Signet lowers balance sheet risk
Signet Jewelers Limited announced the completion of the final phase of its strategic outsourcing of credit (SOC) through the sale of its existing non-prime receivables and implementation of a forward flow purchase arrangement for future non-prime receivables with funds managed by CarVal Investors and Castlelake, L.P.
With the closing of this transaction, Signet has transitioned to a fully outsourced credit structure while maintaining a full spectrum of category-leading financing and lease options for consumers. The outsourced credit structure allows the company to enhance its strategic and operational focus on its core jewelry retail business as it executes the Signet Path to Brilliance transformation plan.
In addition, the sale of the credit accounts receivable significantly reduces Signet’s balance sheet risk and lowers working capital needs, as well as enabling the company to return significant capital to shareholders.
At closing, Signet sold 70 percent of its existing non-prime receivables to funds managed by CarVal Investors and the remaining 30 percent to funds managed by Castlelake, L.P. Under the previously announced agreements, CarVal and Castlelake will also purchase newly originated receivables arising from Signet’s non-prime accounts at a discount rate as determined in the agreements.
Investment funds managed by CarVal Investors will purchase 70 percent of the forward flow non-prime receivables and funds managed by Castlelake L.P. will purchase 30 percent of the forward flow non-prime receivables.
Signet received $445.5 million in cash proceeds from the sale of existing non-prime receivables excluding transaction costs, net of a 5 percent holdback. The holdback may be paid out at the end of two years depending on the performance of such receivables in that period.
The company expects to use the proceeds, along with cash on hand, to repurchase shares. Signet continues to expect to repurchase $475 million in shares in Fiscal 2019 of which $60 million was repurchased in the first quarter of Fiscal 2019.
The sale of the non-prime portion of Signet’s credit portfolio follows the previously executed prime credit transaction and strategic partnership with ADS, the implementation of our lease financing option through Progressive Leasing, and the outsourcing of the servicing of the non-prime credit program to Genesis Financial Solutions, Inc.
There are no customer or store-facing systems integration activities required of Signet with respect to this transaction and the Company does not expect any changes to the current credit application process for non-prime customers.