After missing a refinancing deadline at the end of September, debt buyer Collection House has passed the October 30 extension of its standstill agreement with lenders Commonwealth Bank and Westpac without a resolution to its funding problems.
Collection House has been in a standstill agreement with its lenders since April. In a statement issued to the ASX on Friday, the company said it is negotiating changes to the standstill agreement and it is “continuing to progress its comprehensive recapitalisation process.”
It said it is assisting a small number of counterparties with their financial and operational diligence procedures.
According to the company’s latest quarterly cash flow report, it has loan facilities of A$200.8 million. It repaid $14.6 million of the senior secured facility during the quarter, in line with the requirements of the standstill agreement.
During the September quarter the company generated $21.2 million from operating activities and at the end of the quarter it had cash and cash equivalents of $8.8 million.
Constraints imposed under the standstill agreement are restricting its business activities. It said new debt ledger purchasing during the September quarter was restricted to meeting pre-existing forward flow commitments.
The company is yet to release audited accounts for its 2019/20 year and its shares are suspended. It is aiming to produce an audited financial report by the end of November.
Last year the company changed its operating model in response to criticism of the debt collection practices of its subsidiary, Lion Finance. Lion was revealed in a report as the debt collection agency with the highest number of court applications to put debtors into bankruptcy.
In the post-Hayne environment companies like Lion that took a punitive approach to dealing with debtors were on the nose and lenders were reported to be refusing to sell their bad debts to the company.
Changes to collection practices affected the accounting value of its purchased debt ledger assets by deferring or reducing collection cash flows. This, in turn, had an adverse impact on the company’s ability to meet the terms and conditions of its lending arrangements.
The company reported a loss of $44.3 million for the year to June last year, compared with a profit of $30.7 million in 2018/19, after writing off $89.9 million of the value of its purchased debt ledger assets.