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November 5, 2021 – Further to a September 15th bidding procedures order [Docket No. 198] and November 4th auction, the Debtors notified the Court that they had selected CFG Partners Colombia SAS ("CFG Colombia," with cash consideration the Debtors estimate at $149.0mn) as the successful bidder for substantially all the operating assets (the “Assets”) [Docket No. 341]. CFG Colombia is an affiliate of Puerto Rico headquartered CFG Partners L.P. which, since its November 2018 acquisition from Irving Place Capital, is 100% owned by an investor group led by BayBoston Managers.
Affiliates of CarVal Investors were named as the back-up bidder ($148.1mn bid). The successful bidder and back-up bidder APAs are attached to the notice as Exhibit A (p. 6) and Exhibit B (p.134), respectively.
Stalking horse Cerberus South American Investments, LLC ("Cerberus") which had opened the auction process with a bid that the Debtors valued at $137.2mn has negotiated a $3.0mn break-up fee and an up to $1.0mn expense reimbursement.
The Debtors had also filed a redline version of the CFG Colombia' APA against that of the Cerberus-controlled stalking horse [Docket No. 343].
Key Terms of the CFG APA:
- Seller: Alpha Capital S.A.S., a Colombian Simplified Stock Corporation (“Alpha Capital”), Vive Creditos Kusida S.A.S., a Colombian Simplified Stock Corporation (“Vive,” together with Alpha Capital, the “Sellers,” and each a “Seller”)
- Buyer: CFG Partners Colombia SAS, a Colombian Simplified Stock Corporation
- Purchase Price: The consideration to be issued by Buyer to the Sellers in connection with the sale of the Purchased Assets shall consist of an aggregate amount in cash equal to:
- Facility Consideration: $5,000 plus the orderly liquidation value, as determined by Hilco (or another appraiser mutually agreed by Sellers and Buyer) of the HQ Equipment and the HQ Furniture; plus
- Buyout Consideration equal to $4,000,000; plus
- Overbid amount equal to $1,000,000; plus
- with respect to the Tier 1 Loans, an amount equal to (a) 96.20% of (i) the Outstanding Amount of the Loans that are classified as Tier 1 Loans on the Loan Tape Record Date, plus (ii) interest accrued, on the Outstanding Amount up to and including the Loan Tape Record Date, solely to the extent unpaid on the Closing Date, minus (b) premiums, fees and other amounts that are not part of the Tier 1 Loans which are collected for the benefit of third parties or that are owed to third parties on the Loan Tape Record Date; provided, however, that the aggregate Outstanding Amount of Tier 1 Loans that are not being collected through the Trusts shall not exceed 7% of the aggregate Outstanding Amount of all Tier 1 Loans; plus
- with respect to the Tier 2 Loans, an amount equal to 40.00% of the Outstanding Amount of the Loans that are classified as Tier 2 Loans on the Loan Tape Record Date; plus
- with respect to the Tier 3 Loans, an amount equal to the sum of: (i) 10.00% of the Outstanding Amount of the loans that are classified as Category A Tier 3 Loans on the Loan Tape Record Date, (ii) 30.00% of the Outstanding Amount of the loans that are classified as Category B Tier 3 Loans on the Loan Tape Record Date, (iii) 25.00% of the Outstanding Amount of the loans that are classified as Category B Tier 3 Loans on the Loan Tape Record Date and (iv) 25.00% of the Outstanding Amount of the loans that are classified as Category D Tier 3 Loans on the Loan Tape Record Date; plus
- with respect to the Tier 4 Loans, an amount equal to the sum of: (i) 60% of the Outstanding Amount of the loans that are classified as Category A Tier 4 Loans on the Loan Tape Record Date and (ii) 10% of the Outstanding Amount of the loans that are classified as Category B Tier 4 Loans on the Closing Date.
An estimation of the Purchase Price based on accounting loan balances as of June 30, 2021 (as per the updated data tape provided in the data room on October 29, 2021) is included below for illustration purposes:
About CFG Partners
In November 2018, an investor group led by BayBoston Managers (BayBoston) acquired 100% ownership of CFG Partners from Irving Place Capital. BayBoston is the sponsor of an international investor consortium that includes Insigneo Financial Group, the Elias Group, Victory Park Capital, Amzak Capital, and M & A Capital. Victory Park Capital and Prival Bank provided debt facilities to support the acquisition.
Even though the roots of the company date back 40 years, CFG was established in December 2006 as a result of the sale of Wells Fargo Financial’s Latin American Consumer operations to Irving Place Capital, a private equity firm based in New York City.
CFG Partners currently operates more than 60 locations throughout Panama and the Caribbean.
On October 1, 2021, the Court hearing the Alpha Latam Management cases issued an order authorizing the Debtors to enter into a stalking horse arrangements with Cerberus South American Investments, LLC ("Cerberus") in respect of the sale of "certain loans in the Sellers’ loan portfolio and certain contracts related to the operation of such portfolio (the 'Stalking Horse Package')" [Docket No. 255, with the Cerberus APA and a related blackline filed at Docket No. 253]. The Debtors valued the Cerberus bid at $137.2mn which came with a $3.0mn break-up fee and a $1.0mn expense reimbursement as bidder protections.
As described further below, the Debtors, payday lenders with operations in Colombia and Mexico, filed for bankruptcy on August 1st after significant financial irregularities were uncovered in respect of their Mexican operations. From the outset, the Debtors (with $768.4mn of issued and/or guaranteed funded debt) have been focused on an in-Court sale of their apparently healthy Colombian operations.
The Debtors' stalking horse motion [Docket No. 209] notes, “After identifying that a sale was the best path for maximizing the value of the Assets, the Debtors, through Rothschild & Co US Inc. and its affiliates, including Rothschild & Co Mexico S.A. de C.V., (‘Rothschild & Co’) as their investment banker, began a sale and marketing process over four months ago. Indeed, these Chapter 11 Cases (as defined below) were commenced to effectuate a sale of the Assets via section 363 of the Bankruptcy Code (the ‘Sale’). To that end, shortly after commencing these Chapter 11 Cases, the Debtors filed the Bid Procedures Motion (as defined below) and the Court hereafter entered the Bid Procedures Order. The Bid Procedures Order set key dates for the Debtors to obtain Bids on the Assets, conduct an Auction, and obtain this Court’s approval of a Sale Transaction. In tandem, the Debtors continued to conduct a competitive stalking horse bidding process and, as outlined in the Leclercq Declaration, received several stalking horse bids and continued to negotiate in good faith with such bidders. Ultimately, the Debtors were able to secure the Stalking Horse Bid (as defined below) on the material terms set forth herein. This Motion, therefore, represents the culmination of that process and the next significant milestone in the Sale process.
The Debtors and the Stalking Horse Bidder are actively negotiating and working expeditiously to finalize and file the asset purchase agreement (the ‘Stalking Horse APA’) on the docket to provide parties in interest with an opportunity to review the Stalking Horse APA in advance of the proposed objection deadline (the ‘Objection Deadline’) for a hearing on this Motion. The Debtors have also shared a term sheet containing the material terms to be memorialized in the Stalking Horse APA (the ‘Stalking Horse Bid’) on a confidential basis with the Office of the United States Trustee for the District of Delaware (the ‘U.S. Trustee’) and the advisors to the DIP Note Purchasers (as defined in the First Day Declaration).
The Stalking Horse Bid represents the highest and best offer received for the Stalking Horse Package, guarantees a sale of the Assets at an attractive price, and allows the Debtors to continue the Sale process as approved by the Court in the Bid Procedures Order. That process and the Bidding Procedures will allow a second opportunity to market all of the Assets in the Stalking Horse Package through a competitive auction process that will allow the Debtors to identify any higher and better offers that might exist. Because the Stalking Horse Bid not only locks in a purchase price that represents significant value for the Stalking Horse Package, but also allows the Debtors to test the market and see if they can secure an even better deal, the proposed transaction with the Stalking Horse Bidder, entry into the Stalking Horse APA, and approval of the Bid Protections clearly serve the best interests of the Debtors’ estates and their stakeholders. Indeed, the Ad Hoc Group (as defined in the First Day Declaration), including the DIP Note Purchasers, support the relief requested in this Motion.”
The Debtors' bidding procedures and sale motion [Docket No. 113] reads: “The proposed Bidding Procedures allow the Debtors to continue and conclude the marketing process they began approximately three months ago in an appropriate timeframe through a competitive auction process. Even before the commencement of these Chapter 11 Cases, the proposed sale of the Assets was identified as the best path for maximizing the value of the Debtors’ estates. To test this thesis, the Debtors initiated a thoughtful process in May to solicit indications of interest for the Assets. During their prepetition negotiations and restructuring analysis, it became evident that the best way to maximize value for the Assets was to pursue an in-court sale via section 363 of the Bankruptcy Code, which was one of the reasons the Debtors commenced these Chapter 11 Cases.
Since commencing the marketing process, the Debtors have received robust engagement, with several credible parties submitting indications of interest and progressing towards the submission of binding bids. The Debtors have been actively negotiating with various potential bidders and may be in a position to enter into a binding stalking horse agreement in short order. While the Debtors do not seek authority pursuant to this Motion to enter into one or more stalking horse agreements, they may do so on an expedited basis pursuant to a separate motion and order (including any bid protections that may be provided therein). Upon conclusion of the Auction and selection of the highest or otherwise best bid(s), the Debtors request that the Court hold the Sale Hearing and enter the Sale Order authorizing and approving the Sale free and clear of Interests (subject to the Successful APA).
As this Court is aware, on August 3, 2021, the Court authorized the Debtors to enter into a $45 million senior secured superpriority new money debtor-in-possession financing facility, of which $17.5 million was available upon interim approval (the ‘DIP Facility’). Order (I) Authorizing the Debtors to Obtain Debtor-In-Possession Financing and Granting Liens and Superpriority Administrative Claims and (II) Granting Related Relief [Dkt. No. 81] (the ‘Interim DIP Order’). The DIP Facility is secured by liens on and security interests in substantially all assets and property of the Debtors. The Debtors are expected to repay the DIP Facility with proceeds of a sale of substantially all of the Assets.”
Petition Date Highlights
- Latin American (Mexican and Colombian operations) payday lender files for bankruptcy with $768.4mn of issued and/or guaranteed funded debt
- Debtors specialize in providing loans (24.40% per annum interest) with repayment via payroll deduction (“PDLs”) to low income borrowers
- Filing follows accounting irregularities at Mexican affiliates and subsequent (i) April 2021 announcement of intent to restate 2019 and 2019 financial statements, (ii) Senior Notes events of default, (iii) missed June Senior Notes interest payment and (iv) cessation of loan origination activities (no mention of COVID impact on borrowers and/or borrower default rates)
- Debtors line up $45.0mn of DIP financing form holders of Senior Notes to fund sale of Colombian Assets (intentions for troubled Mexican Assets not specified)
- Debtors expect to announce stalking horse(s) for Colombian Assets within days
In a press release announcing the filing, the Debtors advised that: “Alpha Holding [defined below] announced on April 20, 2021, that it would restate its financial statements for the years ended December 31, 2018, and 2019 (the 'Prior Period Financial Statements') to correct an error in Alpha Holding's accounting for its derivative positions. Alpha Holding also identified additional accounting errors that it anticipates will result in a restatement of other assets and other accounts receivable in its financial statements for previous years, including the Prior Period Financial Statements, or a current write-down of other assets and other accounts receivable. The accounting errors ultimately resulted in several defaults and events of default under the Company's funded debt obligations. Though the Company endeavored to negotiate forbearance and waiver agreements with several of its lenders, such efforts were unsuccessful. Given these events, the Company no longer had access to the new financing necessary to continue originating new loans, and accordingly has ceased its on-balance sheet origination activities. Today's actions became necessary despite the Company's best efforts to streamline the business by implementing significant cost-cutting measures.
The Debtors' affiliates operating in Mexico, including Alpha Holding, S.A. de C.V. ('Alpha Holding'…) are not included in the chapter 11 filing.”
About the Debtors
According to the Castellano Declaration : “The Debtors, together with their Mexican non-Debtor affiliates (the 'Mexican Affiliates') and certain other affiliated non-Debtors…operate a specialty finance business that offers consumer and small business lending services to underserved communities in Mexico and Colombia.
The Company was founded in 2011 with the mission of improving the quality of life of individuals in the low-income segment of the population and promoting the growth of small and midsize enterprises ('SMEs') in Mexico by offering these populations greater access to credit. The Company began its consumer lending operations by providing loans with repayment via payroll deduction, or 'PDLs,' to federal and state government employees in Mexico and, over the next ten years, grew into a leading financial technology company. In 2015, the Company expanded its operations into the Colombian marketplace with creation of the Vive brand, a platform providing PDLs, and acquired TotalCredit, a Mexico-based PDL lender that partners with various employers across Mexico. In 2016, the Company launched Alcanza Capital, a leasing and factoring initiative and also acquired Crediamigo, a pioneer in the discount credit industry utilizing income advancement for government employees. In 2018, the Company expanded its technological platforms by launching its first mobile application, AXS, to offer instant loans to its customers. In 2019, the Company launched Bontu, a credit platform for SMEs based on new internet sales models, and completed the 100% digitization of the business for its consumers from origination to collection of each loan.
The Debtors’ target borrowers have a monthly gross income ranging from COP 700,000 to COP 10,000,000 ($181 to $2,591 USD) and ages ranging from 31 to 84. On average, a PDL has an initial term of approximately 108.9 months and an initial principal amount of COP 18.03 million or $4,900 USD. The average interest rates for PDLs is 24.40% per annum, which complies with Colombian interest rate regulations. As of May 31, 2021, the Debtors had approximately 36,800 PDLs outstanding with an aggregate principal amount of COPs 647.8 billion or $174.4 million USD."
Corporate Structure Chart
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