Thanks
@tomhagen for the response... it seems there's not much info around about PDL valuation.
For what it's worth, the $16m change in value doesn't represent amortisation of PDLs. From my understanding, it's the value of the PDLs that was collected or written off, with the remainder re-valued as they could collect more on those debts than the purchase price or previous valuation justified.
The following article gives an outline of the method used to value PDLs in PNC's case, but not for CCP:
http://corporate.pioneercredit.com....f-Coverage-on-Pioneer-Credit-10-June-2014.pdf
Page 16 contains the following:
At acquisition, PDLs are valued in Pioneer‟s balance sheet as a “Financial Asset” at cost. As Customer Payments come through, part of this Financial Asset is expensed through the profit statement as a “Change in Fair Value of PDLs” (CIV). The specific valuation technique used to determine the fair value of PDLs is a DCF method, incorporating the following variables:
Expected recovery rate – expressed as a percentage of the face value
Face value – of inventory and forward flow debt purchased
Cashflow liquidation period – the period over which the cashflows are received
Discount rate – based on a risk free interest rate and appropriate credit adjustment for risk not built into the underlying cashflows expected to be recovered and
Cost – acquisition cost of recently acquired PDLs
Based on that information alone, there's very little that an investor can do to get a clear picture of whether or not management are valuing PDLs correctly, other than rely on management and/or the auditor... It makes me a little nervous.
Finally, with regards to the amortising amount being equal to or greater than the previous years' Current Asset PDL values - this is not necessarily the case. Consider the following scenario:
- The company buys $10m of PDLs, with debt due within 12months.
- $10m of PDLs get listed as a current asset (at date of purchase, they're added on the balance sheet at face value)
- Through the year, they negotiate terms with all the customers who owe this debt.
- As a result of negotiations, their expected cash flows for $5m of the debt (at face value) double, and the time horizon for when this debt is due also doubles.
- Given the change in when the debt is due, these now become:
1) revalued - this means they're no longer current assets, but have not been written off through the Change In Value amount
2) Moved to non-current assets, as their time horizon is greater than 12months.
I'm sure there are many other possibilities, but this throws out any chance of understanding PDL movements between various accounts. It also gives management the ability to revalue items as they see fit (understandably, because it's very difficult to value these things), but leaves the investor open to a number of risks.
(20min delay)