Bill-chasing outfit Collection House has warned the value of its main debt ledgers is in doubt, only a few months after its last chief executive suddenly departed.
The potential hit to the value of debt ledgers was flagged as Brisbane-based Collection House warned the release of half-year results would be delayed, full-year earnings forecasts would be reviewed and bank covenants could be breached.
The warning marks the second time in Collection House’s 20-year ASX-listed life that it has taken a big hit on debt ledger values. The previous occasion was in 2006 under different management.
While the company on Tuesday blamed the latest potential hit on recent industry changes to requiring a more-friendly debt collector, sources have long been wary on the company’s ledger values.
Debt chasers such as Collection House earn money in two ways – reaping owed money on behalf of clients such as banks and taking a clip, or buying whole ledgers of debt outright from such institutions for themselves.
Profits are partly determined by the value a company assigns to those remaining ledgers. Collection House had over $400 million in such ledgers on its last balance sheet.
But on Tuesday, Collection House suspended its shares – which last changed hands at $1.08 – saying it was reconsidering the assumptions about how much cash could be extracted from the debt ledgers. Some “operational changes” under consideration could result in a “material adjustment” to their carrying value, it said.
That triggered a cascade of outcomes: company forecasts of earnings per share in 2020 rising up to 14 per cent to 24¢ were under review; and it could mean a breach of covenants with lenders including a loan to valuation ratio. Collection House’s last accounts listed Westpac among its banks.
“The company is in discussions with its senior lenders to seek a variation of its current lending terms and conditions, along with a standstill agreement to assist the company to progress its operational strategy review,” Collection House said.
The company would also seek alternative funding.
It blamed the potential hit on a review on its operating model and collection strategies because these might impact the cash it can reap. This review was triggered by recent industry changes and feedback about moving towards a more “customer-focused” approach, it said.
The approach of Collection House was in the headlines last year because of aggressive bankruptcy practices, which it pledged to soften in November.
But industry and market sources have been wary of Collection House’s accounting for ledgers or other special deals to pull cash flow forward. That included former director and substantial shareholder Lev Mizikovsky accusing Collection House of “selling the family silver” in one deal – or quickly selling older ledgers for new ones. The company rejected the criticism.
The latest review is being undertaken by Collection House’s new chief executive Doug McAlpine.
He replaced Anthony Rivas, who departed suddenly in November after just re-signing his contract as chief executive and being awarded a million bonus shares thanks to accounting changes at the group. The suddeness of his departure had market sources bracing for a financial hit of some kind.
Attempts to contact him have been unsuccessful, with industry sources saying the Texas-raised executive was believed to have gone overseas, potentially to India, from where his wife hails.
The trouble surrounding Collection House also marks more turmoil for the listed debt-chasing sector, with Pioneer Credit recently being bought out for 26 per cent less than its last traded share price.
Calls to Collection House were not returned.
