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Investment in Receivable Portfolios, Net
 9 Months Ended
Sep. 30, 2023
Receivables [Abstract]  
Investment in Receivable Portfolios, Net Investment in Receivable Portfolios, Net
The Company’s purchased portfolios of loans are grossed-up to their face value with an offsetting allowance and noncredit discount allocated to the individual receivables as the unit of account is at the individual loan level. Since each loan is deeply delinquent and deemed uncollectible at the individual loan level, the Company applies its charge-off policy and fully writes-off the amortized costs (i.e., face value net of noncredit discount) of the individual receivables immediately after purchasing the portfolio. The Company then records a negative allowance that represents the present value of all expected future recoveries for pools of receivables that share similar risk characteristics using a discounted cash flow approach, which ultimately equals the amount paid for a portfolio purchase and presented as “Investment in receivable portfolios, net” in the Company’s condensed consolidated statements of financial condition. The discount rate is an effective interest rate (or “purchase EIR”) based on the purchase price of the portfolio and the expected future cash flows at the time of purchase.
Receivable portfolio purchases are aggregated into pools based on similar risk characteristics. Examples of risk characteristics include 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 location. Once a pool is established, the portfolios will remain in the designated pool unless the underlying risk characteristics change, which is not expected due to the delinquent nature of the individual loans. The purchase EIR of a pool will not change over the life of the pool even if expected future cash flows change.
Revenue is recognized for each static pool over the economic life of the pool. Debt purchasing revenue includes two components:
(1)     Revenue from receivable portfolios, which is the accretion of the discount on the negative allowance due to the passage of time (generally the portfolio balance multiplied by the EIR) and also includes all revenue from zero basis portfolio (“ZBA”) collections, and
(2)     Changes in recoveries, which includes
(a)     Recoveries above or below forecast, which is the difference between (i) actual cash collected/recovered during the current period and (ii) expected cash recoveries for the current period, which generally represents over or under performance for the period; and
(b)     Changes in expected future recoveries, which is the present value change of expected future recoveries, where such change generally results from (i) collections “pulled forward from” or “pushed out to” future periods (i.e. amounts either collected early or expected to be collected later) and (ii) magnitude and timing changes to estimates of expected future collections (which can be increases or decreases).
The Company measures expected future recoveries based on historical experience, current conditions, reasonable and supportable forecasts, and other quantitative and qualitative factors. Factors that may change the expected future recoveries may include both internal as well as external factors. Internal factors include operational performance, such as capacity and the productivity of the Company’s collection staff. External factors include new laws or regulations, new interpretations of existing laws or regulations, and macroeconomic conditions. The Company continues to reassess its expected future recoveries in each reporting period.
Investment in receivable portfolios, net consists of the following as of the dates presented (in thousands):
September 30, 2023
December 31, 2022
Amortized cost$— $— 
Negative allowance for expected recoveries3,320,544 3,088,261 
Balance, end of period$3,320,544 $3,088,261 
The following table summarizes the changes in the balance of investment in receivable portfolios, net during the periods presented (in thousands):
Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
Balance, beginning of period$3,330,986 $3,035,123 $3,088,261 $3,065,553 
Negative allowance for expected recoveries - current period purchases(1)
230,559 232,652 781,315 575,164 
Collections applied to investment in receivable portfolios, net (2)
(162,652)(161,037)(504,672)(567,775)
Changes in recoveries (3)
(17,067)(13,080)(30,054)179,293 
Put-backs and recalls
(3,179)(1,552)(9,214)(6,132)
Disposals and transfers to real estate owned(3,314)(3,035)(9,558)(6,867)
Foreign currency translation adjustments(54,789)(112,869)4,466 (263,034)
Balance, end of period$3,320,544 $2,976,202 $3,320,544 $2,976,202 
_______________________
(1)The table below provides the detail on the establishment of negative allowance for expected recoveries of portfolios purchased during the periods presented:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
Purchase price$230,559 $232,652 $781,315 $575,164 
Allowance for credit losses666,915 608,708 2,017,060 1,727,826 
Amortized cost897,474 841,360 2,798,375 2,302,990 
Noncredit discount1,171,383 834,468 3,225,837 2,398,775 
Face value2,068,857 1,675,828 6,024,212 4,701,765 
Write-off of amortized cost(897,474)(841,360)(2,798,375)(2,302,990)
Write-off of noncredit discount(1,171,383)(834,468)(3,225,837)(2,398,775)
Negative allowance230,559 232,652 781,315 575,164 
Negative allowance for expected recoveries - current period purchases$230,559 $232,652 $781,315 $575,164 
(2)Collections applied to investment in receivable portfolios, net, is calculated as follows during the periods presented:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
Cash Collections$465,339 $458,256 $1,404,217 $1,475,381 
Less - amounts classified to revenue from receivable portfolios(302,687)(297,219)(899,545)(907,606)
Collections applied to investment in receivable portfolios, net$162,652 $161,037 $504,672 $567,775 
(3)Changes in recoveries is calculated as follows during the periods presented, where recoveries include cash collections, put-backs and recalls, and other cash-based adjustments:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
Recoveries (below) above forecast$(4,274)$(4,880)$(20,109)$51,407 
Changes in expected future recoveries(12,793)(8,200)(9,945)127,886 
Changes in recoveries$(17,067)$(13,080)$(30,054)$179,293 
Recoveries above or below forecast represent over and under-performance in the reporting period, respectively. Collections during the three and nine months ended September 30, 2023, under-performed the forecasted collections by approximately $4.3 million and $20.1 million, respectively. The under-performance was primarily attributable to shifts in the timing of collections for recent U.S. vintages as consumers transitioned back to more normalized payment behavior.
When reassessing the forecasts of expected lifetime recoveries during the three months ended September 30, 2023, management considered, among other factors, historical and current collection performance, changes in consumer behavior, and the macroeconomic environment and believes that forecasted collections for certain static pools resulted in decreased total expected recoveries. As a result, the Company has updated its forecast, resulting in changes in the timing and amount of total estimated remaining collections which in turn, when discounted to present value, resulted in a net negative change in expected future recoveries of approximately $12.8 million for the three months ended September 30, 2023. This negative change in expected future recoveries, together with the net positive changes of approximately $2.9 million recorded in the first half of the year, resulted in a net negative change of expected future recoveries of $9.9 million for the nine months ended September 30, 2023. During the three and nine months ended September 30, 2022, the Company recorded approximately $8.2 million in net negative change and $127.9 million in net positive change in expected future period recoveries, respectively.