Credit Corp shares smashed as US debt repayments shrink
Shares in Australian debt collecting giant Credit Corp have slumped almost a third after the company took a tumble on chasing money owed in the US.
Sydney-based Credit Corp has a sizeable US operation and more Americans were dumping debt repayment plans, the company said on Wednesday.
“It’s one of the risks in our business”: Credit Corp CEO Thomas Beregi.
That squeezed forecast earnings by $10 million this year and sliced into the perceived value of how much it might recoup from big ledgers of US debt acquired in the past two years.
The impairment charge equates to $45 million, lopping 14 per cent off the book value of such ledger assets.
The warning shocked investors because the US had been considered a growth market for Credit Corp, and the overall company was considered to have more reliable earnings among listed debt collectors. Credit Corp shares fell $5.69, or 33 per cent, to $11.54 in Wednesday trading.
Debt collectors such as Credit Corp can earn profits by buying slabs of debts from credit-card companies or utilities at a discount and then reaping more than they paid. But it takes a hit to those ledgers’ value if collection projections deteriorate.
Chief executive Thomas Beregi told The Australian Financial Review that in hindsight it probably means the company had paid too much for the ledgers.
But he said if conditions had remained similar to when they were bought then such a write-down would not have come. “It’s one of the risks in our business: that environment can change,” he said.
He argued the positive side was that ledgers for sale now would be at cheaper prices.
Credit Corp in August had flagged that more people in the US were dumping repayment plans and on Wednesday said these conditions had continued
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