XML 25 R12.htm IDEA: XBRL DOCUMENT v3.24.2.u1
Investment in Receivable Portfolios, Net
 6 Months Ended
Jun. 30, 2024
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. 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):
June 30, 2024December 31, 2023
Amortized cost$— $— 
Negative allowance for expected recoveries3,583,322 3,468,432 
Balance, end of period$3,583,322 $3,468,432 
The following table summarizes the changes in the balance of investment in receivable portfolios, net during the periods presented (in thousands):
Three Months Ended
June 30,		Six Months Ended
June 30,
2024202320242023
Balance, beginning of period$3,531,387 $3,214,792 $3,468,432 $3,088,261 
Negative allowance for expected recoveries - current period purchases(1)
278,692 274,325 574,406 550,756 
Collections applied to investment in receivable portfolios, net (2)
(224,798)(175,338)(419,833)(342,020)
Changes in recoveries (3)
5,754 (3,486)(6,655)(12,987)
Put-backs and recalls
(3,099)(4,229)(7,446)(6,035)
Disposals and transfers to real estate owned(1,053)(5,139)(3,098)(6,244)
Foreign currency translation adjustments(3,561)30,061 (22,484)59,255 
Balance, end of period$3,583,322 $3,330,986 $3,583,322 $3,330,986 
_______________________
(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
June 30,		Six Months Ended
June 30,
2024202320242023
Purchase price$278,692 $274,325 $574,406 $550,756 
Allowance for credit losses649,642 690,501 1,294,156 1,350,145 
Amortized cost928,334 964,826 1,868,562 1,900,901 
Noncredit discount1,211,961 1,049,233 2,467,754 2,054,454 
Face value2,140,295 2,014,059 4,336,316 3,955,355 
Write-off of amortized cost(928,334)(964,826)(1,868,562)(1,900,901)
Write-off of noncredit discount(1,211,961)(1,049,233)(2,467,754)(2,054,454)
Negative allowance278,692 274,325 574,406 550,756 
Negative allowance for expected recoveries - current period purchases$278,692 $274,325 $574,406 $550,756 
(2)Collections applied to investment in receivable portfolios, net, is calculated as follows during the periods presented:
Three Months Ended
June 30,		Six Months Ended
June 30,
2024202320242023
Cash Collections$546,728 $476,522 $1,057,615 $938,878 
Less - amounts classified to revenue from receivable portfolios(321,930)(301,184)(637,782)(596,858)
Collections applied to investment in receivable portfolios, net$224,798 $175,338 $419,833 $342,020 
(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
June 30,		Six Months Ended
June 30,
2024202320242023
Recoveries above (below) forecast
$27,443 $(477)$28,296 $(15,835)
Changes in expected future recoveries(21,689)(3,009)(34,951)2,848 
Changes in recoveries$5,754 $(3,486)$(6,655)$(12,987)
Recoveries above or below forecast represent over and under-performance in the reporting period, respectively. Collections during the three and six months ended June 30, 2024, over-performed the forecasted collections by approximately $27.4 million and $28.3 million, respectively. Collections during the three and six months ended June 30, 2023, under-performed the forecasted collections by approximately $0.5 million and $15.8 million, respectively.
When reassessing the forecasts of expected lifetime recoveries during the three and six months ended June 30, 2024, management considered, among other factors, historical and current collection performance, changes in consumer behavior, and the macroeconomic environment. Management believes that most of the current period collections over-performance was due to changes in timing of the estimated remaining collections, and therefore reduced the respective estimated remaining collections accordingly. These reductions, when discounted to present value, resulted in a net negative change in expected future recoveries of approximately $21.7 million, and $35.0 million for the three and six months ended June 30, 2024, respectively. During the three and six months ended June 30, 2023, the Company recorded approximately $3.0 million in net negative change and $2.8 million in net positive change in expected future period recoveries, respectively.