No extra flow for debt collectors

With the current Australian personal credit environment deteriorating due to rising interest rates, more opportunities for debt collectors to purchase bank debt can arise.

CEO of listed debt collector Collection House Tony Aveling said, "In theory it does.

"But in practice delinquencies as we see them, through talking to the banks, are holding pretty well for the banks, so there is not a lot of additional debt that is coming onto the market.

"I think the reason for that is the economy has been performing strongly with unemployment low, and even though people have been taking on more debt, most people have been able to service that debt."

Collection House recently renewed funding facilities which were due in March 2008, with Aveling saying the Australian banks agreed to the renewal, and also agreed to extend the terms to allow the debt to be treated as a medium term liability rather than a short term liability.
Funding will not need to be renewed again until July 2009.

"We were very comfortable (at the funding rate level) and the costs did go up, but it was marginal and entirely what one would expect at the moment given the funding pressures on the banks."

Aveling would not be drawn on forward flow agreements signed for financial year 2009, saying announcements will be made to the market as and when required, with $54 million in forward flow agreements being signed for financial year 2008.

This compares to only $29 million of new debt purchased in FY07, $33 million in FY06 and $43 million in FY05.

"When the debt purchasing opportunities come along we are probably better placed than some of our competitors to buy that debt," said Aveling. He bases this on improved debt levels and the current margin in borrowing facilities.

Profit for the first six months of financial year 2008 is anticipated to be between $3.2 million to $3.5 million, excluding exceptional items.

Aveling said seasonally the second half of the year can be more difficult for debt collection, due to January and the Easter holiday period being a time when it is more difficult to contact debtors.