BREAD FINANCIAL HOLDINGS, INC. quarterly report, Q1 FY2013

Filing identity and reporting period

Important identity mismatch: The supplied filing is Alliance Data Systems Corporation’s unaudited Form 10-Q for the quarter ended March 31, 2013; it is not a filing by Bread Financial Holdings, Inc. Confirm the intended company and filing before relying on this summary.

Alliance Data operated LoyaltyOne (AIR MILES), Epsilon (marketing services), and Private Label Services and Credit (retail credit-card programs). Amounts below are U.S. dollars.

Financial results and liquidity

Cash and cash equivalents were $764.1 million at March 31, versus $893.4 million at year-end. Total assets were $11.93 billion and stockholders’ equity was $604.5 million. Reported debt included $2.871 billion of long-term and other debt and $4.084 billion of asset-backed securities debt; deposits totaled $2.177 billion. These balances support substantial credit-card funding and are not equivalent to corporate borrowings alone.

The company had no borrowings under its revolving credit facility and reported $915.7 million of availability. Its credit-agreement leverage ratio was 2.3x against a 3.5x maximum covenant. It stated that liquidity should cover requirements for at least 12 months, including the cash settlement of convertible notes due August 1, 2013. The filing reported covenant compliance.

Changes versus the prior comparable period

• Private Label Services and Credit revenue rose 22.1% and adjusted EBITDA rose 15.1%; average credit-card receivables increased 30.9% and credit sales rose 32.1%.
• Epsilon revenue increased 39.5% and adjusted EBITDA 36.7%, principally reflecting the November 2012 HMI acquisition and agency growth.
• LoyaltyOne revenue fell 6.6%, while adjusted EBITDA increased 7.2%. AIR MILES redemptions declined 11.6%, partly reflecting unusually high prior-year redemptions related to the five-year expiry policy.
• Interest expense rose 25.7% to $82.5 million, including higher expense on long-term debt and securitization funding. Provision for loan losses increased 35.1% to $66.6 million as receivables grew.
• Credit indicators improved year over year: delinquent principal receivables were 3.8% of the portfolio versus 4.0%; the reported net charge-off rate was 4.5% versus 5.3%. The filing says the 2013 charge-off rate would have been 4.7% if losses on acquired receivables were included on the same basis.

Outlook, risks, and notable items

• Management anticipated mid-single-digit year-over-year AIR MILES issuance growth in 2013, despite Q1 issuance declining 3.1%. It expected about 10% of 2013 miles issued to be through AIR MILES Cash.
• Management expected capital expenditures not to exceed approximately 3% of annual revenue and stated that available liquidity was sufficient for at least the next 12 months.
• Asset-backed funding commitments, including conduit facilities, are partly short-term and subject to renewal; renewal on similar terms is not assured. Approximately $1.6 billion of asset-backed securities debt was due within 12 months.
• The company acquired the Barneys New York private-label credit-card portfolio for $37.1 million in March 2013 and issued $500 million of asset-backed securities in February. It also repurchased $51.7 million of shares under a newly authorized $400 million repurchase program.
• Management identified interest-rate, credit, foreign-currency, and redemption-reward risks. It reported no material change to previously disclosed risk factors and said ordinary-course legal claims were not expected to materially affect the business or financial condition.
• Disclosure controls were deemed effective. HMI and Advecor were excluded from the quarter-end internal-control evaluation, with inclusion planned for Q4 2013.

Important facts for investors to verify

• Verify that Alliance Data Systems Corporation, rather than Bread Financial Holdings, Inc., is the intended issuer and that the 2013 reporting period is correct.
• Review the August 2013 convertible-note cash settlement and near-term asset-backed maturities, conduit renewals, and available funding.
• Assess credit performance alongside portfolio growth, purchased-receivable accounting, loan-loss provisioning, and the disclosed adjusted charge-off rate.
• Separate acquisition-driven Epsilon growth and non-GAAP adjusted EBITDA from organic performance and GAAP earnings.
• Check subsequent results against management’s AIR MILES issuance, capital expenditure, and liquidity expectations.