The Collection House Limited (ASX: CLH) share price has plunged almost 63% after returning to trading.
Collection House is/was one of the largest debt collector businesses on the ASX.
The recapitalisation
Collection House announced today that it has successfully completed its recapitalisation process.
The company said that it generated $148.50 million of proceeds from the sale of purchased debt ledgers (PDLs). It accessed another $15 million from a working capital loan facility and $55.2 million from new senior debt facilities. The total funds raised were $218.7 million.
Collection House will use $197.2 million to repay existing senior debt facilities, $6.2 million will be used for refinancing and restructuring costs and the final $15.3 million will be used for general corporate purchases.
The total consideration for the PDL portfolio was determined at the transaction cut off date of 30 September 2020. The purchaser was entitled to cash received from the PDL portfolio between 1 October 2020 and the settlement date of 31 December 2020, net of an adjustment equivalent to an arms length collection fee.
Collection House is also entitled to a maximum of $15 million additional consideration from the purchaser over an eight year period, dependent of the performance of the PDL assets. A further consideration of approximately $3 million to $4 million may be obtained from accounts excluded from the PDL portfolio at the time of settlement and is expected to be received in January 2021. These funds will be used to reduce the company’s new senior debt facilities.
The deal to sell the PDL assets to Credit Corp Group Limited (ASX: CCP) has attracted the attention of the ACCC and Collection House has responded to an inquiry. Collection House said it will continue to help the ACCC with any further inquiries.
Summary thoughts
Collection House is going through a tough time at the moment. I’m not sure if the company will be able to fully recover, or at least it could take many years.
The company expects to have a capital light, high return on equity servicing model which will mean it can create a sustainable and predictable operation for shareholders.
I’m not looking to buy shares today, the deal still hasn’t been approved by the ACCC. There are other ASX shares that could be worth buying instead. For starters, Credit Corp could be a better buy. In the financial sector, I’d rather buy shares of Magellan Financial Group Ltd (ASX: MFG).
