CheckSmart Files for an IPO
Community Choice Holdings, the parent company of payday lender Check$mart, says that it will seek to make an initial public offering of its stock.
The news gives a glimpse into the operations of the company. Check$mart says that prepaid “is one of our fastest growing businesses.” They have 95,000 prepaid accounts. Although the application form for the prepaid card does not disclose it, the card is issued by both First California Bank and Urban Trust Bank. Check$mart generated more than 8.7 million in fees from its cards in just the six month period ending on June 30th, 2011. That is approximately one-fourth of the fees the firm generates from check cashing. Moreover, as Check$mart says, the prepaid card business is growing very quickly. Fees from cards increased 229 percent over the same period in 2010. Check cashing fees, by contrast, grew by just 18 percent.
The data also reveals some of the basic facts about their business:
The average loan size is about $420 and the average fee for each loan is $45. Left unsaid is how often a loan is rolled over. Loans are not always “rolled-over,” but when they are it is often the case that customers take about six loan periods to get out from under the debt. In that instance, a $420 would net Check$mart $270 in fees.
Check$mart makes about $16 for every check that they cash. I am surprised by the size of these checks. The average check brought to the company has a value of $462.
Loan volume has picked up after a period of little or no growth. The company made 11.4 percent more short-term consumer loans for the six months ending in June 2011 compared to the same time last year.
People pay back their debts. The company sets aside one dollar for every forty dollars that it loans out against potential losses. This is less, by far, than the provisions made by Capital One (or other companies in the same segment) for its credit cards.
The company took on more than $200 million in debt in the last year. The company issued $395 million in new debt in April. They used that money to retire about $190 million in outstanding debt. The debt had a yield of 10.75 percent.
