end of January;
  • the re-purchases will not cause any issues with the trade finance pool parameters. EPY would contribute additional C-Note should any problems arise here;
  • appointing the Receiver and Manager (over the top of the Administrator) at this time of year has meant that it has taken EPY longer than normal to verify their security position. EPY
  • should have a clearer view by the end of this week with more definitive information from the R&M and lawyers.
  • there will now be six large customers (from 5) with Traffic Technologies Ltd to be settled soon. This will dilute the overall customer concentration and is credit positive
  • the AB notes are $26.25m and the C-Note (or equity) is $6.25m across a ~$26m pool of trade receivables (Dec-22 report). Originally the C/e would have been $3.75m (at issuance) but this level has risen (by $2.5m) because excess is needed due to industry and customer limits.

What we don't know:

  • The security position is being verified/validated – which is the concern for investors. However, if the security position in dollar terms ($) is as per the presentation (I calculate ~$31m ‘security’ vs ~$25m ‘éxposure’ as of Nov-22) then there is essentially not a lot to worry about;
  • whether any other lenders in the major clients are in difficulty/trouble i.e. any flow on impacts to other borrowers?;
  • by way of broader update, whether the increase in credit provisioning in relation to the Board adopting a more ‘çonservative’ approach to credit provisioning is segregated from the RevRoof experience.

Where to from here:

  • It is somewhat of a wait-and-see and timing was not great. The business EPY is in a transition year with higher interest rates requiring some adjustment of the business model around funding structures. EPY would like to refinance its warehouse facilities into one larger facility rather than do a follow-on trade finance facility issuance;
  • despite the secured nature of their loan book – it makes sense to put extra aside for bad debts/loss allowance – this is somewhat common sense;
  • remember trade finance is offered in conjunction with invoice finance to customers importing products from overseas. But both trade and invoice finance is secured to SMEs.

As discussed above, RevRoof has a facility across invoice, trade and equipment financing.

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