Joe Gambler Sorry for the mental aberration that caused me to...

Joe Gambler

Sorry for the mental aberration that caused me to misread what you wrote. That 47% Collections to PDL carrying value implies that PNC's PDL carrying value is 2.13 times collections. CCP's 86% implies its PDL carrying value is 1.16 times collections. That suggests to me that PNC's carrying value may be too high. This is not surprising, considering that:

• PNC amortises PDLs over ten years, compared to CCP's six.

• The ten years would be irrelevant if the effective amortisation as a ratio of collections were high enough, but they seemed to be low relative to CCP.
• PNC aggressively bought PDLs at prices that CCP regarded as too high, and which to a degree prompted CCP to diversify into US PDLs and the Unsecured Lending business.
• The auditors objected to the accounting treatment, and PNC hired a senior lawyer to support its accounting, which increased my suspicion that PNC's PDL carrying value was, and is,too high.

This is neither a PNC nor CLH subforum, so I did not dwell on them. I compared CCP's metrics with Encore and Intrum only to reinforce the view, without reference to CLH and PNC, that CCP's accounting is conservative. CLH and PNC have funding problems, so their woes are not Covid-19 specific, which was the thrust of my comparison.

However, I will add that CLH sells collections streams to a financier, which distorts the collections in the immediate term. I was alerted to this by tomhagen, so if it is meaningful, he can comment on it. There was a CLH director spat on this some time ago, with Lev Mizikovsky objecting to CLH selling the “family silver” – something you can Google if you are interested in CLH's woes.

One point that I would like to make is to warn CCP shareholders against the hoary post hoc ergo propter hoc fallacy. One variant is – PNC and CLH are in trouble, they and CCP are in the PDL sector, so CCP is in trouble. The other variant is – Covid-19 is bad for the economy, there will be more debtor defaults, so CCP's collections will be impacted, so Covid-19 is bad for CCP. Covid-19 is both bad and good for CCP, and I think that, on balance, CCP will gain more from it than it loses. I may be wrong, but in a year or two hence we can look back and see what transpired.

On the matter of CCP deploying funds to acquire a competitor, I remind you that more than half of the capital raised 2018 went to acquire Bayview for $65m. The reasons CCP gave for that CR, are remarkably similar to the reasons advanced for the recent CR, and although the words allowed for an acquisition, that was not stressed in either od the two CR Announcements.

Although it does not make much sense for CCP to increase its market share in Australasia via acquisition, if PNC could be acquired at fair value, it may be worth buying, because, apart from its accounting treatment, source of funding, and gung-ho expansion personality, many aspects of PNC are similar to CCP, and hence it could be easily digested. PNC's collection facilities would be more important than its PDL assets, which is why I underlined 'fair value'. This means if PNC is sold, CCP is likely to pay more for it than the PDLs are worth, which other potential buyers would not, IMO – something that PNC's CEO should bear in mind.

It makes more sense for CCP to acquire a US operation. All I want to suggest is that I would not be surprised if in calendar year 2020, we have another trading halt like the one that proceeded the Baycorp acquisition. Alternatively, we will learn that CCP has developed a sausage-machine approach to opening or expanding collections facilities organically, and is doing that to handle extra load that buying PDLs on market would cause.

There was some comment made recently of a negative experience CCP had opening up in the USA because competitors poached the staff they had trained, and that some counter measure mitigated that problem, but I could not find CCP's words on that when I tried today. It was probably in a recent Chairman's or CEO Report, and the “something” was automated training. Covid-19 experience would have made it patent that the ability to work from home, and manage the work is important. There are, I seem to recall reading, no shortage of suitable people to train as collectors (one of the Covid-19 plusses). Anyhow, something must happen for CCP to profitably deploy its strong funding position.