{ On the upside . thank you for your previous answer to me regarding position size . By cutting my position in half this has been a lot less painful } ...
A charge-off is when a loan has been delinquent and the lender has gone through the steps and determines they will not be able to collect the outstanding loan amounts. These loans are essentially 'written off'.
GSY found that their Lendcare business, which was purcased in 2021, has an amount of loans focused on auto and powersports that they will not be able to collect on. This is the focus of the charge offs.
Lendcare is a big part of their business and the mid-teen charge off rate on their loan book (of $5.5 bln) equates to roughly $825 mln.
As part of these businesses (GSY's) operations they will have debt from financial institutions that they use to lend to the end customer. The institutional lenders have covenants that companies like GSY need to meet and follow such as leverage ratios, lending standards and so on. If you are in breach, you can tchnically be called on your loans which would create very serious problems for GSY. Of course, no one involved really wants to go down this path and working through the problem is almost always the better solution. So, they sign additional agreements that essentially allows GSY to be in breach of covenants for a certain amount of time. Over time, as GSY works through the Lendcare issues, they will work to also be back onside with their covenants.