Collection House : Recapitalisation Transaction

For personal use only

ASX ANNOUNCEMENT

23 February 2022

Market Announcements Office

ASX Limited

Level 4 Stock Exchange Centre

20 Bridge Street

SYDNEY NSW 2000

Dear Sir/Madam

Collection House Limited (ASX Code: CLH) - Recapitalisation Transaction

Collection House Limited ("CLH" or "the Company") has entered into a series of transactions ("the Recapitalisation") which, when completed, will result in the Company being substantially debt-free.

The Recapitalisation provides the Company with a pathway to return the business to profitability, in line with the business turnaround initiatives set out below, and in conjunction with an expectation of improving trading conditions in the debt collection sector.

Since the repayment of a significant portion of senior debt in December 2020, the senior lenders have continued to support the Company as it implemented a substantial change program across its business, while supporting its clients and customers during a challenging COVID impacted trading period. The lenders have worked closely with the Company and its advisors to deliver a capital solution which will see CLH in a more sustainable financial position, allowing it to deliver critical receivables management and

For personal use only

customer support services to a wide range of clients in Australia, New Zealand and the Philippines.

Overview of the Recapitalisation

The Recapitalisation comprises a number of interrelated transactions:

• the Company has entered into a binding agreement to sell its New Zealand purchased debt ledgers (the "NZ PDL Transaction") to Credit Corp Group Limited ("CreditCorp") for a total purchase price of NZD $13.0 million (approximately A$12 million). The transaction is subject to customary closing conditions and adjustments and is expected to complete by the end of March 2022;
• CreditCorp has agreed to provide the Company with a short term working capital facility (the "Working Capital Facility") repayable upon the earlier of completion of the NZ PDL Transaction and 30 June 2022;
• CreditCorp has simultaneously agreed to acquire substantially all of CLH's outstanding senior debt - approximately A$52 million (the "Acquired Senior Debt") from the Company's existing lenders, and has agreed to a standstill on the repayment of the Acquired Senior Debt; and
• Upon completion, the proceeds of the NZ PDL Transaction will be applied to repay the Working Capital Facility in full, and in part repayment of the Senior Debt. CreditCorp will then release the Company from the remaining balance of the Acquired Senior Debt.

Following the completion of the Recapitalisation, CLH will have approximately A$9 million of net cash reserves (on a pro forma basis to unaudited 31 December 2021 accounts). The Company's only remaining senior debt will be a A$6m facility secured on a limited- recourse basis against the Company's investment in Volt Bank Limited (the "Volt Facility"). CLH is actively exploring opportunities to realise this investment and expects to repay this remaining facility in the near future.

For personal use only

CLH expects a progressive return to pre-COVID business activity levels over coming months, but anticipates that debt recovery activities will continue to be under close scrutiny by regulators. As a result, clients will continue to require a more transparent and empathetic approach to supporting customers having difficulty making debt repayments, particularly those experiencing vulnerability and hardship. Within this context, the Company believes that its customer centric business model is well positioned to respond to these dynamics and provide a platform for sustainable growth.

A stronger balance sheet will provide CLH and its clients with the confidence to continue to transform the way receivables management services are delivered. It also enables it to continue to pursue its organisational vision of serving its customers and clients better, and creating more sustainable outcomes for all stakeholders.

Pro forma impact of the Recapitalisation

Please note that the following pro forma financial information is indicative only and based on the Company's unaudited accounts for the 6 months to 31 December 2021. Balances as at 31 December 2021 are provisional and remain subject to audit review. The pro forma should not be interpreted as earnings guidance.

The likely effect of the Recapitalisation on the Company's consolidated total assets, total liabilities and total equity interests have been presented on a pro forma basis using the unaudited 1H 2022 results as though it occurred on 31 December 2021 and was included in the 1H 2022 unaudited results.

For personal use only

Particulars	Unaudited	Pro forma	Pro forma	Unaudited
A$m	balances as at	adjustment for	adjustment for	balances as at 31
	31 December	NZ PDL	debt release /	December 2021
	2021	Transaction	repayment	with pro forma
		See note (1)	See note (2)	adjustment for
		below	below	the
				Recapitalisation
Total	121.0	0.6	(17.3)	104.3
Consolidated
Assets(3)
Total	94.9	-	(51.8)	43.1
Consolidated
Liabilities(3)
Total Equity(3)	26.1	0.6	34.5	61.2
Net Cash /	(52.9)	12.3	49.3	8.7
(Debt)(3)

Notes

1. Pro forma adjustments to Total Consolidated Assets for the NZ PDL Transaction assume a sale of the PDL assets occurring on 31 December 2021 with sale proceeds of NZD $13 million (assumes 1.07 NZD to 1 AUD) and associated disposal of the PDL assets of carrying value at 31 December 2021 of A$11.4m. This results in a A$0.6m pro forma adjustment to Total Equity (net of tax). The sale proceeds will be subject to completion adjustments to reflect collections undertaken by CLH in respect of the NZ PDL assets between 31 December 2021 and settlement, less an arm's length collection fee payable to CLH.
2. Pro forma adjustments to Total Consolidated Assets for the debt release / repayment of the Acquired Senior Debt and consequential reduction of the deferred tax asset amount to approximately A$15m. The pro forma adjustment to Total Consolidated Liabilities reflects the partial debt repayment and associated release by CreditCorp of the remaining Acquired Senior Debt. The pro forma adjustment to Total Equity is approximately A$34.5m.
3. As the pro forma adjustments to Total Consolidated Assets, Total Consolidated Liabilities and Total Equity are presented as at 31 December 2021, the above balances do not incorporate additional drawdown in borrowings which occurred since 31 December 2021 of A$3.0m which

For personal use only

form part of the Volt Facility. The pro forma adjustments also exclude restructuring costs in relation to the Recapitalisation of approximately A$3.5m (pre-tax).

Business turnaround initiatives

Although the Recapitalisation results in an immediate improvement to CLH's balance sheet, the Company continues to focus on revenue and productivity improvements in order to return the business to sustainable profit as a matter of priority. Our expectation of underlying recovery in the debt collection sector will assist in this recovery. However, the Company is also implementing a range of strategies to reduce its overhead cost structure across premises, technology and corporate costs. Further details on these initiatives will be included as part of the Company's results announcement on or before 28 February 2022.

The Board and Management are confident that the repositioning of the Company to a capital light, customer focused operating model provides a platform to better service our customers, clients and communities.

This announcement was authorised to be provided to the ASX by the Company's Board of Directors.

Yours faithfully

Collection House Limited

Jonathon Idas

Chief Legal Officer & Company Secretary

Email: [e-mail]

For further information please contact Collection House Limited Investor Enquiries:

Alasdair Jeffrey 0404926768 [e-mail]