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Investment in Receivable Portfolios, Net
 6 Months Ended
Jun. 30, 2019
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 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 substantially 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 or 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, 2018
$
3,773,171

 
$
253,035

 
$
4,026,206

Revenue from receivable portfolios
(285,255
)
 
(25,903
)
 
(311,158
)
Allowance (reversals) on receivable portfolios, net
900

 
(2,267
)
 
(1,367
)
Additions (reductions) on existing portfolios, net
38,512

 
(199
)
 
38,313

Additions for current purchases
285,637

 
—

 
285,637

Effect of foreign currency translation
26,244

 
217

 
26,461

Balance at March 31, 2019
$
3,839,209

 
$
224,883

 
$
4,064,092

Revenue from receivable portfolios
(285,562
)
 
(26,933
)
 
(312,495
)
Allowance (reversals) on receivable portfolios, net
255

 
(2,318
)
 
(2,063
)
Additions (reductions) on existing portfolios, net
113,074

 
32,285

 
145,359

Additions for current purchases
277,556

 
—

 
277,556

Effect of foreign currency translation
(46,492
)
 
(34
)
 
(46,526
)
Balance at June 30, 2019
$
3,898,040

 
$
227,883

 
$
4,125,923

 
Accretable
Yield
 
Estimate of
Zero Basis
Cash Flows
 
Total
Balance at December 31, 2017
$
3,695,069

 
$
369,632

 
$
4,064,701

Revenue from receivable portfolios
(249,821
)
 
(31,188
)
 
(281,009
)
Allowance (reversals) on receivable portfolios, net
(8,082
)
 
(1,729
)
 
(9,811
)
Additions (reductions) on existing portfolios, net
(24,945
)
 
(39,529
)
 
(64,474
)
Additions for current purchases
285,172

 
—

 
285,172

Effect of foreign currency translation
57,577

 
643

 
58,220

Balance at March 31, 2018
$
3,754,970

 
$
297,829

 
$
4,052,799

Revenue from receivable portfolios
(258,698
)
 
(33,964
)
 
(292,662
)
Allowance (reversals) on receivable portfolios, net
(15,411
)
 
(2,221
)
 
(17,632
)
Additions (reductions) on existing portfolios, net
136,267

 
5,824

 
142,091

Additions for current purchases
345,006

 
—

 
345,006

Effect of foreign currency translation
(97,448
)
 
(597
)
 
(98,045
)
Balance at June 30, 2018
$
3,864,686

 
$
266,871

 
$
4,131,557


During the three months ended June 30, 2019, the Company purchased receivable portfolios with a face value of $2.3 billion for $242.7 million, or a purchase price of 10.5% of face value. The estimated future collections at acquisition for all portfolios purchased during the three months ended June 30, 2019 amounted to $520.3 million. During the three months ended June 30, 2018, the Company purchased receivable portfolios with a face value of $2.9 billion for $359.6 million, or a purchase price of 12.5% of face value. The estimated future collections at acquisition for all portfolios purchased during the three months ended June 30, 2018 amounted to $704.4 million.
During the six months ended June 30, 2019, the Company purchased receivable portfolios with a face value of $4.0 billion for $505.0 million, or a purchase price of 12.5% of face value. The estimated future collections at acquisition for all portfolios purchased during the six months ended June 30, 2019 amounted to $1,068.2 million. During the six months ended June 30, 2018, the Company purchased receivable portfolios with a face value of $4.7 billion for $636.3 million, or a purchase price of 13.6% of face value. The estimated future collections at acquisition for all portfolios purchased during the three months ended June 30, 2018 amounted to $1,260.6 million.
All collections realized after the net book value of a portfolio has been fully recovered (“Zero Basis Portfolios”) are recorded as revenue (“Zero Basis Revenue”). During the three months ended June 30, 2019 and 2018, Zero Basis Revenue was approximately $26.9 million and $34.0 million, respectively. During the three months ended June 30, 2019 and 2018, allowance reversals on Zero Basis Portfolios were $2.3 million and $2.2 million, respectively.
During the six months ended June 30, 2019 and 2018, Zero Basis Revenue was approximately $52.8 million and $65.2 million, respectively. During the six months ended June 30, 2019 and 2018, allowance reversals on Zero Basis Portfolios were $4.6 million and $4.0 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):
 
Three Months Ended June 30, 2019
 
Accrual Basis
Portfolios
 
Cost Recovery
Portfolios
 
Zero Basis
Portfolios
 
Total
Balance, beginning of period
$
3,203,892

 
$
7,695

 
$
—

 
$
3,211,587

Purchases of receivable portfolios
242,697

 
—

 
—

 
242,697

Transfer of portfolios(4)
(78,980
)
 
78,980

 
—

 
—

Transfers to assets held for sale
(813
)
 
(1,514
)
 
—

 
(2,327
)
Collections on receivable portfolios (1)
(484,018
)
 
(1,615
)
 
(29,248
)
 
(514,881
)
Put-Backs and Recalls(2)
(1,392
)
 
—

 
(3
)
 
(1,395
)
Foreign currency adjustments
(26,756
)
 
1,085

 
—

 
(25,671
)
Revenue recognized
285,562

 
—

 
26,933

 
312,495

Portfolio (allowance) reversals, net
(255
)
 
—

 
2,318

 
2,063

Balance, end of period
$
3,139,937

 
$
84,631

 
$
—

 
$
3,224,568

Revenue as a percentage of collections(3)
59.0
%
 
0.0
%
 
92.1
%
 
60.7
%
 
Three Months Ended June 30, 2018
 
Accrual Basis
Portfolios
 
Cost Recovery
Portfolios
 
Zero Basis
Portfolios
 
Total
Balance, beginning of period
$
3,013,519

 
$
10,622

 
$
—

 
$
3,024,141

Purchases of receivable portfolios
359,580

 
—

 
—

 
359,580

Transfers to assets held for sale
(2,033
)
 
(262
)
 
—

 
(2,295
)
Collections on receivable portfolios (1)
(460,478
)
 
(252
)
 
(35,363
)
 
(496,093
)
Put-Backs and Recalls(2)
(8,484
)
 
—

 
(24
)
 
(8,508
)
Foreign currency adjustments
(101,921
)
 
(577
)
 
—

 
(102,498
)
Revenue recognized
258,698

 
—

 
33,964

 
292,662

Reclassification adjustment(5)
—

 
798

 
(798
)
 
—

Portfolio allowance reversals, net
15,411

 
—

 
2,221

 
17,632

Balance, end of period
$
3,074,292

 
$
10,329

 
$
—

 
$
3,084,621

Revenue as a percentage of collections(3)
56.2
%
 
0.0
%
 
96.0
%
 
59.0
%
________________________
(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 effect of net portfolio allowances or net portfolio allowance reversals.
(4)
Represents all portfolios in Mexico, which were transferred from accrual basis portfolios to cost recovery portfolios as the timing of future collections were determined to not be currently reasonably estimable due to the changing political and economic conditions in Mexico.
(5)
Reclassification relating to certain Zero Basis Revenue that was classified as collections in cost recovery portfolios in prior periods.

 
Six Months Ended June 30, 2019
 
Accrual Basis
Portfolios
 
Cost Recovery
Portfolios
 
Zero Basis
Portfolios
 
Total
Balance, beginning of period
$
3,129,502

 
$
8,391

 
$
—

 
$
3,137,893

Purchases of receivable portfolios
505,032

 
—

 
—

 
505,032

Transfer of portfolios(5)
(78,980
)
 
78,980

 
—

 
—

Transfers to assets held for sale
(3,958
)
 
(1,958
)
 
—

 
(5,916
)
Collections on receivable portfolios (1)
(969,616
)
 
(1,706
)
 
(57,412
)
 
(1,028,734
)
Put-Backs and Recalls(2)
(5,086
)
 
—

 
(9
)
 
(5,095
)
Foreign currency adjustments
(6,619
)
 
924

 
—

 
(5,695
)
Revenue recognized
570,817

 
—

 
52,836

 
623,653

Portfolio (allowance) reversals, net
(1,155
)
 
—

 
4,585

 
3,430

Balance, end of period
$
3,139,937

 
$
84,631

 
$
—

 
$
3,224,568

Revenue as a percentage of collections(4)
58.9
%
 
0.0
%
 
92.0
%
 
60.6
%
 
Six Months Ended June 30, 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
636,342

 
—

 
—

 
636,342

Transfers to assets held for sale
(5,105
)
 
(262
)
 
—

 
(5,367
)
Collections on receivable portfolios (1)
(915,621
)
 
(1,423
)
 
(68,151
)
 
(985,195
)
Put-Backs and Recalls(2)
(12,175
)
 
—

 
(153
)
 
(12,328
)
Foreign currency adjustments
(40,331
)
 
(227
)
 
—

 
(40,558
)
Revenue recognized
508,519

 
—

 
65,152

 
573,671

Reclassification adjustment(3)
—

 
798

 
(798
)
 
—

Portfolio allowance reversals, net
23,493

 
—

 
3,950

 
27,443

Balance, end of period
$
3,074,292

 
$
10,329

 
$
—

 
$
3,084,621

Revenue as a percentage of collections(4)
55.5
%
 
0.0
%
 
95.6
%
 
58.2
%
________________________
(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)
Reclassification relating to certain Zero Basis Revenue that was classified as collections in cost recovery portfolios in prior periods.
(4)
Revenue as a percentage of collections excludes the effect of net portfolio allowances or net portfolio allowance reversals.
(5)
Represents all portfolios in Mexico, which were transferred from accrual basis portfolios to cost recovery portfolios as the timing of future collections were determined to not be currently reasonably estimable, due to the changing political and economic conditions in Mexico.
The following table summarizes the change in the valuation allowance for investment in receivable portfolios during the periods presented (in thousands):
 
Valuation Allowance
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Balance at beginning of period
$
59,428

 
$
94,317

 
$
60,631

 
$
102,576

Provision for portfolio allowances
1,089

 
1,720

 
3,715

 
2,660

Reversal of prior allowances
(3,152
)
 
(19,352
)
 
(7,145
)
 
(30,103
)
Effect of foreign currency translation
(161
)
 
(1,556
)
 
3

 
(4
)
Balance at end of period
$
57,204

 
$
75,129

 
$
57,204

 
$
75,129