Investment in Receivable Portfolios, Net

3 Months Ended

Mar. 31, 2020

Investment in Receivable Portfolios, Net

As discussed in “Note 1: Ownership, Description of Business, and Summary of Significant Accounting Policies”, effective January 1, 2020, the Company accounts for its investment in receivable portfolios as PCD assets under CECL and changed its accounting policy for reimbursable court costs. As a result, the Company wrote-off the previous Deferred Court Costs balance that represented an undiscounted value of recoverable historic spend as a result of a loss-rate methodology, and established a discounted value of expected future recoveries of these reimbursable court costs, which is included in the beginning balance of the investment in receivable portfolios.

The table below illustrates the Company’s transition approach for its investment in receivable portfolios as of January 1, 2020 (in thousands):


	Amount
Investment in receivable portfolios prior to transition	$	3,283,984
Initial transitioned deferred court costs	44,166
	3,328,150
Allowance for credit losses	79,028,043
Amortized cost	82,356,193
Noncredit discount	132,533,142
Face value	214,889,335
Write-off of amortized cost	(82,356,193)
Write-off of noncredit discount	(132,533,142)
Negative allowance	3,328,150
Initial negative allowance from transition	$	3,328,150

The table below provides the detail on the establishment of negative allowance for expected recoveries of portfolios purchased during the three months ended March 31, 2020 (in thousands):


	Three Months Ended March 31, 2020
Purchase price	$	214,113
Allowance for credit losses	521,194
Amortized cost	735,307
Noncredit discount	967,715
Face value	1,703,022
Write-off of amortized cost	(735,307)
Write-off of noncredit discount	(967,715)
Negative allowance	214,113
Negative allowance for expected recoveries - current period purchases	$	214,113

The following table summarize the changes in the balance of the investment in receivable portfolios during the periods presented (in thousands):


	Three Months Ended March 31,
	2020			2019
Balance, beginning of period	$	3,328,150		$	3,137,893
Purchases of receivable portfolios	214,113			262,335
Put-backs and Recalls	(5,068)			(3,700)
Transfers to assets held for sale	(1,531)			(3,589)
Cash collections	(527,279)			(513,853)
Revenue from receivable portfolios	357,365			311,158
Changes to expected current period recoveries	10,315			—
Changes to expected future period recoveries	(108,976)			—
Portfolios allowance reversal, net	—			1,367
Foreign currency adjustments	(101,071)			19,976
Balance, end of period	$	3,166,018		$	3,211,587
Revenue as a percentage of collections	67.8		%	60.6		%

During the three months ended March 31, 2020, the Company reassessed its future forecasts of expected recoveries of receivable portfolios based on its best estimate of the potential impact arising from the COVID-19 pandemic. The updated forecasts changed the timing of future recoveries by reducing the forecasted cash flows in 2020. The majority of the shortfall in near-term cash flows is expected to be recovered in 2021 and most of the rest of the shortfall is expected to be recovered in subsequent periods. As a result, the change in the total amount of estimated remaining collections (“ERC”) was negligible. The delay in expected future cash flows, when discounted to present-value, resulted in a provision for credit loss adjustment of approximately $109.0 million during the three months ended March 31, 2020. The circumstances around this pandemic are evolving rapidly and will continue to impact the Company’s business and its estimation of expected recoveries in future periods. The Company will continue to monitor the COVID-19 situation closely and update its assumptions accordingly.

Accretable yield represented the amount of revenue on purchased receivable portfolios the Company expects to recognize over the remaining life of its existing portfolios. The following table summarizes the change in accretable yield under the previous accounting guidance during the three months ended March 31, 2019 (in thousands):


	Three Months Ended March 31,
	2019
Balance as of beginning of period	$	4,026,206
Revenue from receivable portfolios	(311,158)
Allowance reversals on receivable portfolios, net	(1,367)
Additions on existing portfolios, net	38,313
Additions for current purchases	285,637
Effect of foreign currency translation	26,461
Balance as of end of period	$	4,064,092

The following table summarizes the change in the valuation allowance for investment in receivable portfolios as accounted for under the previous accounting guidance during the three months ended March 31, 2019 (in thousands):


	Three Months Ended March 31,
	2019
Balance as of beginning of period	$	60,631
Provision for portfolio allowances	2,626
Reversal of prior allowances	(3,993)

Effect of foreign currency translation	164
Balance as of end of period	$	59,428