Debt buyer Collection House has sold off more of its business to rival Credit Corp, as its primary objective shifts to paying down debt in a sluggish purchased debt ledger market.
Credit Corp has also acquired Collection House’s senior secured debt from its banking syndicate and advanced a working capital facility.
Collection House released details of a recapitalisation transaction yesterday, its second in three years.
Collection House will sell its New Zealand purchased debt ledger to Credit Corp for around A$12 million. The sale is expected to be completed by the end of March.
Credit Corp will provide Collection house with a short-term working capital facility of $7.5 million, repayable when the NZ PDL sale is completed.
Credit Corp will acquire $52 million of senior debt from Collection House’s lenders. Credit Corp has agreed to a standstill on repayments.
When the working capital facility is repaid Credit Corp will release Collection House from all remaining obligations.
Collection House said that when the transaction is completed it will have around $9 million of cash reserves and a $6 million debt secured on a limited recourse basis against an investment in Volt Bank.
Collection House said it is looking to sell the Volt investment.
Credit Corp said in a statement that its investment in Collection House met its required investment return hurdle.
Credit Corp bought Collection House’s Australian purchased debt ledger in December 2020. Going forward, Collection House will have a debt collection business but not a debt buying operation.
Earlier this month, Collection House reported an adjusted operating cash outflow of $4.4 million for the December quarter (the company made a cashflow gain of $7.9 million but the figure included a $12.3 million tax refund).
It said: “Client-initiated COVID-19 forbearance arrangements are continuing to restrict the company’s ability to deliver services, including contacting customers. This continues to impact the scale of commission revenues generated under contingent collection arrangements as well as the commencement of new business activities that have been successfully tendered by CLH but then delayed.
“Contact restrictions implemented by clients in respect of lockdowns in New South Wales, Victoria and New Zealand continued to impact for longer than expected during the quarter.
“While the company is encouraged by the continuing relaxation of COVID-19 related restrictions across Australia and some positive reaction from our clients, with the more recent impact of the Omicron variant we realistically expect disrupted trading conditions to persist at least until the fourth quarter.”