RE:RE:RE:RE:RE:Better lock it in!!TickerTwit wrote: The charge-offs occuring now represent money that will not return to CHW, and there are more charge-offs coming. CHW may come out of COVID with a healthier market to operate in (small businesses surviving COVID might be far less risky than Pawnee's current customers), but I'm waiting to see how much damage the balance sheet ultimately suffers before buying back in.
They do get a good portion of their written off "bad loans" back each quarter though. It varies from quarter to quarter, but they do get back around 33%.
So the increase in bad debt on origination during COVID-19 (they do write off an amount for the duration of the loan) will likely not materialize fully over the course of the loan considering that economic conditions will likely improve from when they did those.
Lastly, since they already write off at origination a good amount of "future non-payments" even though the debtor isn't late on payments, there are already future losses baked in the balance sheet from origination. Unlike other business, the charge-offs don't just reflect the past, they also anticipate the future to create a reserve for forward non-payments. Ie: If they loan 100k, that means at the moment of the loan, they put a 10k charge for bad debt, even if at origination the business they lend money to is current on payments. Going forward, if the business pays 90k on the 100k loan at the end (5 years down the road), the extra 10k was already written off 5 years before and won't incur a charge or affect the balance sheet. If they recover 100k, then they'll have a credit recovery which will boost the balance sheet. They'd have to recover less than 90k to incur further bad debt charges.