Red Deer, Alberta-based auto finance company Rifco Inc (TSX-V: RFC) has agreed to acquire a $25 million portfolio consisting of more than 1,850 consumer automobile loans. The seller, a competing Canadian auto lender, was not identified. The loans portfolio being acquired, which primarily originated in British Columbia, Alberta, Saskatchewan, Manitoba and Ontario, and which Rifco reports have been “performing consistently through the last year,” will grow the company’s loan assets by over 10 percent. The deal will be financed in part through the proceeds of loans supplied by U.S. alternative assets manager Ares Management.
Rifco Acquires $25M Automobile Loan Portfolio
Red Deer, Alberta / TheNewswire / June 4, 2018; Rifco Inc. (TSXV: RFC) (“Rifco” or the “Company”) the largest publicly-traded alternative auto finance company in Canada, announced today that it has closed on an agreement to acquire a $25M loan portfolio (the “Portfolio”) consisting of over 1,850 consumer automobile loans. The Portfolio is being acquired from a special purpose entity (the “Seller SPE”). The Portfolio was originated by a competing Canadian auto loan corporation, (“the Seller”).
The Company is excited to announce that the addition of the Portfolio will increase Rifco’s loan assets by over 10 percent. The favourable terms of the purchase mean that the Portfolio will be immediately accretive to Adjusted Net Income and Adjusted Net Income Per Share.
Rifco was selected from a qualified pool of bidders to acquire the Portfolio based on the strength of its bid, its ability to execute the transaction expeditiously, and its positive reputation. The acquisition price was calculated at closing based on a negotiated formula. Components considered in the formula included the outstanding balance of the Portfolio and the delinquency status of the individual loans.
Rifco has completed extensive due diligence on the Portfolio. Some of the individual loans are written at a deeper credit niche than Rifco’s existing automobile loans. When adjusted for expected credit losses and servicing expenses, Rifco expects the Portfolio to provide positive cash flow, positive Adjusted Net Income and Adjusted Net Income Per Share.
The Portfolio has been performing consistently through the last year. The loans in the Portfolio have an average seasoning of 18 months and were primarily originated in B.C., Alberta, Saskatchewan, Manitoba, and Ontario. The average contractual interest rate of the Portfolio is 27%. The Portfolio generates positive returns and was offered for purchase in order to provide liquidity to the Seller.
Since April 30, 2018, Rifco has been servicing the loans, for a servicing fee, with amounts collected to the benefit of the Seller. The Company will continue to service the Portfolio subsequent to the Portfolio acquisition with no further disruption to the Portfolio borrowers and to its existing business.
As discussed in the notes to Rifco’s most recent Condensed Consolidated Interim Financial Statements and associated Management’s Discussion and Analysis, International Financial Reporting Standards (“IFRS”) have recently been updated to reflect the new standard on loan loss provisioning (“IFRS 9”). Due to the introduction of IFRS 9, the Company will record a significant loan loss provision on the closing date of the transaction. This provision is taken independent of purchase price and will be equal to at least 12-months of expected losses for current and performing Portfolio loans. As such, the Company’s net income will be negatively impacted by this non-cash charge. The impact will be reversed, over time, as the loans run off. Adjusted Net Income, which does not include non-cash provisions for future potential losses, is expected to be improved immediately and throughout the life of the Portfolio.
The purchase of the Portfolio will be financed, in part, with the proceeds of loans made by funds managed by Ares Management L.P. Rifco will also be contributing a minority portion of the capital required to fund the purchase. Some of Rifco’s capital contribution has been achieved through the issuance of $4.5M of new subordinated debt. The new financing arrangements will not have an impact on the Company’s existing credit lines or continuing business.
The Portfolio acquisition does not directly impact Rifco’s ongoing loan originations process and, as such, will not contribute to future origination volume. The Portfolio will likely have a run off rate that is faster than Rifco’s current assets.
Rifco Inc. is focused on being the best alternative auto finance company through its wholly owned subsidiary Rifco National Auto Finance Corporation. Our mission is to help deserving Canadians own automobiles . Rifco is Canada’s largest publicly traded alternative auto finance company.
Rifco seeks to create sustainable long-term competitive advantages through personalized partnerships with dealers, innovative products, the use of industry-leading data and analytics, and leading collections practices. Rifco’s corporate culture fosters employees that are highly engaged, innovative, and performance driven.
Rifco is committed to creating value for all stakeholders through profitable growth and predictable credit performance, while pursuing its long-term vision of $500M in annual loan Originations.
About Ares Management
Ares Management, L.P. is a publicly traded, leading global alternative asset manager with approximately $112.5 billion of assets under management as of March 31, 2018 and 18 offices in the United States, Europe, Asia and Australia. Since its inception in 1997, Ares has adhered to a disciplined investment philosophy that focuses on delivering strong risk-adjusted investment returns throughout market cycles. Ares believes each of its three distinct but complementary investment groups in Credit, Private Equity and Real Estate is a market leader based on assets under management and investment performance. Ares was built upon the fundamental principle that each group benefits from being part of the greater whole. For more information, visit www.aresmgmt.com .
The common shares of Rifco Inc. are traded on the TSX Venture Exchange under the symbol “RFC”. There are 21.60 million shares outstanding and 23.23 million (fully diluted) shares.
Warren Van Orman, Vice President and Chief Financial Officer
Telephone: 1-403-314-1288 Ext 7007/Fax: 1-403-314-1132/Email: firstname.lastname@example.org