XML 26 R12.htm IDEA: XBRL DOCUMENT v3.10.0.1
Investment in Receivable Portfolios, Net
 12 Months Ended
Dec. 31, 2018
Receivables [Abstract]  
Investment in Receivable Portfolios, Net
Investment in Receivable Portfolios, Net
In accordance with the authoritative guidance for loans and debt securities acquired with deteriorated credit quality, discrete receivable portfolio purchases during the same fiscal quarter are aggregated into pools based on common risk characteristics. Common risk characteristics include risk ratings (e.g. FICO or similar scores), financial asset type, collateral type, size, interest rate, date of origination, term, and geographic location. The Company’s static pools are typically grouped into credit card, purchased consumer bankruptcy, and mortgage portfolios. The Company further groups these static pools by geographic region or location. Portfolios acquired in business combinations are also grouped into these pools. During any fiscal quarter in which the Company has an acquisition of an entity that has portfolio, the entire historical portfolio of the acquired company is aggregated into the pool groups for that quarter, based on common characteristics, resulting in pools for that quarter that may consist of several different vintages of portfolio. Once a static pool is established, the portfolios are permanently assigned to the pool. The discount (i.e., the difference between the cost of each static pool and the related aggregate contractual receivable balance) is not recorded because the Company expects to collect a relatively small percentage of each static pool’s contractual receivable balance. As a result, receivable portfolios are recorded at cost at the time of acquisition. The purchase cost of the portfolios includes certain fees paid to third parties incurred in connection with the direct acquisition of the receivable portfolios.
In compliance with the authoritative guidance, the Company accounts for its investments in receivable portfolios using either the interest method or the cost recovery method. The interest method applies an internal rate of return (“IRR”) to the cost basis of the pool, which remains unchanged throughout the life of the pool, unless there is a significant increase in subsequent expected cash flows. Subsequent increases in expected cash flows are recognized prospectively through an upward adjustment of the pool’s IRR over its remaining life. Subsequent decreases in expected cash flows do not change the IRR but are recognized as an allowance to the cost basis of the pool, and are reflected in the consolidated statements of operations as a reduction in revenue, with a corresponding valuation allowance, offsetting the investment in receivable portfolios in the consolidated statements of financial condition. Due to the discounting of future cashflows using monthly IRRs, an allowance charge could still result even if substantial higher collections occurring later in the collection curve offset lower collections in the near term.
The Company accounts for each static pool as a unit for the economic life of the pool (similar to one loan) for recognition of revenue from receivable portfolios, for collections applied to the cost basis of receivable portfolios and for provision for loss or allowance. Revenue from receivable portfolios is accrued based on each pool’s IRR applied to each pool’s adjusted cost basis. The cost basis of each pool is increased by revenue earned and portfolio allowance reversals and decreased by gross collections and portfolio allowances.
If the amount and timing of future cash collections on a pool of receivables are not reasonably estimable, the Company accounts for such portfolios on the cost recovery method as Cost Recovery Portfolios. The accounts in these portfolios have different risk characteristics than those included in other portfolios acquired during the same quarter, or the necessary information was not available to estimate future cash flows and, accordingly, they were not aggregated with other portfolios. Under the cost recovery method of accounting, no revenue is recognized until the carrying value of a Cost Recovery Portfolio has been fully recovered.
Accretable yield represents the amount of revenue the Company expects to generate over the remaining life of its existing investment in receivable portfolios based on estimated future cash flows. Total accretable yield is the difference between future estimated collections and the current carrying value of a portfolio. All estimated cash flows on portfolios where the cost basis has been fully recovered are classified as zero basis cash flows.
The following table summarizes the Company’s accretable yield and an estimate of zero basis future cash flows at the beginning and end of the period presented (in thousands):
 
Accretable
Yield
 
Estimate of
Zero Basis
Cash Flows
 
Total
Balance at December 31, 2016
$
3,092,004

 
$
365,504

 
$
3,457,508

Revenue from receivable portfolios
(909,239
)
 
(144,134
)
 
(1,053,373
)
Allowance reversals on receivable portfolios, net
(34,294
)
 
(6,942
)
 
(41,236
)
Net additions on existing portfolios
365,357

 
155,160

 
520,517

Additions for current purchases, net
1,019,856

 
—

 
1,019,856

Effect of foreign currency translation
161,385

 
44

 
161,429

Balance at December 31, 2017
3,695,069

 
369,632

 
4,064,701

Revenue from receivable portfolios
(1,041,947
)
 
(125,185
)
 
(1,167,132
)
Allowance reversals on receivable portfolios, net
(32,429
)
 
(9,044
)
 
(41,473
)
Net additions on existing portfolios
144,726

 
18,114

 
162,840

Additions for current purchases, net
1,155,451

 
—

 
1,155,451

Effect of foreign currency translation
(147,699
)
 
(482
)
 
(148,181
)
Balance at December 31, 2018
$
3,773,171

 
$
253,035

 
$
4,026,206


During the year ended December 31, 2018, the Company purchased receivable portfolios with a face value of $8.5 billion for $1.1 billion, or a purchase cost of 13.3% of face value. The estimated future collections at acquisition for all portfolios purchased during the year amounted to $2.3 billion.
During the year ended December 31, 2017, the Company purchased receivable portfolios with a face value of $10.1 billion for $1.1 billion, or a purchase cost of 10.5% of face value. The estimated future collections at acquisition for all portfolios purchased during the year amounted to $2.2 billion.
After the net book value of a portfolio has been fully recovered, all collections are recorded as ZBA revenue. During the years ended December 31, 2018, 2017, and 2016, ZBA revenue was approximately $125.2 million, $144.1 million, and $138.1 million, respectively.
The following tables summarize the changes in the balance of the investment in receivable portfolios during the following periods (in thousands, except percentages):
 
Year Ended December 31, 2018
 
Accrual Basis
Portfolios
 
Cost Recovery
Portfolios
 
Zero Basis
Portfolios
 
Total
Balance, beginning of period
$
2,879,170

 
$
11,443

 
$
—

 
$
2,890,613

Purchases of receivable portfolios
1,131,898

 
—

 
—

 
1,131,898

Disposals or transfers to held for sale
(10,852
)
 
(1,604
)
 
—

 
(12,456
)
Gross collections(1)
(1,832,539
)
 
(1,826
)
 
(133,255
)
 
(1,967,620
)
Put-backs and Recalls(2)
(14,253
)
 
—

 
(176
)
 
(14,429
)
Foreign currency adjustments
(98,298
)
 
(420
)
 
—

 
(98,718
)
Revenue recognized
1,041,947

 
—

 
125,185

 
1,167,132

Portfolio allowance reversals, net
32,429

 
—

 
9,044

 
41,473

Reclassification from prior period
—

 
798

 
(798
)
 
—

Balance, end of period
$
3,129,502

 
$
8,391

 
$
—

 
$
3,137,893

Revenue as a percentage of collections(3)
56.9
%
 
—

 
93.9
%
 
59.3
%
 
Year Ended December 31, 2017
 
Accrual Basis
Portfolios
 
Cost Recovery
Portfolios
 
Zero Basis
Portfolios
 
Total
Balance, beginning of period
$
2,368,366

 
$
14,443

 
$
—

 
$
2,382,809

Purchases of receivable portfolios
1,057,066

 
1,169

 
—

 
1,058,235

Disposals or transfers to held for sale
(12,695
)
 
(493
)
 
—

 
(13,188
)
Gross collections(1)
(1,613,351
)
 
(3,511
)
 
(150,782
)
 
(1,767,644
)
Put-backs and Recalls(2)
(2,577
)
 
—

 
(294
)
 
(2,871
)
Foreign currency adjustments
138,828

 
(165
)
 
—

 
138,663

Revenue recognized
909,239

 
—

 
144,134

 
1,053,373

Portfolio (allowance) reversals, net
34,294

 
—

 
6,942

 
41,236

Balance, end of period
$
2,879,170

 
$
11,443

 
$
—

 
$
2,890,613

Revenue as a percentage of collections(3)
56.4
%
 
—

 
95.6
%
 
59.6
%
 
Year Ended December 31, 2016
 
Accrual Basis
Portfolios
 
Cost Recovery
Portfolios
 
Zero Basis
Portfolios
 
Total
Balance, beginning of period
$
2,436,054

 
$
4,615

 
$
—

 
$
2,440,669

Purchases of receivable portfolios
906,719

 
—

 
—

 
906,719

Transfer of portfolios
(13,076
)
 
13,076

 
—

 
—

Gross collections(1)
(1,538,663
)
 
(2,102
)
 
(144,839
)
 
(1,685,604
)
Put-backs and Recalls(2)
(27,561
)
 
(1,019
)
 
(33
)
 
(28,613
)
Foreign currency adjustments
(196,842
)
 
(127
)
 
(8
)
 
(196,977
)
Revenue recognized
892,732

 
—

 
138,060

 
1,030,792

Portfolio (allowance) reversals, net
(90,997
)
 
—

 
6,820

 
(84,177
)
Balance, end of period
$
2,368,366

 
$
14,443

 
$
—

 
$
2,382,809

Revenue as a percentage of collections(3)
58.0
%
 
—

 
95.3
%
 
61.2
%
________________________
(1)
Does not include amounts collected on behalf of others.
(2)
Put-backs (“Put-Backs”) and recalls (“Recalls”) represent ineligible accounts that are returned by us or recalled by the seller pursuant to specific guidelines as set forth in the respective purchase agreements.
(3)
Revenue as a percentage of collections excludes the effects of net portfolio allowances or net portfolio allowance reversals.
The following table summarizes the change in the valuation allowance for investment in receivable portfolios during the periods presented (in thousands):
 
Valuation
Allowance
Balance at December 31, 2015
$
60,588

Provision for portfolio allowances
94,011

Reversal of prior allowances
(9,834
)
Effect of foreign currency translation
(7,728
)
Balance at December 31, 2016
137,037

Provision for portfolio allowances
12,047

Reversal of prior allowances
(53,283
)
Effect of foreign currency translation
6,775

Balance at December 31, 2017
102,576

Provision for portfolio allowances
14,421

Reversal of prior allowances
(55,894
)
Effect of foreign currency translation
(472
)
Balance at December 31, 2018
$
60,631