Profit at debt collector Credit Corp ‘to be smashed’ by COVID-19

Payments to debt collector Credit Corp have been smashed by the coronavirus downturn.

A key cause of its pain were customers declining to commit to debt repayment plans amid widespread uncertainty about post-JobKeeper economic conditions.

Debt collector Credit Corp Group has warned it could take a $65m hit to its profit after the coronavirus economic downturn smashed repayments.

Profit has been revised down from $75m-$80m to $10m-$15mn after accounting for ledger impairments and additional provisioning arising from the pandemic.

Credit Corp said it expected to incur a 13.5 per cent reduction in the carrying value of existing debt ledgers.

This is expected to average out to an 18 per cent reduction in collections over the next two years before recovering.

The debt collector noted a key cause of its pain was customers declining to commit to debt repayment plans amid widespread uncertainty about post-JobKeeper economic conditions.

Credit Corp collects 80 per cent of its income from repayment plans, collecting on average $8000 per customer.

 

“This experience is consistent with reported unemployment rates in excess of 10 per cent, after adjusting for changes in workforce participation and the temporary offsetting impact of government support, stimulus measures and private sector forbearance,” the company said in its update.

Short-term repayments to Credit Corp have been boosted by JobKeeper and JobSeeker but the sugar hit of the repayments has masked the cost of the downturn to the debt collector.

Chief executive Thomas Beregi said the people from whom it collected debts were disproportionately affected in an economic downturn.

“They don’t know how long some of those relief measures are going to be in place for, they’re unwilling to commit to making repayments,” he said.

“We’re operating in a scenario where our customer cohort’s part of the economy is in a difficult situation for the next 24 months.”

Renegotiations

In a bid to respond to the dire economic conditions, Credit Corp said it had renegotiated prices for books of unpaid loans from 18 of its 20 major customers.

“We have a very large client in the US where we’ve got discussions there and we haven’t been able to adjust prices,” Mr Beregi said.

“There are ongoing transactions as well which we’re undertaking at reduced prices as well.”

Credit Corp said it expected to take an $11m hit from these “onerous contracts”.

He said despite shutdowns affecting its Philippine, Australian and American operations, Credit Corp had not been able to defer rents or rein in costs.

“I wouldn’t want to say some landlords have been forthcoming and provided us with different alternatives, effectively commercial deals that might involve extending the terms of our lease commitments,” he said.

Mr Beregi said some Philippine staff continued to work from the office thanks to living nearby but for those that could not work from home the business had continued to pay them.

“We’re paying them a component of their wages that enables them to meet their living expenses,” he said.

“We’re doing the best we can in an environment where there is not a highly developed social security safety net.”

Credit Corp carries no net debts and has total undrawn funding lines of $375m which run until 2022-23.

On Monday, the shares rose 1c to close trading at $15.27.