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ISP sets aside $200m from bond for portfolio acquisition

Microlender ISP Finance Services Limited has raised $470 million through the bond market, $200 million of which the company says it will set aside for the acquisition of a loan portfolio that’s been pending for more than a year.

The portfolio purchase was expected to have materialised by December 2021. In October of this year, CEO Dennis Smith said the acquisition was still on the cards.

On Monday, Smith, in another update to shareholders, said the previous deal had fallen through, but that ISP was currently back in talks with a prospective seller to acquire the company’s loan portfolio by first-quarter 2023.

“We were really trying to have the transaction finalised before the AGM, so that we would have some real good news to share. If we don’t finalise it by the end of this year, we expect things to be concluded in the first of next year,” he said at the company’s annual general meeting.

“The negotiations have been back and forth as is expected, and where we would want it, it’s not yet there. We are hopeful, but it doesn’t seem likely for things to wrap up by the end of the year, considering December is not a month for lots of business activities,” he added.

The remaining $270 million from the bond raise will go towards refinancing existing debt. ISP’s September quarter financial shows that the company has borrowings of $232 million linked to a corporate bond and promissory note.

A term sheet, prepared by arranger Sterling Asset Management in September, stated that ISP had intended to raise $570 million through the debt market. But in clarifying the amount on Monday, Smith said the company had only intended to raise $470 million.

“We never went for $570 million, we went for $470 million, so there was no undersubscription. The information published in the press was not correct,” he said. Still, it marks the largest debt raise for the company since its listing on the Jamaica Stock Exchange in 2016.

The bond, which is set to mature on November 22, 2025, is priced at a fixed rate of 11.50 per cent for the first year and then a variable rate based on the six-month Treasury bill yield, plus a spread of 3.50 per cent.

ISP is looking to grow its business in an increasingly competitive microfinancing sector. The business, which awaits the microcredit licence from the Bank of Jamaica, BOJ, to operate as a microlender under the new microcredit law, intends to continue targeting clients in need of household expenditure loans, small business loans, education, debt consolidation, payday advances, and healthcare expenses.

“The simple truth is COVID-19 negatively impacted almost everything, so in light of that it was considered best to hold strain to our bread and butter, which is personal loans. But as we see an uptick in the business environment, we will reconsider,” Smith said.

He added that while the company awaits the licence from the BOJ, it has received a letter from the central bank allowing for the continuation of business.

The microlender currently manages a loan portfolio of $697 million.

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