Joe Gambler
CLH and PNC got themselves into trouble long before Covid-19 hit the scene – both via a lapse in intelligence and ethics (management;s self interest vis-à-vis shareholders) in my opinion. One could argue away any one of the two reasons by shifting the blame to the other.
This is a CCP subforum, so I won't dwell on CLH's and PNC's behaviour, except to say that in relation to SP ramping, PDL amortisation and debt leverage, CCP has taken a different path. The duo's woes are an upside for CCP, which is well encapsulated by the Dutch saying, De een z'n dood is de ander z'n brood - one man's death is another man's bread. The major sellers of Australasian PDLs are going to warm towards a long-term relationship with CCP, and as I mentioned before, there may well be some flight of staff from CLH and PNC at a time when collections capacity is going to be critical for CCP.
The matter of CCP's collection capacity caused me to look into the matter recently, and my research left me with the impression that CCP has devised an employment approach that allows it to efficaciously employ, train and retain collections staff, and further, the pandemic-affected hospitality sector has a pool of potential employees with the aptitude that allows them to fit well into CCP. Many HC readers may struggle to think of debt collection as an attractive career, but to those in the hospitality sector it is a step up the ladder, and steady employment, quick promotions and working family-friendly hours is manna from heaven.
I have often mentioned Encore Capital and Intrum as proxies for the PDL sector in the USA and Europe, because their pandemic experience is communicated much quicker than CCP's experience. This is because they report quarterly, and CCP is taciturn by nature. Both these firms are highly leveraged, and in that respect they differ from CCP. Because in the spectrum of assets, PDLs are closer to the near-cash point than most other assets, the PDL sector can can safely tolerate more leverage than many other sectors, so I am not critical of Encore and Intrum on that score. However, CCP's low debt leverage makes it a much safer company per se, and it is a facet of CCP's general conservatism that is reflected in realistic, if not generous, accounting policy in respect to provisioning generally, and effective amortisation and impairment of PDLs specifically. A negative aspect of extreme conservatism, IMO, is that the rush to raise capital at $12.50 from institutions was not in the best interest of existing shareholders. In the same situation, Intrum actually bought its own shares.
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