Ann: MONEYME secures A$125m funding facility with iPartners, page-8

This is a big dealand a great credit to the MME team

I’ve posted before that MME’s constraint (until today) is its unrestricted cash ($20m). That $20m has to provide working capital; any surplus can be used to invest capital in the securitisation funding trusts (SPVs). This small free cash level would limit MME’s ability to invest capital into the SPVs, and hence to grow its loan book. MME does generate good loan growth, and has no problem in raising SPV debt; its limitation was ability to invest its own equity/cash into SPVs. This was further strained by the tough obligation to repay the $52m corporate loan in Nov 25.

Today’s announcement brilliantly solves those problems. MME will repay the PEP corporate loan, and extend the maturity date to December 2028. The initial drawing is $65m, so MME will get $14m of extra cash beyond what is needed to repay PEP. In the absence of any other project or capex need, this surplus $14m can be used to fund the equity component of the SPVs in growing the loan book. If one assumes leverage of 15 or 20 to 1 in the SPVs, that could fund another $250m+ of net loan growth, beyond what was otherwise possible.

As a bonus, the (undisclosed) new interest rate is much cheaper than the very high cost charged by PEP. I don’t think that any of the interest rates (on the PEP loan or the SPVs) have been shown in annual reports, although presentations provide some clues. The 27.9.21 announcement said that MME’s cost of SPV funds was then under 5% (maybe 4.6%), when the bank bill rate (BBSY) was about 0.2%. Hence the spread over bank bills was about 4.4% (then). MME appears to have negotiated lower spreads in new SPV funding deals over the last 3 years.

2024 annual report said that all borrowings were floating rate: 77% of the assets were floating rate, and MME use swaps to convert the rates earned on most of the fixed rate assets (ie the other 23%) into floating. This means it’s valid to take floating bank bill rates as the base cost. MME don’t disclose rates paid per facility, but very rough estimates from the overall figures in the ARs are that MME’s average cost of funds was about 7.3% in FY23 and 8.6% in FY24. This is consistent with average bank bill rates of about 3% in FY23 and 4.3% in FY 24. This suggests that the average spread (including fees) MME paid over base rates was about 4.3%. This includes the much higher spread on the PEP loan, but it’s only $52m compared with over $1B of SPV borrowings, so it doesn’t affect the weighted average rate much.

On 30.3.23, MME announced a reduction in rates on the PEP loan as a benefit from the dilutive equity raising. After that reduction PEP was charging a still very high 12% over BBSY (bank bill rate), but would reduce that to 9% + BBSY if MME achieved (unspecified) covenants. It’s impossible to know what MME has actually paid to PEP because rates are not stated, and all interest costs are lumped in together.

Today's announcement said “This 2.5x larger facility, at a greatlyreduced funding cost…” My guess is than the iPartners loan is still expensive but as MME says “importantly without dilution to shareholders”, i.e. there’s no extra amount or hidden cost via potential dilutive equity issue on debt conversion. The iPartners website gives a lot of info on what they earn on other deals. From this I guess that MME will be charged about 6 or 7% + bank bills. That would be a saving of at least 2 or 3% pa compared with PEP (perhaps more). That rate is still considerably higher than the average margin of about 4.3% (perhaps today a bit less) over bank bill for the SPVs debt, which probably ranks ahead of the corporate loan, so the corporate loan is higher risk for the lender and hence more expensive.

The new loan may save $2m pa pre tax, perhaps more. The greater benefit is that it allows MME to fund much more asset growth with confidence; it pushes the maturity date out by 3 years and relieves shareholders of the risk of another dilutive equity raising. That’s something I was rather concerned about, if MME found it difficult to refinance the PEP loan and/or fund asset growth. Today’s deal makes it less likely that anyone could succeed with a cheap takeover bid, but for the long term this deal is excellent for MME shareholders.

I’ve posted (e.g. 11.12.24) my estimate of MME’s normalised earnings for FY24 which adjusted for the tax distortions: $15.4m after tax = eps of 1.93c. Annualised interest saving on the new loan could increase that by 10 to 15% proforma, over 12 months. At 17c, that would be proforma 7.5x normalised earrings including assuming $3m pa saving of interest. For a microcap like MME, in a sector where the PEs are low, I think 7.5x is a bit high. However, this deal makes the future more stable and rosier so perhaps 17c is fair.

Not advice. DYOR.