UK wealth management and advisory firm True Potential has issued a new £405 million senior secured note due 2031 with a coupon of 7.75%. The firm plans to use the proceeds to refinance its existing £400m 6.5% senior secured notes due 2027.
The bond started trading on the WiseAlpha bond marketplace early this week at 102.5 and has since ticked slightly higher.
Newcastle-based True Potential focuses on investment management, investment planning and retirement planning, providing an integrated investor and wealth management technology platform servicing both clients and financial advisors. The firm has benefited from a gap in advisory services in the UK, a growing retirement age and the need for better retirement provisions. It has added over 190,000 new clients in the last three years reaching a total of just under 600,000.
- BT long-term bonds offer wider spreads than European peers
- Wagamama’s bonds prove as popular as their noodles
- Asda bonds: how to have your cake and eat it this summer
True Potential recurring revenue
Over the years, True Potential has actively followed a strategy of acquiring independent financial advisors and integrating them into a centralised wealth management platform. The strategy paid off, creating exceptional growth with assets under administration reaching £32.8 billion, up by 24% CAGR since 2020.
True Potential generates revenue through platform and administration fees, investment management fees, revenue-sharing agreements with IFAs in the form of advice fees, and software licensing. The firm’s revenue is recurring, primarily fee-based and tied to assets under management.
Over the last twelve months, True Potential generated net revenue of £332 million and a run-rate EBITDA of £254 million.
Refinancing prompted by a favourable market
Technically True Potential is paying a higher coupon on its new issue to repay its previous debt but is important to note that this is a reflection of the changes in the underlying UK debt market rather than an indicator of True Potential’s financial health.
While the new bonds carry a higher coupon this is more a reflection of moves in UK rates since the old bonds were issued in 2022. The new bonds are priced at 345 basis points over their gilt benchmark while the legacy issues are price at 530bps over.
The overall corporate bond market is stronger and more active than it has been over the recent years, with the pipeline of primary issuances still filling up. This week alone, more new bonds have been announced: Morrisons, Cognita, Nissan Motors and Heimstaden are coming to the market with euro, sterling and dollar-denominated issues.
In that context, True Potential is making use of a buoyant bond market to proactively manage its maturity profile and refinance its previous debt, which includes its £400m senior secured notes, EUR360m senior secured notes and £50 million February 2023 private placement notes.
The leverage for the transaction is 3.5 times the company’s EBITDA as of the end of March this year, which stood at £254m, up from £219m a year ago. Other financials are also strong. The firm’s EBITDA margin is 75%, which is slightly lower than 79% last year but not enough to offset top-line growth. Cash conversion also remained strong, with 87% of the last twelve months’ adjusted EBITDA converted to cash. Margins have slightly compressed since the end of 2022, largely due to increased wages and staffing costs, which have risen by a 35% CAGR in that period.
True Potential is privately owned with the majority stake held by global private equity firm Cinven.
