The senior-junior structure is rarely used between an ARC and a seller (banks or finance companies), with regulators discouraging such structures in AIF transactions.
Encore ARC had given a binding offer of Rs 271 crore to IndoStar Capital’s Rs 292 crore loan portfolio in the form of a senior junior structure. The offer by Encore ARC triggered a Swiss Challenge auction.
Mid of December, IndoStar had invited counteroffers – under senior-junior structure – from other ARCs. Edelweiss ARC had given a counter offer which was about 6-7% higher than the anchor offer, said people cited above.
Encore ARC matched Edelweiss ARC’s offer and was declared as a successful bidder.
On paper, Encore has offered to pay almost full money, but the actual cash payment will be made based on its recovery.The structure has a senior class involving cash payment and a junior class involving cash and security receipts.In this case, the senior class comprises 38-40% of the principal amount which Encore will pay as upfront cash. The junior class which is 60-62% of principal loan, is split into cash and security receipts. Of the junior class, IndoStar would receive cash and subscribe to the security receipts.
Indostar Capital has informed the stock exchange about the sale of its portfolio to Encore without providing details of the deals.
ET has reached out to Edelweiss ARC and Encore for comments; their response will be updated soon.