Chesswood COVID-19 Update: June Collections Up, Bank Facility Amended
JUN 24, 2020 - 6:44 am
Chesswood Group (Chesswood), a North American commercial equipment finance provider for small and medium-sized businesses, provided an update on the effects of COVID-19 on its business and banking activities.
Chesswood’s U.S. businesses, Pawnee Leasing and Tandem Finance, finished May month-end with a total of 5,028 accounts (27% of accounts) having received some form of payment accommodation. Most of these accounts received a two-month deferral of payments, to be made up in the future. These deferrals, provided at the onset of the pandemic, are no longer available.
In Canada, the pattern has been very similar for Blue Chip Leasing but with a significantly lower percentage of payment accommodation (15% of its accounts). Blue Chip is now engaged with customers that received payment accommodation as they return to their payment schedules.
On a case-by-case basis, some borrowers in the U.S. and Canada will receive transitional accommodation as they reopen their businesses and return to their payment schedules.
In both countries, portfolio data shows that payment accommodations were evenly distributed among customers, regardless of credit profile.
The U.S. and Canadian businesses have each drafted automatic payments twice in June, as they always do. While these results are very recent and for just the one month, Pawnee, Tandem and Blue Chip have seen strong levels of resumed payment compliance by customers that had been given accommodations. Customers that did not have payment accommodations made payments at traditional levels.
More specifically, more than 90% of Pawnee and Tandem accommodated customers scheduled to pay in June by automatic debit made their payments. Most customers pay through this method. Other customers that make payment by cheque or other means, in the remaining days of June, will enhance the amount collected by month-end.
“We are focused on managing payment terms with our customers to minimize losses, while taking a consultative approach with each customer that received a payment accommodation” Barry Shafran, president and CEO of Chesswood, said. “We look forward to returning to our full originations tempo, once portfolio performance is normalized.”
As businesses begin returning to operations – particularly in the U.S. – Chesswood’s customer service and collection teams are working with customers that received accommodations for the process of resuming their scheduled payments.
These discussions take place on a case-by-case basis. In small-ticket equipment finance, the best opportunity to mitigate potential future loss is by working directly with the customer. Chesswood’s collection teams are already accustomed to taking this approach with some near-prime customers in normal operating environments as a fundamental way to mitigate loss.
Almost 75% of the company’s U.S. customers have been making their payments and did not seek payment accommodations, while 85% of customers in Canada did not seek any payment relief.
Chesswood continues to expect modest new business originations in the near term, especially in the U.S., as underwriting standards remain stringent and in accordance with the COVID-19 related amendments to the company’s revolving credit facility (see below).
In addition to approximately $20 million (CDN) of cash on hand, Chesswood’s businesses have been generating positive operating cash flow each month since the onset of COVID-19, with significantly reduced originations. The company took steps to maximize monthly cash flows by reductions in management, board and other compensation in early April and suspension of its dividend in May. These steps generated expense and cash flow savings.
As described in a May 13 press release, Chesswood temporarily halted new originations in the U.S., to settle upon appropriate COVID-19 related amendments to its revolving facility and has now resumed originations. The terms of this recent amendment limit originations in the U.S. to the moderate levels which were contemplated in the company’s annual MD&A filed in March while the effects of COVID-19 begin to appear and pass through its business.
While not in violation of any banking covenants, Chesswood approached all of its lenders in the early days of the onset of the pandemic in anticipation of future stress on the covenants to reach mutually acceptable terms for managing through these unprecedented circumstances.
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