Collection House has confirmed that it will re-establish its presence in the purchased debt market after selling its purchased debt ledger to Credit Corp last October, but its hopes of reviving the business will depend on being able to establish a new business model.
The company sold its debt ledger as it struggled to refinance the business last year. It was in a standstill agreement with its lenders from April to December, after beaching the terms of its financing arrangements. Proceeds of A$160 million were used to pay down debt.
It retains its collections business and a small PDL portfolio in New Zealand.
The company said that under its new strategy it is seeking to grow its PDL capability through a co-investment partnership that will see it put less capital at risk.
“The refinancing process has allowed the company to build relationships with a number of highly reputable, potential co-investment partners that are looking for sophisticated servicing partners in the Australian and New Zealand markets,” the financial report said.
The fact is the company is not in a position to use its own balance sheet. Its loan facilities with Commonwealth Bank and Westpac were cut from more than $200 million to around $60 million over a three-year term, and it has a two-year $15 million loan from Credit Corp.
When its refinancing was completed last December it said: “Traditional refinancing options presented to the company were expensive and would have left shareholders with little, if any, residual cash from its existing PDL assets.”
Collection House reported a loss of $9.5 million for the December half, compared with a loss of $47.3 million for the previous corresponding period (when there was a large asset impairment).
Revenue from the purchased debt ledger business was $16.9 million during the half, down from $51 million in the previous corresponding period.
Revenue from collection services, its main ongoing business, was $28.8 million – down from $35 million in the previous corresponding period.
Collection services activity was subdued as a result of collection embargoes put in place by lenders during COVID-19.
The company remains cash flow positive, with $19.6 million of cash flow from operating activities – down from $32.5 million in the previous corresponding period.