NCO Group Asks for Amendments to Credit Facilities

NCO Group, Inc., one of the largest accounts receivable management firms in the world, disclosed last week that it has asked some of its lenders to amend certain credit facilities based on its performance in the fourth quarter of 2010.

In a filing Thursday with the Securities and Exchange Commission, NCO said it has requested its lenders amend certain terms of its existing senior secured credit facilities.  The facilities include a $100 million revolving credit facility due November 2011 and a $604 million term loan B facility due May 2013.

The existing facilities are expected to be amended to, among other things:

• obtain a waiver for the financial covenants for the period ended December 31, 2010 and adjust certain future financial covenants, including increasing maximum leverage ratios and decreasing minimum interest coverage ratios;

• reduce the revolving credit facility to $75 million and extend the maturity date from November 2011 to December 31, 2012; and

• permit the company to sell all or a portion of its portfolios of purchased accounts receivable.

NCO said in the filing that it does not expect to be in compliance with its debt covenants for the fourth quarter of 2010. The company noted that lower than expected volumes in its accounts receivable management (ARM) and customer relationship management (CRM) units put unexpected pressure on earnings, resulting in “covenant stress.”

The company did note that its continued wind-down of its debt buying unit, Portfolio Management, is generating cash for the group as it sells portfolios. It was part of the reason NCO asked for an amendment to permit it to sell all or a part of its purchased accounts portfolio.

“If we plan to sell a large amount of assets, we need permission from the lenders, because that’s their collateral,” explained Brian Callahan, NCO’s SVP of Financial Reporting. “Since we’re going to them now with other amendments, we wanted to get the permission ahead of time so we didn’t have to go back when we have a deal.”

NCO noted that the only portfolio purchasing activity it engaged in for 2010 was to satisfy existing commitments.