West Posts Loss for ARM Unit on $19.8 million Impairment Charge

West Corporation said late Wednesday that its accounts receivable management unit, West Asset Management (WAM), reported a loss of $9.9 million in the second quarter of 2008.

The loss for the quarter compared to operating income of $13.7 million in the second quarter of 2007, a decline of 172.7 percent. The WAM unit saw revenues decline 31.7 percent in the quarter to $50.3 million, as it was forced to take a $19.8 million impairment charge on portfolios it purchased prior to 2008. The company took an impairment charge of $24.2 million in the first quarter of 2008.

West said in a press release that the “impairment was due to reduced second quarter liquidation rates resulting from weaker economic conditions for consumers which resulted in a collection environment that was more difficult than expected.” CEO Tom Barker further explained the difficulty in portfolio liquidation on a conference call with investors Thursday morning.

“It’s taking more time to collect from a consumer,” said Barker. “At the same time, clients are demanding more as they are squeezed on cash flow.

“We anticipated some lift [in collections] from the Federal [stimulus] checks, but we didn’t see it.”

West also said that it had entered into a new credit agreement with a private lender to guarantee $3 million per month for the purpose of purchasing debt portfolios in its WAM unit. The lender is Gary and Mary West, founders of West Corp. Barker noted that the company was also actively seeking other funding sources.

The new credit facility comes as the company’s previous funding relationship with CarVal winds down. WAM announced last quarter that CarVal – a unit of Cargill Financial Services – was trying to change the terms of its credit agreement, changes that would have been detrimental to WAM (“WAM to Reduce Debt Buying in 2008 Over Funding Flap,” April 18).

Paul Mendlik, West’s CFO, noted that the new credit agreement is “somewhat similar to the agreements with CarVal in the past.”

Barker said that while portfolio pricing had come down, the company expects to purchase less debt over the remainder of 2008. He said that WAM debt purchasing levels were “around half” of that they were a year ago. He also noted that CarVal will continue to fund purchases under forward flow agreements “for a time.”