Welcome to the Interim Q3 2024 report presentation. For the first part of the presentation, participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing hash five on their telephone keypad. Now, I will hand the conference over to CEO Andrés Rubio and CFO Johan Åkerblom. Please go ahead.
Good morning, everyone, and welcome to the interim report for the quarter, July to September, 2024. We're coming to you live from sunny and blue skied Athens. We are here because today actually commemorates the five-year anniversary of our partnership with Piraeus. Piraeus is one of our biggest clients and most important partners globally, and selected members of management, including Johan and myself, as well as selected members of the board, are here to mark this occasion. I'd also like to, before I jump into the heart of the presentation, welcome Johan. This is, as many of you know, he agreed to join us earlier this year. He has been on the ground for the last few weeks, and I can assure everyone that even though he's only been here a few weeks, he's already making a very direct and significant mark on the business.
So welcome, Johan.
Thank you.
If we can go to the next page, please. I wanna jump right into it. The third quarter. Everyone knows that the third quarter is seasonally weak. It's probably, seasonally our weakest quarter, and this quarter was slightly behind what we expected, on a few fronts, which we'll go into. But ultimately, because of our performance in the first and second quarter, generally speaking, as it relates to servicing, definitely, and to a lesser degree, to investing, we are on track year to date, and we are very focused to get into the fourth quarter and finish the year very strong. But more so than kind of the aggregate performance in particular, given the transition, what I think, and I would like to have everyone focus on, is that we are showing real progress on our plan.
As everyone knows, we articulated it a year ago, our plan is to develop and improve our servicing business, our client service business, to transition to capital light, to be more efficient on an operational basis. This quarter shows real progress on all three fronts, and then on top of that, we obviously have our remaining work to do on our capital structure and our recapitalization, but starting with servicing on the bottom left, while top line in aggregate was slightly down, our EBIT increased 45% versus last year. The most important figure that I point to as to the health of our business in servicing is that margin figure, the second bullet point on the bottom left. A year ago, we had 12%, today we have 18%, so 600 basis points margin versus last year, quarter on quarter.
Year to date, we're at 17, as you'll see later, and we expect to hit by end of the year, with a strong fourth quarter, close to 19%. I think our objective is just under 19%, so very positive EBIT margin. That is a function of, efficiencies, focus. Also, I'll get into cost in a bit. We have had growth in the North and Middle of Europe, dragged by the lack of growth in Southern Europe, which is a common phenomenon that I'll get into more later. We continue to see our clients signing up for our services as they need us more than ever, with a very strong quarter in ACV signing. Servicing on all fronts, particularly that margin, and this is broad-based, is quite healthy.
On investing, we collected at 98% in the quarter, 100% year to date. You'll see that later. But importantly, that 98% represents 106% versus original forecast, so we continue to meaningfully outperform our original forecast at the time of putting these portfolios on our balance sheet. Our cash income and EBITDA decreased, slightly different by the smaller book and the lower investment pace. We did invest probably less than I would like, certainly less than my CIO would like, at SEK 311 million, but we did invest it at a very attractive IRR at 20% during the quarter. But more importantly for investing and how we're transforming this business, is the second bullet point under strategic initiatives on the top right.
We have agreed during the quarter. We have yet to close, but we've agreed to acquire five portfolios in our partnership with Cerberus. This is an aggregate investment of in excess of SEK 150 million. You'll see later the translation of that into SEK, and we have 30% of that, but more importantly than our 30% share of the investing on that, we get meaningful investment management revenues, and we get meaningful servicing revenues from that. That is an initiative to leverage our investing capability with third-party capital, which brings in fees on investment management, which we have not had previously in the history of the company, and it grows our servicing business further, adding to the already strong performance in servicing. Investing is transitioning successfully. We show real progress with the service partnership. Servicing is improving on the margin.
Top left, costs. We're becoming more operationally efficient. We have identified, as everyone knows, since late last year, a total of SEK 1.5 billion of run rate cost savings. We've realized through the third quarter, SEK 1.1 billion. We'll get the other SEK 0.4 billion in the end of 2024 and into 2025. Our cost income ratio decreased 2% during the quarter, and as you'll see, particularly later on in one of Johan's slides, our cost in aggregate, year on year, is down about 8%. So we continue to perform, and our efforts in cost reduction are really starting to bear fruit, which, as we've said from the beginning, is a fundamental pillar of our strategy. We need to attack and be mindful of cost and continue to improve our margins and our overall operational efficiency.
And then there's ultimately more work to do still. Leverage ratio and capital structure. So leverage ratio was at 4.2 in the quarter. A year ago, it was 4.4, but higher than the second quarter this year at 3.9. As we indicated then, it's gonna fluctuate at or about four times, plus or minus, for the next few quarters, and as we get through the next few quarters, as we continue to de-lever, and we get through the recapitalization transaction, we will then see, I think, a steady progress, at least we have planned, a steady progress down to our target, which as many of you know, as all of you know, I presume, is 3.5 times or lower during 2026.
And then finally, on the operational front, I'll talk about it later, but we continue to roll out transformative technologies, such as Ophelos. We rolled it out in Netherlands and Belgium and Spain. We're about to roll it out in France. I'll get more about that later. And then I'm sure everyone is mindful of our announcement last week, where we announced the initial steps towards a recapitalization and a prepackaged Chapter 11. I'll get more into that later, and I'm sure more questions on that will come out in our Q&A. But that's a meaningful step towards realigning our capital structure to, our business plan, and to give us the time to deliver on our business plan, which I think this quarter already shows tangible results, in terms of that direction. Next page, please.
On the recapitalization transaction, last Friday, we announced the solicitation of creditors support or creditor votes, I should say, not support, for a prepackaged Chapter 11. I'm actually extremely pleased, and we've already announced this, to have, to demonstrate overwhelming creditor support for our plan and for the extension and amendment of our capital structure. 73% of our note holders, 97% of our banks or RCF lenders, have supported the plan. What's important is that with this level of support, those, creditors who have signed a lock-up agreement now will confirm their votes in favor of a prepackaged Chapter 11. Prepackaged is the operative word. We will only go into it when we know the, that we have confirmed all the votes, and we, as a result of that, will know the outcome. We'll have certainty on the outcome.
It is very important to note that this isn't something that the company chose to directly address its capital structure. We're entering into a Chapter 11 as a deliberate step to affect a capital structure change with the overwhelming support of our creditors, so we know we'll get in and out by the end of the year. We will then subsequently do a Swedish reorganization to give effect to the Chapter 11 decision in Sweden, and we'll complete our capital structure changes as early as possible in 2025 . I'm sure there will be more questions later that we can answer during the Q&A. Next page. So now transitioning to the market.
I think this page is fascinating because I think because of interest rates starting to moderate and inflation starting to moderate, I think there's a little bit less focus on the distress that the consumers felt over the last years. We're not seeing that. We continue to see a very fragile and stressed consumer. Top left, 37% of Europeans, based on our surveys, borrow on a regular basis to meet their monthly requirements. So the same theme we've seen for the last year to two years of consumers having income. This isn't an unemployment crisis yet, but they don't have enough income to meet their cost of living. Top right, you can see that it remains incredibly fragile as well, with almost 40% of borrowers not being able to fund an unexpected expense of as little as SEK 200.
So today, as we sit here, the consumer's by no means out of the woods, and we think this will continue to drive Stage 2 loans and non-paid invoices and NPLs, which will then feed into the need for our services. What's really interesting on the bottom half of this page is that there's also a structural or generational shift in the borrower base, or in those people with whom we have to deal with to collect from. 31% of millennials in the bottom left just don't pay their bills on time. They don't lend as much importance as baby boomers did, for example, in the smaller print below it. That's a structural or mindset or generational change that will lead to unpaid invoices and unpaid loans that we will have to help people with.
What's really interesting, particularly relevant to how we want to transition to be a technology player and a technology-based collector, and remember, we take 160 million actions a year, of which 30 or 40 million are connected phone conversations a year. 25% of our surveyed individuals would feel more comfortable agreeing to a payment plan with an AI bot than a human being. Think about that. That's the reason we're making the shift we're making with Ophelos and in other ways, to become more technological and interact with our customers and give them a better customer experience. The nice by-product of that is it also allows us to collect just as much, but at a lower cost, because these technologies fundamentally reduce human capital intensity and also lower unit costs.
So the market is evolving, both structurally or generationally, but also the market remains, in terms of the consumer, remains fragile. Next page, please. The highlights, before I jump into the two individual businesses, are those that you've already somewhat heard from me. 18% versus 12% margin last year. That is really the momentum. There is momentum in Middle and North as well at the top line, and that business continues to progress very nicely towards our target, which Johan will go through at the end of his presentation, of 25% during 2026. Top right, the real transformative activity in investing is the five portfolios. This is 155 million EUR.
It's not only going to generate investment income, but it's going to kick off our investment management income, and then it's going to contribute meaningfully to our, to our servicing. And as we take that quarter and start stacking up results of these five portfolios plus subsequent quarters, you're going to see a meaningful ramp-up of investment management and a meaningful addition to our servicing revenue. Bottom left cost, I've already talked about this, 8% lower year on year, minus 2% cost income ratio. Our continued progress in cost savings, will be visible in the coming quarters. But I want to emphasize that we continue to look for efficiencies on a continuous basis. It's not like we have SEK 1.5 billion and then we're done.
No, we have to be, stay on top of our cost base on a continual basis, and we continue to look in every area for additional efficiencies, and then obviously, as I mentioned and already went through, we launched our recap. So on the two businesses, as well as our operational platform, as well as our capital structure, we've made meaningful progress. Next page, please. Here you see servicing adjusted income on the top, growing at 6% on a trailing twelve-month basis, and you see that bottom point of the margin in servicing in the first quarter of this year, with that 10% quarterly margin leading to a low of about, I think, 15 and a bit. That's up to 17 on a trailing twelve-month basis, thanks to Q2 and Q3.
If you look at Q2 and Q3 this year versus Q2 and Q3 last year, there was a three hundred basis points outperformance in Q2, and a six hundred basis points basis outperformance in margin in Q3, which I mentioned earlier. That shows that there's momentum on the margin, and that's why we're confident that we're going to continue and potentially hit our target by the end of the year, which is a shade under 19 on a trailing twelve-month basis, and we continue to progress towards that 25 a couple of years out. Just as important as that, we look to continue to grow where we can grow, and ultimately also add business that's of a higher margin.
On the bottom, you see organic growth on a trailing twelve-month basis was higher in the quarter in Northern Europe, but on a trailing twelve-month basis, it's 1%, so that shows momentum, and was pretty much the same in Middle Europe on a trailing twelve-month basis as it is in the quarter. But in both of those areas, we're also adding this business, we're adding new business at meaningfully higher service line earnings, margin. And then in Southern Europe, we do have the headwinds of the fact that those markets are stock markets as opposed to flow markets. That means our collections are greater than new inflows. New inflows exist, but our collections are greater given the large size of the books.
And that creates a headwind at the top line, but still, Southern Europe is our highest margin, as well as our highest cash flow, market. But we are trying to do things to mitigate the headwind of having a smaller and smaller AUM base. Nonetheless, what we're doing there and the new business that we put on in Southern Europe is also at a meaningfully higher margin. Next page. Here you see trends in the three different movement trends in the three different regions. External servicing income growth across the board, which is very interesting. This is external, not internal servicing income growth. Very meaningful in Middle Europe, which I'm very happy about because that is our largest economic catchment area.
Adjusted EBIT growth, very meaningful in Northern and Middle, less so in Southern, because although we grew in Southern Europe, we do have certain, headwinds, particularly in our largest markets, for example, Greece, which we're addressing, but ultimately, there's a structural, decline there in margin over time. And then our margin expansion, obviously correspondingly with the EBIT growth, is significant in both Northern and Middle, and less so, obviously in Southern Europe for the reasons I described and the reasons we've discussed many times in the past. Next page. In investing, this is a cash extraction exercise to reduce our financial risk recently. You can see that we've extracted on a trailing twelve-month basis, SEK 7.4 billion. The vast majority, almost that entire amount, has gone to reduce debt.
We espouse that strategy as of a year and a half ago, and also as of exactly a year ago, starting in Q3, you can see in the graph, bottom of the bars, we have settled in a much lower investment pace, well below replacement value. So therefore, since the pink is bigger than the gray, we are net extracting on a continual basis. Our current run rate is about SEK 500 million a quarter, SEK 2 billion a year. Our replacement value CapEx is more like SEK 3.5 billion or close to SEK 4 billion. So for the foreseeable future, we will continue to extract until we see that investment management benefit from things like we're doing with Cerberus really start taking off, and then I believe that this portfolio should start to stabilize over the coming quarters.
But for now, it's a lower level of investments and a net extraction of cash to reduce debt and lower our financial risk. Next page, please. So here you see, collections on the top and then our collections performance on the bottom. Not surprisingly, a slightly smaller book, so we have a slightly smaller collections, aggregate collections. But importantly, on the bottom, since the end of 2022 , we've been basically at or around 100%. We're at 98% the quarter. That's 106% against historical forecast, which is the more important figure. And the year to date, we're at 100%, and year to date, we're at 110% against original forecast, 100% against active forecast.
If our revaluation process works correctly, we will continue to outperform historical underwriting forecast, and against active forecast, we should be right at or around 100% going forward. Next page. Pivot to Capital Light. What have we done? We obviously sold the back book, which is a big step forward, and then we've done the partnership. I've already talked about these five deals with Cerberus. Total CapEx, when they translate the 155 million EUR into SEK, is 1.757 billion, and our portion is there on the 479 SEK. That's what we will invest when we close these deals going forward. They're broad-based, Germany, Italy, Spain, and the UK. They're not focused in any one geography. Also, we have a very meaningful pipeline of future deals across almost our entire footprint.
You can see on the second to last bullet point, it's across several countries and almost our entire footprint, so we see more to come similar to these five deals, and the final documentation regarding the partnership, which at this stage we're operating under a very detailed and agreed term sheet, but the final documentation will be completed by year-end, and that's completely on track. The most important thing about this is that we will get our expected returns, which will be in the high teens on that SEK 479 million that we invest, but also, and transitioning over to euros a bit, these five deals will generate up to around SEK 10 million investment management revenues and over SEK 30 million servicing revenues.
So again, the benefit of having this partnership model to our investing allows us to create different types of revenues, investment management revenues, as I said, on these five deals, perhaps up to even ten, based on our projections over their life... and then also very meaningful increased servicing revenues, and all that comes without having to increase our balance sheet, which is the fundamental purpose of our capital light strategy. Next page. Ophelos. Ophelos is critical. It's a transformative technology. It is an AI-based collector that we purchased last year in the UK. We've talked about it many times in past quarterly results. They've now been meaningfully deployed in Netherlands and Belgium, since Q3, since the beginning of Q3, end of Q2 this year. We now see enough data there to see visible impact.
So what we see there, and it's still on small scale, but it continues to get bigger and more reliable every day, but we see comparable recoveries at meaningfully lower costs, and we're talking about double-digit reductions in cost, 10%-20%, roughly speaking, depending upon the nature of the asset. Imagine that, a relationship or that impact when you extrapolate it to our entire activities. We have, in the third quarter, on time, on schedule, rolled out in Spain, also, although still very early days. There, we're going to see many more cases, because that's just a fundamentally bigger market and a different market.
You're going to see more cases given to the platform, and we're rolling out in a few weeks in France, and the more important part about the rollout in France is that that's not just us pushing our new technology and a digital collections capability into one of our biggest and most important markets. It's also there, specifically a pull, because one of our most important clients, in this case, a utility company in France, has actually insisted upon us giving them this technology and gave us a mandate as a result of our promise to give them this technology. So that's why we're rolling it out. So it's both push and pull on what is a transformative and fundamental different operating model as it relates to tech to collections. So progress, more to come as we progress. Next page.
And then finally, one of my favorite slides. You all have heard me say this before. This is my why slide. You know, we helped a little bit under five million people in the last quarter. That's a consistent number around the five million mark, become debt-free. These are people who are excluded from society. They're excluded from financial society, I should say. They can't get a bank account. They can't get a credit card. They can't get a loan until they become debt-free and put their problems behind us. We do this on an industrial level, high volume, but on an individual level.
We do this in a very sensitive time and still get very good ratings from those consumers, and we do all of this while still delivering for our clients, which we collected in the quarter, SEK 124 billion, of which only about 10% is for our own book. The other 90% is for our clients. So we deliver for clients while doing right by customers. And also, we do something that's very important for the financial stability and sustainability of the financial system and for society as a whole. So this is a very important why slide, which serves as motivation, certainly for me, but also for many of our employees. Next page, please. So now I'll transition it over to Johan Åkerblom. Go ahead, please, Johan.
Okay, thank you. So looking a bit at the numbers, first of all, I mean, our income and our adjusted EBIT is down 5% compared to Q3 last year, whereas the total cost is significant down versus last year. I think the cost trend is something that we expect will continue, and we will continue even greater emphasize on that, on that item. And I will talk more about that a bit later. We do have some big one-offs that is affecting the EBIT. We have goodwill, a write-down of SEK 700 million that mainly relates to UK and Norway. And then we have a SEK 400 million one-off related transformation cost as part of the M&A processes that we are running integration on. And then the net financial items, they decreased 13%.
This is on the back of lower debt, and the leverage ratio slightly increased versus Q2, and this is mainly on the back of lower cash EBITDA after the sale to Cerberus. If we continue to the next slide, I think on the servicing this just again illustrates the margin trend that is going in the right direction. Another thing that I like to highlight is also the fact that we are increasing and growing our business in north and middle actually help us to diversify the whole servicing setup. So we basically get a better contribution from several countries rather than rely on a few, which is also part of the strategy going forward to make the whole income base much more reliant and stable.
I think, again, the EBIT impact is from goodwill to a large extent, and most of that is actually related to servicing. I think again, here, if you look at the EBIT and how it trickles through, the good thing on servicing is that we actually compensate the slightly negative impact on income with cost reductions, which means that EBIT on a quarter to quarter is up. One more thing that we actually spend quite some time on when it comes to servicing is looking to repricing. We are spending a lot of time looking at performance management on our accounts and looking at our client base, and we have very intense discussions with many clients where we need to adjust the commercial terms. Moving on to the next page, which is investing.
I mean, the 98% is slightly lower than we would have liked to have it, but again, we are still operating on a 106% basis if you take a lifetime, and we don't see any major issues. Another good thing in the quarter is that the proceeds from JVs is much greater than in Q2. It's lower than we wish, would have wished for, but it's also a business that is not 100% linear, and we expect a better, even better performance in Q4. I think Andrés already mentioned that we invested SEK 311 million, and the underwriting IRR is 20%, which I think is very attractive.
Moving to page 18, we can look at the cost, and I think this one at least gives me a lot of comfort that everything we do is giving us the effects that we actually have anticipated, so now in Q3, we can clearly see that the absolute cost base is going down. If you take a like for like, and you do the adjusted cost base quarter on quarter, it's down 8%, and you can also see here the split between M&A and the underlying cost, excluding M&A, and it goes down even more. This is gonna be a continued focus, and it's not only about cutting the cost sort of per se, it's also about thinking about our way of working, thinking about automation, digital, and also structural measures that we can do.
So this will be a continued highlight in the next, well, probably foreseeable future. Page 19 is our net debt. You see the net debt slightly increasing, which might sound a bit counterintuitive, but what we do have is that we have a finance net that is affected by the fact that we do pay a large portion of our interest on a half-year basis, so that obviously affects our cash flow. And then the investing is higher than what we have signed up in the quarter, but this is because we have a couple of deals that rolled over in terms of payment from Q2. And then we have the cash effect and net that gives us a leverage that increases slightly, but we will keep this on a stable level or maybe even decreasing going forward.
Maturity profile, we put up on page 20 the way we will look once we have done with the refinancing. So what you can see is that the big stack that sits in 2025 almost gets fully pushed out except for one small maturity. 2026, we will have no maturities in the new structure, and then in 2027, 2028, 2029, and 2030, it's evenly distributed apart from the RCF that is moved into 2028. And our interest rate sensitivity right now is at SEK 520 million, and our cash and cash equivalents is at SEK 3.4 billion. Then, just to be clear, we have repaid the SEK 1.5 billion that was due on the first of October. Wrapping up with our medium-term financial targets.
We are making better progress than expected on the Servicing revenue growth, the external one, and we have to keep that up even though this quarter was slightly down. This is rolling twelve months. We are making progress on the margin. Even though we're below where we started, we have turned the trend around, and we're making progress every quarter now for the last three quarters. On the Investing, we're actually slightly below where we're supposed to be, but this is also intentionally, and gradually we will get back up to the thirty, but it's also linked with the front book and our progress there. Lastly, on the leverage ratio, as we said, we are slightly higher now. We will probably remain at that level, but then gradually towards twenty-six, we will hit 3.5 .
So I think with that, I will hand over to Andrés again.
Perfect. If we can go to the concluding final remarks, the next page, please. There. Just to sum up, significant cost reduction realized. You saw that particularly on Johan's page, but more to come, and also on a continuous basis. We need to continually look for efficiencies in extracting more from our operating platform. We did meaningfully progress in the quarter, and I'm sure there's gonna be lots of questions in the Q&A on the recapitalization initiated by our announcement last Friday. We have an ambitious rollout for Ophelos, and then our two big businesses, improvement in profit and servicing, and stable collecting while transforming, particularly with the front book deal on investing. We think that the third quarter, while overall seasonally slow, slower than we wanted, but overall, year to date, we're good. We're focused mostly on getting into and finishing the year strongly in the fourth quarter.
But fundamentally, we're also putting real progress on the board as it relates to all our targets and our fundamental direction in transforming this business. I think now we'll transition over to Q&A. Before we do so, I wanted to just say that it's not just Johan and myself here, but for purposes of the Q&A, in case there is something that both Johan and I cannot address or something of a more technical nature, we have asked our advisors from Houlihan Lokey and Milbank to join us. So we have Sarah Levin from Milbank, and we have Matteo Vezzini and Manuel Martinez from Houlihan, just to supplement anything that perhaps Johan and I cannot fully address in the Q&A. I'm also pretty aware, before I hand it over to the operator to give you instructions, that I'm pretty sure that Jacob Hesslevik will be the first question.
Jacob, prepare your question. I think you're first up, but operator, please take over.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad.
The next question comes from Jacob Hesslevik from SEB. Please go ahead.
Hi, good morning, everyone. Apparently, I was first, so that's good. Order is restored.
Good morning.
If we start on the investment side, portfolio collections of 98% is slightly worrying in my view. Can you give us details where the pockets of underperformance is derived from, i.e., which countries? Also, was the performance a one-off in this quarter, or do you think you can recoup the performance, or could we see an alteration of the collection forecast going forward?
I mean, thank you, and good morning, Jacob, and thank you for your question. First off, as you know, our revaluation process is continual. We revalue things up and down. On a net basis, we always end up higher than our original forecast, so put the 98 in your context. It is 106, as we've said two or three times on this call, but nonetheless, it is an underperformance relative to our active forecast. It is concentrated in a few portfolios. There was a portfolio or two in Portugal. There was another one in another Southern European country, but it's very, like, here and there. I am not worried about the 98% whatsoever. We're at 100 year to date. We expect to finish the year at around 100.
If our revaluation process works the way it should, we should always be at around 100. Any dip below in a single quarter is nothing I'm specifically worried about. But to be very specific also, on those portfolios where we're underperforming, we're addressing that head-on and actually deploying more resources, and we're gonna correct it. But we should be at around 100, and I'm not worried about the 98% in the quarter, and you need to put it in context also, because it's 106% relative to underwriting forecast. If I may add, I think we already deployed extra resources in Q3, and you can see that in the cost base of investing is slightly higher, and those effects will probably trickle through fully into Q4. Yeah, exactly.
Okay, thanks for the clarification.
I'm sure that's not your only question.
No. My next one is actually if you can help me understand what triggered the goodwill write-down, and what it was related to in Norway, as you earlier said on the call, that the northern region performs quite well, so what is not performing according to plan in Norway?
Norway, the goodwill write-down in Norway is very small.
Mm-hmm.
The bigger part of the goodwill write-down relates to UK In UK-
Okay
We are going through a transformation program, and the trigger is, for Norway, it's just that we did update our assumption, our weighted average cost of capital, and that triggered a very small impact on the goodwill, and on UK, it's twofold: it's the weighted average cost of capital, but it's also the performance, given that the transformations taking longer than we expected. Yeah, and remember, Jacob, that these goodwill write-downs are non-cash. They're reductions and alignment of an intangible on our balance sheet with our business plan. We'd like to continue to be mindful of that, going forward, and we will be. Yeah, but the goodwill write-down in Norway is very minor.
Okay, thank you. And then on the cost, the cost base decreased by SEK 400 million in the quarter, with a quite large decline, actually, and which is impressive. Was there a delay in recognizing the cost benefit from reducing the FTEs by 13% during the year, or what were the SEK 400 million that you managed to get out in a single quarter?
I mean, it's a number of different things. I mean, first of all, what I just want to put up also. I mean, when you have a quarter where you have slightly lower collection, that obviously has an impact on cost. So part of the cost reduction is not only related to our cost savings programs. On the cost savings programs, I think it's mainly FTE-related savings that is coming through in Q3. But on top of that, we're also reviewing, you know, external spend. We're looking through projects. We're looking through basically everything we can review. I mean, we're looking also through the way we set our footprint, but the main driver is that FTE reductions are now starting to come through.
Yeah, and it's important that even though there's a volume effect, that Cost Income Ratio, which takes into consideration income, still went down 2%. Yes, and I wanna be sure that emphasize something that Johan just said. We are looking under every single rock. We are looking at every opportunity to continue becoming more efficient, and this trend should continue.
Yep, that's good. You know, I've been a bit worried on your cost trajectory in the past, so hopefully it will turn around going forward. And before I just take too much time, investing in the quarter amounted to only SEK 311 million. And you have invested-
Mm-hmm
SEK 1.1 billion year to date, which is considerably below your target of SEK 2 billion. So where do you project the full year number to be now, and what do you expect for 2025?
First off, since you've been concerned about our cost base, give us some credit now that we delivered, but let's move on to your question. The 3.11 was lower. It should have been around SEK 500 million, but I think you've heard me say many times that you cannot plan investing on a volume or market share basis. Ultimately, you have to see what is available in the market on a bilateral auction basis, and you have to see where you think you have the proper risk versus return. And it doesn't. It's not linear. It never is linear. It never has been in my 20 years in this business. Some quarters will be lower just because I'd rather not do a deal here, or someone else is willing to be more aggressive when I'm not. That happens.
The 1.1 is relative to what would have been 1.5 for the third quarter. We have a SEK 2 billion run rate. We're at 1.1 versus 1.5 through three quarters, which, if you just linearly distribute the SEK 2 billion over four quarters, it's SEK 0.5 billion a quarter, so you relate the 1.1 to 1.5. And I wanna emphasize that one of the other reasons that we sat on our hands is 'cause we want to see the right risk reward. Remember that the 1.1 - the 311 is at 20%. Okay? That's meaningfully higher than we've invested in the past, and we view the current environment as requiring a higher level of IRR, and we're gonna be selective. We won't invest for investing's sake.
That's a recipe for disaster. We expect to finish the year close to our SEK 2 billion, particularly as these five deals that we just signed with Cerberus come in and other things. The fourth quarter is always a strong quarter. I would suspect we're gonna end up really close or around the SEK 2 billion, but again, it's gonna be dictated by what we see in the marketplace and whether we see attractive return relative to the risk.
Okay, thank you very much.
Thank you, Jacob.
The next question comes from Ermin Keric from Carnegie. Please go ahead.
Good morning. Thanks for the presentation and for taking my question. So a few, actually, if I may. Maybe if we could start with on the servicing. So we see the organic growth actually increasingly negative territory, and I think you talked for a while now about that we should see that turn around, and it's obvious that it's your Southern European business that's a drag. What's the outlook there? When do you think you can stop that bleeding or kind of get the other regions to grow enough to offset it?
I mean, it's a good question, Ermin, and good morning, and thank you for participating today. The one-two punch of Jacob and Ermin are consistent this quarter with past quarters. But, you know, in servicing growth, we're gonna have growth in Middle and Northern Europe. They're flow markets. They're markets where we're expanding our perimeter, where AUM is growing. They're markets also that are more balanced between loans and invoices. So we're gonna see that, and it's gonna continue. Ultimately, in Southern Europe, as everyone knows, it's 99% loans. It's one-time, very large transfer of historical stock, and it's not fixed perimeter, 'cause there are new flows, but new flows are limited. You see all the low cost of risks that exist across all the major banks in Southern Europe.
So what we're trying to do there, and particularly here, where we're sitting right now, in Greece, for example, is trying to make sure we address what is an increasingly decaying core AUM, that we do expect increased inflows, so that will mitigate some of the negative attrition on the AUM. And we're trying to add new businesses. We're trying to create an invoice business in Southern Europe to complement our loan business. We're trying to make it more of a sustainable business. But some of these markets are going to decay, and then they're gonna eventually land in a sustainable format, and over the next few years, we will see that. I don't have a specific timetable for you on when one is gonna offset the other.
For now, I suggest we look at it on a disaggregated basis, 'cause that indicates the health of our business. And then be mindful also that Southern Europe, although it's dropping on top line, is much higher margin and much greater cash flow, so it's still very significant.
Great. Thanks, thanks for the additional color. Then I think it's quite interesting that you talked about with Ophelos and the rollout there. But could you give us any indication? You mentioned, for instance, some utility company kind of asking basically for having that service.
Mm-hmm.
How does the margin look? Because I suppose you put in much less, much less effort, but, but do you retain that kind of efficiency gain, or do you need to give that away to your clients?
No, it's a great question, and thank you for that. Fundamentally, we now bought this about a year ago. We rolled it out to three countries, Belgium, Netherlands, and Spain. We're about to roll out to France. Obviously, we have a very aggressive rollout plan. We'll roll it out probably between fourth quarter and early 2025 to all our remaining large countries, and then eventually to almost all of them. When we talked, and we're obviously talking to clients today, engaging with them, making sure they understand what this means for them. What the feedback we get from clients, and this is across the board, and I've received it directly from CEOs of some of our biggest clients, is, "This is completely game changer. This is the future. A lot of people talk about it but don't have it.
We want it as soon as possible," and this one client in particular, and my, my head of France, or our head of France, is particularly persistent, so he got a big piece of business as a result of wanting to, of being able to and promising that we would deliver this. Now, get to your economics question. It's a really good question. If you look at this side by side, and that's, that's good for comparison purposes, that's not our operating model, to be clear, but if you look at it side by side, purely our current collections architecture versus purely Ophelos, we can collect the same, but when you look at the percentage of collections that drive higher margins, if we collect 80% of what we would collect normally with Ophelos, we would do it at 50% less cost.
It is the last 10%-20% to get that, to get that collections to equivalent part that is higher cost. It's higher marginal cost. That's the way it is. You have low-hanging fruit, easier collections, and every marginal bit on a fixed perimeter, comparatively, is more difficult. So like for like, if you wanted to just use it side by side, as I said earlier, we can collect the same, but we do it probably between 10%-20% cheaper. That's unit economics. Then you have to apply it to our activities and also recognize that this is not applicable to every single part of our claims. Any legalized claims, this doesn't apply to, and it doesn't apply to any real larger secured claims.
It really applies to what is the majority of our AUM, but still, not all of our AUM, that is consumer unsecured, literally small ticket. If you have a 15,000 or 20,000 SEK consumer unsecured loan, it's less impactful, but it's very impactful on small ticket, and it's very impactful on invoices, which could be 100 SEK, 200 SEK. The benefit there could be quite dramatic. And what we see there is that clients, to your point about, is it a commodity? Are we giving that back, or can we actually be viewed as differently by clients? The answer is the latter... clients view us differently when we deploy this. They view us as more value add, more technological, and therefore, we can maintain pricing while not having to give away the cost benefit.
And the beauty of it also is that their clients, or the consumers in this case, get a better customer experience. So this is really the holy grail, so to speak, of our business, where we can collect just as much on a much greater margin, and the customer has a better experience. The consumer, in this case, did I say customer? So that's the unit economics. And Ermin, this is a longer topic. We can certainly talk offline more about this to get you more detail.
That sounds very exciting. Thanks, gents. Then just one final question. You mentioned there that you've added a little bit more resources for collections during Q3, for the pockets you saw of underperformance. Could you tell us at what point you did that, and how certain do you feel that this is not a kind of twofold thing, where you're working more, but you still end up with slightly less collections due to, you know, a harsher macro environment or something like that?
I mean, in general, if you, if you add resources into especially some of the more secured claims, you will collect quicker. And that's, that's essentially what we've done. I mean, this is not a massive investment we put in. It's just that in some portfolios, when you see that they are not fully performing as expected, you add a couple more resources, and then you speed up the collection process, and you get more focus, and that's what we've done. So it's not a massive thing. It's just, we don't wanna be at 98%, and, and, I'm pretty sure that next quarter we will come back to 100% again.
Yeah, and just to add to that, I mean, I think you all know, 'cause you've followed services long enough, that collections is a function of what you do, but also how intensely you do it. And adding intensity, it does yield more collections. That's the point Johan just made. And also, let's recognize that our portfolio, our proprietary portfolio, is much older than what we get from clients.
Yes.
Every day it becomes slightly harder to collect on a decaying portfolio. It's still throwing off a great amount of cash. It's still well above original underwriting, but it's not uniform. So if we see a slight underperformance, we increase intensity, and that's what Johan was referring to.
Yeah.
Got it. Thank you.
Thank you, Ermin.
The next question comes from Gustav Larsen from Arctic Securities. Please go ahead.
Good morning, and thank you for taking my question. Just to follow up here on the cost cutting and the realized synergies you're making. Finally, we're seeing a very good result from cost savings. Does that mean you're getting more comfort in even more cost savings going forward? Do you think you can successfully aim for higher cost savings during 2025 ?
Good morning, Gustav, and thank you for the question. You read my mind. I didn't say that, but I did mean that earlier when I talked about continuously be vigilant and make sure that we're maximizing the efficiency. Whether that's a formal program or just continual focus and ongoing cost cutting, we're not limiting ourselves to this 1.5 , to be clear. We're going to go beyond that.
Okay, thank you very much. But do you think the organic growth in servicing is a negative? Do you think the cost cutting is, you know, counteracting on your potential to achieve organic growth? Can you do both at the same time?
That's a good question, actually. That's a very, very good question. I think the nature of the business in North and South... The answer is yes, I think we can do both, 'cause we can be more efficient. I think the answer is, in the Middle and the North, given the new flow, we still need to be more efficient, but it's a different business, which is why things like what we just addressed on Ophelos and things are more relevant, 'cause it's a more balanced business, invoices, loans, et cetera. I don't think we're cutting muscle. We're still cutting fat, in my opinion, and we're just getting better at doing what we do, in the Middle and the North. In the South, it's different. In the South, we need to be mindful of a decaying perimeter.
We need to be mindful that it does get harder over time on a decaying perimeter to collect. But at the same time, we need to do things that are smarter. And, you know, here we're sitting in Greece. Greece hit its peak about a year ago or so, but we have much less people today than we did a year ago, for example. And we will continue to be efficient without sacrificing delivery for our partners here in Greece, but it's going to have to continue. Cost cutting is a continual thing. I don't wanna make it episodic like we've done in the past. I wanna make it continual, and we will do more, and I think we can grow servicing.
Let's recognize also the growth in servicing is gonna benefit tremendously from the ramping up of the capital partnership, which has not been there for the last year to two years. That SEK 30 million of revenue that could be generated over the life of these five deals that we just agreed to is a meaningful increase. So we're not only gonna increase from our existing clients, but we're also gonna have that capital partnership ramp up contribute to servicing growth. So I think we can do both, Gustav.
Perfect. Thank you. So I would like to go on to the recapitalization progress. Just a few questions. You discussed it in the call here, but I understand you have evaluated all potential routes. Can you comment on what made you settle for Chapter 11? And I understand a prepackaged Chapter 11 is supposedly cheaper than a traditional one. Can you also perhaps discuss what you estimate the cost will be for this?
Yes. So, we have been working with our creditors for several months. We, as I said, have reached a position where we have overwhelming support, but not 100% support. We have 97% of our RCF lenders, and we have 73% of our noteholders, which includes our senior unsecured notes, which are U.S. domiciled, one of the reasons Chapter 11 is available to us, as well as our Swedish medium-term notes. So 73% of our noteholders in aggregate have supported this. That's an endorsement of the plan that we have, and that's endorsement of the company. That's endorsement of the terms of the recap, the business plan and the recap. We have evaluated all alternatives. You have basically three alternatives. You have a consensual deal. We did not reach the level necessary for a consensual deal.
We would have to have gotten 100% of our RCF banks and more than 90% of our noteholders. We did not reach that. We did reach overwhelming support, but we did not reach that. We have more than enough to do a Chapter 11. The alternative to Chapter 11 would have been a UK scheme of arrangement. However, that is a longer process and not as definitive a process, i.e., it is more open, and therefore, we decided to go for a U.S. process. The U.S. process is incredibly efficient. If you have sufficient votes, which we're now confirming the votes we've already gotten commitments for, if we have the 73% and the 97%, which we fully expect to have, we will enter into and exit Chapter 11 in a question of weeks.
We would think that this is going to be launched in November, and we would emerge by year-end. It might fall into early next year, but it will not be extended. That's not the nature of the process. The court process in the U.S. is very efficient, and particularly for prepackaged, where you only go in once you have the votes, it is procedural, and it's effectively just an implementation mechanism. It is not an insolvency. We have not missed any payments. We have not breached any covenants. We have chosen to do this to effect a change in our capital structure, along with the vast majority of our creditors. This is not a cheap exercise.
It is cheaper than if we were going to do probably an extended scheme of arrangement or a Chapter 11 that was not fully supported, but it's going to be very, very meaningful. We'll come back with costs, but it's going to be a very meaningful cost. But in the grand scheme of things, given that we are getting the benefits that Johan outlined on the debt profile page, we're getting near-term maturities pushed meaningfully out, giving us a lot more time. We don't anticipate having any meaningful maturity really till 2027. We don't expect, given our business plan, to have to refinance anything until 2028. We're sitting in 2024 right now, so that gives us ample time, and it's really what we said since the beginning of this process, which is aligning the capital structure with our business plan.
Hopefully, I answered your question, Gustav.
Thank you very much. Just a follow-up there. Perhaps you can't answer already, but do you think you will provision it now in November, when you start seeing visibility on the costs, or will this be a 2025 exercise on cost?
I think this will probably... I mean, this is related to... When we launch the process, we will not provision. But when we see that there's a high likelihood or the process is done, we might do so, but most likely, this will all come at the closing of the transaction.
Exactly.
Okay. Thank you very much.
You're welcome.
That's the last question from me then.
Go ahead, Gustav.
Leverage is 4.2, and you said stable here in the next few quarters. Do you think we should factor in a deleveraging during 2025, or will this progress be backloaded to 2026?
No, I think that, given the things that is going on now, given also how we hopefully start progressing even further on the business side and getting the operational leverage with cost and then, well, growing more stable top line, and then when the capital light starts kicking in, we should definitely start seeing that the leverage ratio comes down. But it will take a couple of quarters.
Yeah. Remember that there's also a structural downshift in our leverage as a result of closing the recapitalization. There's a 10% haircut on all our notes, which is meaningful, obviously, or all our senior unsecured notes. That's going to be a lowering of our leverage. We are progressing on the cost-cutting, and the capital light is taking off. So I would say in the second half, you're going to see more meaningful progress, but until mid-next year, it's going to be pretty stable around the four times.
'Cause, I mean, the new debt structure will also have higher coupons than today.
That's correct.
So there, I mean, there are many variables, but that's why I think it's the second half of next year where you start seeing impacts.
Okay. Thank you very much. That was all from me.
Thank you, Gustav.
The next question comes from Angeliki Bairaktari from J.P. Morgan. Please go ahead.
Good morning, and thank you for taking my questions. Just a few follow-ups from me, please. So first of all, with regards to the servicing margin progression, what is the outlook for the fourth quarter and the full year 2024 , please? Then, just a clarification on the goodwill impairment. Can I check, does that affect at all the ERC in the investing division? Does it have to do anything with sort of investing revenues, collections, or really not at all, it only affects servicing? Third question, with regards to Southern Europe. I mean, you said you are in Athens today. What is the likelihood of the partnership you have with Piraeus being renewed beyond the next five years? And how should we think about pricing in Greece going forward?
Because my understanding is, you know, also based on your servicing margin in Greece, that it is currently quite high. So what is the likelihood that this remains high in the future?
Mm-hmm.
And, fourth question, with regards to the recapitalization transaction.
Mm-hmm.
Is there a risk that if there is litigation from those creditors outside of the 73% that are already in the lock-up agreement, and could that derail at all or postpone the recapitalization transaction process, the Chapter 11 process?
Thank you.
Thank you, Angeliki. As always, several questions. I will address the first and the third one. I'll ask Johan to address the goodwill, and then I will ask my colleagues from Milbank to address the litigation point, although I'll give you my sense initially. On servicing margin, I think you asked for the outlook on '24. As I said earlier, the full year outlook is- and on my page, you see the quarterly for every quarter up until now, so the first three quarters, and the second and third quarters has been meaningfully higher than the equivalent quarters last year. By year end, we expect to get into the mid-18s, close to 19.
I think it's 18.7 or 18.8 is the latest figure that we have at the end of the fourth quarter, and we have every confidence we should get there by full year. And then, as you know, we have a target, and as Johan said earlier, of 25%, which, by the way, exists in some markets, not all markets, which is why we're moving in that direction, and it is very broad-based. That's a very important point that Johan made earlier. But we have a goal of getting to 25%, broadly speaking, across almost every market by 2026, by 2026, as part of our medium-term financial target. So that's the outlook on servicing margin for this year and also on the track that we're on over the next two years.
On Southern Europe, and then I'll move over to goodwill, and then we'll ask Sarah particularly to address the litigation point. But on Southern Europe, you talked specifically about Athens and Piraeus. I'll take a small step back, and I've talked about this before, about Southern Europe. Southern Europe started in Spain, then in Italy, then in Greece. They were done at times where the respective banking systems were under stress. They were transactions that had an industrial element to it, i.e., outsourcing a meaningful activity. Also, a financial element, 'cause there was payment, upfront payment for all these contracts, mostly in Spain and then in Italy, and most recently, here in Greece. So they have a financial element, and as you correctly identified, they therefore have a higher margin than a pure industrial margin.
Our margin here in Greece is in the 40s. And every single one of these markets, the theory is you do a contract, and you build a business during the time of that contract, and then you continue the relationship, and that's what's happened, by the way. In Spain, there was an extension of the contract and a moderation of some of the original contract, but most particularly, my experience was with Santander, where we lowered the margin, extended the contract period, and also had some interim payments that were made to eliminate the financial element of it and isolate the industrial long-term relationship of us managing something that's important for the bank. Italy is the same process, a little bit delayed over Spain.
In Spain and in Athens, to address your question directly, I mean, we obviously I was with the CEO of Piraeus the other day. We talk to Piraeus, obviously, every day. They're one of our most important partners globally. It is a long-term partnership, and we would expect to have a relationship well beyond the next five years, although that specific contract goes through to 2029, with under certain arrangements, an extension capability. But no matter what it says in a contract, I think eventually our margin here will move to a more industrial margin, and our relationship with Piraeus will extend well beyond whatever is a contractual period on the initial deal. Hopefully, I answered those two questions. Johan, do you want to address the goodwill, please?
Yeah, on the goodwill, no, it does not affect ERCs. It's not related to ERCs. Again, as I said, the main trigger is that we changed some assumptions on our cost of capital, and that's mainly related to that we now have announced that we are going into the prepackaged Chapter 11, this pre-solicitation consent. And we had a long discussion with the auditors, and we agreed that we update the cost of capital assumptions. So that was the main trigger, and then on top of that, UK is going through transformation, so we haven't really seen the full benefits that we're anticipating.
Yeah, and it's important that our goodwill, in its entirety, is attributable to our servicing business, not to our portfolio.
Yes.
It doesn't impact our ERC. We want to, over time, continue to align and look with a very sharp eye at that goodwill amount to make sure we align it with our business. Last point, and I may ask... I'll ask Sarah to supplement my question, but you asked about what is the possibility of the non-supporting noteholders. In particular, there's been a lot of news around a 15% holder, a 15% group of senior unsecured notes and a much smaller group of medium-term notes. Every indication is that now that we've gone into Chapter 11, they are going to remain on the sidelines, so to speak. I anticipate us concluding this process with those creditors who have supported us to date, i.e., the 73, the 97.
The seventy-three is more than enough to get through the process. If there's some formal and legal opposition from any one of those two groups, I think it's unlikely, but obviously theoretically possible, it could delay the process. But this is one of the reasons we chose Chapter 11, in that it's a very efficient process that even recognizes any kind of opposition. But with the numbers we have supporting, we'll still get through this very efficiently, more so than other markets, which is why we chose Chapter 11. So, I would ask just to have my friend and colleague and advisor, Sarah Levin, to add to anything I might have said in case I didn't fully address it.
Hi. Yeah, look, not much to add from my perspective. What I would add is this: the objecting group is obviously, as Andrés has alluded to, not a blocking minority. So in other words, the locked-up creditors are sufficient to reach the required voting thresholds in each class of creditors that will vote. The Chapter 11 process, one of the benefits of the Chapter 11 process is for the legal requirements that the company will need to satisfy for the plan to be confirmed. There is an enormous body of law which allows us to feel relatively confident about the process, and allows the process to be pretty predictable.
It is not our view that any objections that could be raised by the objecting group in that process would materially increase risk or increase the time in the process, but as Andrés says, it's of course, theoretically possible.
Thank you, Sarah, and Angeliki. I hope that answers your four questions.
Thank you very much.
Yeah, thank you. Maybe just if I may, just a quick follow-up on the goodwill with regards to the UK. I mean, you acquired Arrow, the platform from Arrow in the UK last year, and so, does the goodwill impairment reflect any of the sort of purchase price for that? Or not really, it has to do with older legacy stuff.
No. Well, remember that the Arrow deal was predominantly a PI deal. We bought half the book, and then we had two small platforms that were a much smaller piece of the overall transaction. It really has to do with where we sit today and the future prospects of the combined Intrum plus Arrow platforms relative to the prior expectations and the impact on our intangible that's allocated to that business. Johan, I don't know if there's anything that you'd want to add to that.
No. Correct. I mean, it's all related to the servicing.
Thank you. Thank you very much. Thanks a lot.
Thank you, Angeliki. Next?
The next question comes from Alexander Koyfman from Nordea. Please go ahead.
Yeah, hi. Thanks for taking my question and the presentation. Maybe just an additional question on goodwill and goodwill impairment. Just trying to get a sense of you see lower or higher risk that your auditors would start advocating for raising cost of capital requirements in other markets? That would be my first question. Second question, if you could just remind me on this 3.5 leverage target that I believe you set in place before this Chapter 11 restructuring. So can it be induced from that that the target would be 10% lower as a result of 10% haircut?
And then maybe just a third question, if I may, on Southern Europe, if you can describe how you compete here on new business, and whether customers raise questions, specifically or concerns on your credit rating? Thank you.
Mm-hmm.
So maybe I'll start on the goodwill. I mean, we've. I would say on the cost of capital, I see less of risk going forward because, I mean, now when we are going into the prepackaged Chapter 11, and we assume that we will come out on the good end, that will actually help our cost of capital discussion. We know the cost of debt for the foreseeable future, and the equity part of the cost of capital will also be much more stable. So that is less of an issue. I think the bigger question will come on the performance, and that's always a discussion you have with goodwill, looking at your projections.
Exactly. On the leverage target, the answer is no. The one-time haircut does not get us to three and a half, and as Johan predicted earlier, the new debt, while lower, does come with a higher ongoing cost. That's part of the agreement, although it gets significantly extended. We still believe in our target by 2026 to get to the three and a half. I would like to get lower than that over the timeframe before we have any meaningful refinancing requirements, which, as I said earlier, is probably not until 2028. But the progress to get there doesn't materially change, but it does get lower risk profile in terms of getting there by virtue of the recapitalization. And then on Southern Europe, how do we compete?
In Southern Europe, in some cases, we have contractual partners, and then we build around them, and we compete based on performance, and cost. That's less so here in Greece, where we have a larger concentration with one partner who is subject to a contract that is evolving, as I talked about earlier. In Italy, we have Intesa Sanpaolo as our main partner, but we have significant broad-based clients around that. Then in Spain, it's probably the most diffused, and it's the most industrial. There also, we did the acquisition of Haya, so there's a lot of moving pieces, and we're readjusting the platform. We did a very significant resource reduction earlier this year. We continue to make that platform more efficient.
It's one of our biggest revenue servicing revenue countries, but five or six companies there represent 90% of our revenue. So while concentrated, it is still more diversified than Italy or Greece, for example. So we compete on service and on cost, but largely speaking, in these three countries, 'cause it's a more concentrated loan market as well, we compete on relationships as well.
Okay, fair enough. But if you get some sort of request for proposal or something like that, where a potential new customer reaches out, would they specifically have questions in relation to your solvency, credit rating, et cetera? Or is that not typical?
Yes. Sorry, I did-
What, what do you think?
Yeah. No, no, it's a good question. I forgot to address the rating agency question or the rating question. It's a very, very good question. We have been in constant communication with our top clients. Our local market heads have been in constant communication with many of their clients, if not all of their clients, except the truly granular ones. We've also been in constant contact with all the regulators on this process, kept them informed of the direction it was going in a month ago, the formal decision, more recently. And you know what? It's an obvious question. I'm actually pleased to say that we have not had anywhere near as much noise, so to speak, on our process. I think we've explained it well. I think when...
The other thing about ratings is that people understand that during these times of change, like a recapitalization, like we're undergoing, rating agencies take a very defensive posture. They immediately default to a very low rating. They do, in discussions with us and in some cases with the market, indicate that they will re-rate us immediately, and then at a better level, once we emerge from the recapitalization, but there's a lot of moving pieces. There's the discount, there's repurchases, et cetera, et cetera, and when all that dust settles, I would expect us to be re-rated, as well as to get on another path to get to a better rating, but right now, kind of, so to speak, in the eye of the storm, they become less relevant, and thankfully, we haven't had major concerns from clients.
Partly because of the nature of the situation, but also partly because we made a big effort to make sure and be proactive and over-communicate with our external stakeholders, particularly clients, but also regulators and others.
I would say, I mean, the question from clients are more related to the prepackaged Chapter 11 rather than the rating.
Correct.
I mean, just yesterday, I got a question from a client explaining what it means for our subsidiaries, in particular, and their going concern. So, and so is also the holding. But I mean, we explain over and over again to our clients, and they so far understand, and rating has not been the main topic.
Yeah, and I think it's important to note, and Johan touched upon it, that this is a holding company capital structure adjustment. It's not impacting our local entities for the most part. It's not impacting our operations for the most part. This is not an operational restructuring, this is a financial restructuring, and we will continue to deliver. And by the way, regulators who are very worried about that understand that in the local markets, and clients, largely speaking, want to know more, but haven't raised major concerns after they're informed.
Yeah. Okay, thanks a lot.
Appreciate it.
Thank you.
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Wolfgang Felix from Sarria Limited. Please go ahead.
Yes, good morning, Andrés, and everyone. Thank you. Just one follow-up question I've been hesitating to ask, but 'cause I'm not sure you can fully answer it. But, to be honest, I was fully expecting that you'd reach an agreement with the Lazard Group. Now, obviously, you've communicated you're going for Chapter 11, and spent considerable time today explaining us where exactly you stand on this. But I was wondering, given you haven't yet actually applied, if, I don't know, the group were to come and say, "Well, before you actually go through all that expense, let's settle for something smaller that you'd find would be tolerable," and they'd therefore hand you that super majority.
Would you, I guess, then stop going for Chapter 11, still at the last hour, so to speak, and, you know, do it under the bond documentation?
Hi, Wolfgang. Thank you, and thank you for answering, or for the question. I want to be very clear here. We will always listen, obviously, to any one of our bondholders, but I also want to say very clearly that we have already launched this process, so it's going to take a lot for us to not complete on this process. Today, we have more than enough to affect the overall recapitalization with the 73%. I'll note also, in your math, that the only way to avoid a process is to get above 90% across all of it. They do not get us there by themselves. They do not.
All right.
My operating assumption, our operating assumption, is what we initiated last Friday is what we're going to do, and I wouldn't assume that anything else is happening. We are doing that with the creditor support that we have, 'cause it's more than sufficient to effect the recapitalization.
Okay, well, that's... Thank you very much.
Thank you, Wolfgang.
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Excellent. Well, thank you all for your questions. Thank you for the support and the following of the company. We're obviously available outside of this forum as well. Please contact us. We have a lot going on at the company, but I think over the last, certainly last few quarters, but really since probably the second quarter of 2023, we have really started setting the foundation for the future Intrum and a better Intrum. We did the back book sale, we did the front book arrangement, we're doing the recapitalization. That all sets us up for investing in the right way, for setting up our capital structure. Our servicing focus is really bearing fruit.
Our transformational technologies are starting to get rolled out, and we really think that's all going to contribute to an execution on our business plan and a reaching of our medium-term financial targets. But there's still a lot of work to do, and we need to continue to deliver and focus on delivery. Ultimately, we are here to answer any and all questions about that journey, and thank you for accompanying us on that journey. Have a great day.
Thank you.