SquareTwo Announces Portfolio Asset Sale To Resurgent Holdings

Yesterday, SquareTwo Financial (SquareTwo) announced that it had reached an agreement with Resurgent Holdings LLC (Resurgent) under which Resurgent or one or more of its subsidiaries or affiliates will acquire substantially all of SquareTwo's portfolio of assets. Resurgent is an affiliate of Sherman Financial Group LLC, a privately-held global investment company.

The press release announcing the sale can be found here.

Per the press release:

“Upon completion of the transaction and following the transfer of the servicing of accounts in the U.S. to Resurgent and its affiliates, SquareTwo will wind down its U.S. operations, including those of its subsidiary Fresh View Solutions. The wind-down process is expected to be completed by the end of 2017. SquareTwo's Canadian operations will continue under Resurgent's ownership.

To facilitate the transaction in an expedient manner, today SquareTwo and its affiliates filed voluntary chapter 11 petitions in the United States Bankruptcy Court for the Southern District of New York. SquareTwo will also be filing for recognition of the U.S. chapter 11 proceedings under Part IV of the Companies' Creditors Arrangement Act in the Ontario Superior Court of Justice.

SquareTwo enters chapter 11 having already secured the agreement and necessary support from a significant number of its secured lenders to undertake a "prepackaged" restructuring plan that contemplates a change of control transaction pursuant to the chapter 11 restructuring plan. The Company expects to complete this "prepackaged" process in an expedited manner, pending receipt of Court approval, after which time the transaction with Resurgent will be completed.   

SquareTwo expects to continue normal day-to-day operations during the restructuring process. This includes the payment of wages and benefits to employees in the normal course, payment in full to vendors for goods and services provided during the reorganization process, and continued asset recovery work with consumers to resolve outstanding financial obligations. To this end, the Company has secured commitments for debtor-in-possession ("DIP") financing which will ensure it is able to continue ordinary course business and meet its financial obligations throughout the chapter 11 case.”

insideARM Perspective

At one time SquareTwo was one of the largest debt buyers in the United States. The sale is a sign of the significant changes in the debt buying arena over the past 5-10 years.  Competition drove prices upward. Regulations drove costs upward.  The business model has changed.

In the press release J.B. Richardson, Jr., Chief Operating Officer of SquareTwo noted:

“Unfortunately, changes in the regulatory and business environment over the last several years have had a significant economic impact on the company. We reviewed many strategic alternatives over the past nine months to find a path that would allow us to operate competitively and continue operations with our workforce in place.”

Through the transaction, Resurgent acquires a significant-sized portfolio of accounts. However, it is unclear from the press release what the average age of the acquired accounts is.