UPDATE 2-Jackson Hewitt gets 80 pct RAL funding, shares soar

Fri Dec 10, 2010 11:57am EST

* Plans to secure new covenant waiver by Dec. 17

* Says has 80 pct of funding for RAL program

* Q2 adj loss/shr $0.66 vs est $0.74 loss/shr

* Shares soar 35 percent (Adds background, conference call details; updates shares)

Dec 10 (Reuters) - Jackson Hewitt Tax Service Inc JTX.N said it could fund 80 percent of its refund anticipation loan (RAL) program and would secure a longer-term covenant waiver with its lenders, sending the company's shares up 35 percent.

Jackson Hewitt said it amended an agreement with its RAL funder Republic Bank & Trust Co, a unit of Republic Bancorp Inc (RBCAA.O), allowing it to allocate RAL funds to offices based on volume, thereby covering 80 percent of anticipated funding requirements for the 2011 tax season.

For most of 2010, the company has struggled to fully fund its RAL program, putting it at risk of defaulting on credit agreements, which depend on it having 100 percent funding.

The No. 2 U.S. tax preparer last received a covenant waiver on Nov. 19 extending the date by which it must submit its RAL funding documents to Dec. 17. [ID:nWNAB4322]

On a conference call, the company said it would not get 100 percent RAL coverage for 2011, and expects to obtain a longer-term waiver to amend RAL funding conditions by Dec. 17.

The company, which competes with larger rival H&R Block Inc (HRB.N), said on Thursday it secured full coverage for its assisted refund product that targets people who might otherwise not be able to afford its services. [ID:nSGE6B80B1]

The coverage and funding of its loan and assisted refund products gives Jackson Hewitt a competitive advantage over H&R Block, whose RAL funding is in doubt as it sues its funding provider HSBC USA, a unit of HSBC (HSBA.L). [ID:nSGE69H0L1]

"I would expect if Block does not have RALs we will benefit," a company executive said on the conference call.

For the 2010 tax season, H&R Block had expected to benefit from Jackson Hewitt's inability to secure full funding.

RALs, which usually last 7-14 days until taxpayers receive their refunds from the U.S. Internal Revenue Service (IRS), are highly profitable for tax preparers.

However, these loans have come under fire from consumer groups over concerns that high U.S. unemployment is forcing people to borrow short-term at high rates. This has led banks like JPMorgan Chase & Co (JPM.N), which used to fund independent tax preparers' RALs, to stop funding these loans.

In August, RAL programs were hit when the IRS said it would stop issuing a "debt indicator" -- which indicates how much a tax preparer can lend to its customer safely.

Jackson Hewitt also posted a narrower-than-expected second-quarter loss on Friday. [ID:nASA018AP]

The Parsippany, New Jersey-based Jackson Hewitt's shares, which rose nearly 34 percent on Thursday after it secured full assisted refund coverage, climbed another 35 percent to $1.48 on Friday morning. They were trading at $1.46 midday on the New York Stock Exchange.

H&R Block's shares were down about 1 percent at $12.98. (Reporting by Jochelle Mendonca in Bangalore; Editing by Roshni Menon)

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Comments (1)
K.Allen1969 wrote:
This article is an example of inaccurate reporting. The statement that RALs, which usually last 7-14 days until taxpayers receive their refunds from the U.S. Internal Revenue Service (IRS)” is TOTALLY false!” This is the definition for an ERC (Electronic Refund Check) which is basically a wire transfer issuing the persons refund after Federal Review and final approval by the IRS and FMS (Federal Management Service) to insure there is no federally secured debt that needs to be taken from the refund amount.

RAL’s are Refund Anticipation Loans which are paid out anywhere from 24 to 48 hours after a tax return is filed electronically and the IRS gives a tentative review. THIS is what is under fire by federal authorities, because if the IRS decides to disallow deductions, the taxpayer must pay back whatever amount they were given in the RAL at a high interest rate.

With the error in this reporting, I wonder if Jackson Hewitt has RALs or ERCs? At this moment, Liberty Tax is the ONLY major tax service with 100% funding for RALs and ERCs for the upcoming tax season.

Dec 11, 2010 8:49am EST  --  Report as abuse
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