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Investment in Receivable Portfolios, Net | 9 Months Ended
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Sep. 30, 2015
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 and telecom, purchased consumer bankruptcy, and mortgage portfolios. We further group these static pools by geographic region or location. 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 an 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. The Company utilizes its proprietary forecasting models to continuously evaluate the economic life of each pool. During the quarter ended September 30, 2014, the Company revised the forecasting methodology it uses to value and calculate IRRs on its portfolios in the United States by extending the collection forecasts from 84 or 96 months to 120 months. This change was made as a result of the Company experiencing collections beyond 84 or 96 months and an increased confidence in its ability to forecast future cash collections to 120 months. Extending the collection forecast did not result in a material increase to any quarterly pool group’s IRR or revenue for the quarter. The Company has historically included collections to 120 months in its estimated remaining collection disclosures and when evaluating the economic returns of its portfolio purchases. 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 purchase price 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 (7)
December 31, 2014 | $ | 2,993,321 |  |  | $ | 66,392 |  |  | $ | 3,059,713 |
Revenue recognized, net(1) | (248,539 | ) |  | (15,571 | ) |  | (264,110 | )
Net additions on existing portfolios(2) | 120,729 |  |  | 39,607 |  |  | 160,336 |
Additions for current purchases, net(2) | 85,692 |  |  | — |  |  | 85,692 |
Balance at March 31, 2015 | 2,951,203 |  |  | 90,428 |  |  | 3,041,631 |
Revenue recognized, net(1) | (243,425 | ) |  | (26,876 | ) |  | (270,301 | )
Net additions on existing portfolios(2) | 91,294 |  |  | 74,586 |  |  | 165,880 |
Additions for current purchases, net(2), (3) | 395,032 |  |  | — |  |  | 395,032 |
Balance at June 30, 2015 | 3,194,104 |  |  | 138,138 |  |  | 3,332,242 |
Revenue recognized, net(1) | (233,680 | ) |  | (31,843 | ) |  | (265,523 | )
Net additions on existing portfolios(2), (4) | (3,548 | ) |  | 117,918 |  |  | 114,370 |
Additions for current purchases, net(2) | 149,255 |  |  | — |  |  | 149,255 |
Balance at September 30, 2015 | $ | 3,106,131 |  |  | $ | 224,213 |  |  | $ | 3,330,344 |
| Accretable Yield |  | Estimate of Zero Basis Cash Flows |  | Total (7)
Balance at December 31, 2013 | $ | 2,391,471 |  |  | $ | 8,465 |  |  | $ | 2,399,936 |
Revenue recognized, net(1) | (231,057 | ) |  | (6,511 | ) |  | (237,568 | )
Net additions on existing portfolios(2) | 92,325 |  |  | 8,555 |  |  | 100,880 |
Additions for current purchases, net(2), (5) | 591,205 |  |  | — |  |  | 591,205 |
Balance at March 31, 2014 | 2,843,944 |  |  | 10,509 |  |  | 2,854,453 |
Revenue recognized, net(1) | (241,523 | ) |  | (6,708 | ) |  | (248,231 | )
Net additions on existing portfolios(2) | 80,582 |  |  | 6,135 |  |  | 86,717 |
Additions for current purchases, net(2) | 218,047 |  |  | — |  |  | 218,047 |
Balance at June 30, 2014 | 2,901,050 |  |  | 9,936 |  |  | 2,910,986 |
Revenue recognized, net(1) | (244,561 | ) |  | (7,224 | ) |  | (251,785 | )
Net additions on existing portfolios(2) | 161,622 |  |  | 54,184 |  |  | 215,806 |
Additions for current purchases, net(2), (6) | 179,604 |  |  | — |  |  | 179,604 |
Balance at September 30, 2014 | $ | 2,997,715 |  |  | $ | 56,896 |  |  | $ | 3,054,611 |
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(1) | Revenue recognized on Zero Basis Portfolios includes portfolio allowances and reversals.
(2) | Includes effect of foreign currency translation.
(3) | Includes $216.0 million of portfolios acquired in connection with the dlc Acquisition.
(4) | Includes impact of CFPB settlement of approximately $22.2 million.
(5) | Includes $208.5 million of portfolios acquired in connection with the Marlin Acquisition.
(6) | Includes $105.4 million of portfolios acquired in connection with the Atlantic Acquisition.
(7) | Estimated remaining collections and accretable yield include anticipated collections beyond the 120 month collection forecast for United States portfolios.
During the three months ended September 30, 2015, the Company purchased receivable portfolios with a face value of $2.1 billion for $187.2 million, or a purchase cost of 9.0% of face value. The estimated future collections at acquisition for all portfolios purchased during the quarter amounted to $336.4 million. During the three months ended September 30, 2014, the Company purchased receivable portfolios with a face value of $4.0 billion for $299.5 million, or a purchase cost of 7.5% of face value. Purchases of charged-off credit card portfolios during the three months ended September 30, 2014, include $105.4 million of portfolios acquired in connection with the Atlantic Acquisition. The estimated future collections at acquisition for all portfolios purchased during the quarter amounted to $606.3 million. During the nine months ended September 30, 2015, the Company purchased receivable portfolios with a face value of $8.7 billion for $731.1 million, or a purchase cost of 8.4% of face value. Purchases of charged-off credit card portfolios during the nine months ended September 30, 2015, include $216.0 million of portfolios acquired in connection with the dlc Acquisition. The estimated future collections at acquisition for all portfolios purchased during the period amounted to $1.3 billion. During the nine months ended September 30, 2014, the Company purchased receivable portfolios with a face value of $11.3 billion for $992.8 million, or a purchase cost of 8.8% of face value. Purchases of charged-off credit card portfolios during the nine months ended September 30, 2014, include $208.5 million of portfolios acquired in connection with the Marlin Acquisition and $105.4 million of portfolios acquired in connection with the Atlantic Acquisition. The estimated future collections at acquisition for all portfolios purchased during the period amounted to $2.0 billion. 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 September 30, 2015 and 2014, Zero Basis Revenue was approximately $31.8 million and $7.2 million, respectively. During the nine months ended September 30, 2015 and 2014, Zero Basis Revenue was approximately $74.3 million and $20.4 million, respectively. The following tables summarize the changes in the balance of the investment in receivable portfolios during the following periods (in thousands, except percentag es):
| Three Months Ended September 30, 2015
| Accrual Basis Portfolios |  | Cost Recovery Portfolios |  | Zero Basis Portfolios |  | Total
Balance, beginning of period | $ | 2,343,864 |  |  | $ | 7,903 |  |  | $ | — |  |  | $ | 2,351,767 |
Purchases of receivable portfolios | 187,180 |  |  | — |  |  | — |  |  | 187,180 |
Gross collections(1) | (388,822 | ) |  | (1,126 | ) |  | (31,805 | ) |  | (421,753 | )
Put-backs and Recalls(2) | (5,677 | ) |  | (1 | ) |  | (37 | ) |  | (5,715 | )
Foreign currency adjustments | (52,505 | ) |  | (1,273 | ) |  | — |  |  | (53,778 | )
Revenue recognized | 240,039 |  |  | — |  |  | 28,745 |  |  | 268,784 |
Portfolio (allowance) reversals, net(3) | (6,358 | ) |  | — |  |  | 3,097 |  |  | (3,261 | )
Balance, end of period | $ | 2,317,721 |  |  | $ | 5,503 |  |  | $ | — |  |  | $ | 2,323,224 |
Revenue as a percentage of collections(4) | 61.7 | % |  | 0.0 | % |  | 90.4 | % |  | 63.7 | %
| Three Months Ended September 30, 2014
| Accrual Basis Portfolios |  | Cost Recovery Portfolios |  | Zero Basis Portfolios |  | Total
Balance, beginning of period | $ | 1,978,493 |  |  | $ | 9,492 |  |  | $ | — |  |  | $ | 1,987,985 |
Purchases of receivable portfolios(5) | 297,800 |  |  | 1,709 |  |  | — |  |  | 299,509 |
Transfer of portfolios | (11,519 | ) |  | 11,519 |  |  | — |  |  | — |
Gross collections(1) | (395,945 | ) |  | (4,056 | ) |  | (7,219 | ) |  | (407,220 | )
Put-backs and Recalls(2) | (1,530 | ) |  | (9 | ) |  | (5 | ) |  | (1,544 | )
Foreign currency adjustments | (55,869 | ) |  | (1,414 | ) |  | — |  |  | (57,283 | )
Revenue recognized | 241,502 |  |  | — |  |  | 4,480 |  |  | 245,982 |
Portfolio allowance reversals, net | 3,059 |  |  | — |  |  | 2,744 |  |  | 5,803 |
Balance, end of period | $ | 2,055,991 |  |  | $ | 17,241 |  |  | $ | — |  |  | $ | 2,073,232 |
Revenue as a percentage of collections(4) | 61.0 | % |  | 0.0 | % |  | 62.1 | % |  | 60.4 | %
| Nine Months Ended September 30, 2015
| Accrual Basis Portfolios |  | Cost Recovery Portfolios |  | Zero Basis Portfolios |  | Total
Balance, beginning of period | $ | 2,131,084 |  |  | $ | 12,476 |  |  | $ | — |  |  | $ | 2,143,560 |
Purchases of receivable portfolios(6) | 731,114 |  |  | — |  |  | — |  |  | 731,114 |
Gross collections(1) | (1,205,717 | ) |  | (4,351 | ) |  | (74,080 | ) |  | (1,284,148 | )
Put-backs and Recalls(2) | (9,652 | ) |  | (20 | ) |  | (229 | ) |  | (9,901 | )
Foreign currency adjustments | (54,753 | ) |  | (2,602 | ) |  | 20 |  |  | (57,335 | )
Revenue recognized | 731,196 |  |  | — |  |  | 64,780 |  |  | 795,976 |
Portfolio (allowance) reversals, net(3) | (5,551 | ) |  | — |  |  | 9,509 |  |  | 3,958 |
Balance, end of period | $ | 2,317,721 |  |  | $ | 5,503 |  |  | $ | — |  |  | $ | 2,323,224 |
Revenue as a percentage of collections(4) | 60.6 | % |  | 0.0 | % |  | 87.4 | % |  | 62.0 | %
| Nine Months Ended September 30, 2014
| Accrual Basis Portfolios |  | Cost Recovery Portfolios |  | Zero Basis Portfolios |  | Total
Balance, beginning of period | $ | 1,585,587 |  |  | $ | 4,662 |  |  | $ | — |  |  | $ | 1,590,249 |
Purchases of receivable portfolios(5), (7) | 991,127 |  |  | 1,709 |  |  | — |  |  | 992,836 |
Transfer of portfolios | (18,682 | ) |  | 18,682 |  |  | — |  |  | — |
Gross collections(1) | (1,186,431 | ) |  | (6,305 | ) |  | (20,438 | ) |  | (1,213,174 | )
Put-backs and Recalls(2) | (10,353 | ) |  | (412 | ) |  | (5 | ) |  | (10,770 | )
Foreign currency adjustments | (22,398 | ) |  | (1,095 | ) |  | — |  |  | (23,493 | )
Revenue recognized | 713,656 |  |  | — |  |  | 11,473 |  |  | 725,129 |
Portfolio allowance reversals, net | 3,485 |  |  | — |  |  | 8,970 |  |  | 12,455 |
Balance, end of period | $ | 2,055,991 |  |  | $ | 17,241 |  |  | $ | — |  |  | $ | 2,073,232 |
Revenue as a percentage of collections(4) | 60.2 | % |  | 0.0 | % |  | 56.1 | % |  | 59.8 | %
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(1) | Does not include amounts collected on behalf of others.
(2) | Put-backs represent accounts that are returned to the seller in accordance with the respective purchase agreement (“Put-Backs”). Recalls represent accounts that are recalled by the seller in accordance with the respective purchase agreement (“Recalls”).
(3) | Portfolio allowance reversal, net includes a portfolio allowance of $8.3 million related to the CFPB settlement as discussed in Note 13, “Commitments and Contingencies.”
(4) | Revenue as a percentage of collections excludes the effects of net portfolio allowances or net portfolio allowance reversals.
(5) | Includes $105.4 million acquired in connection with the Atlantic Acquisition in August 2014.
(6) | Includes $216.0 million acquired in connection with the dlc Acquisition in June 2015.
(7) | Includes $208.5 million acquired in connection with the Marlin Acquisition in February 2014.
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 September 30, |  | Nine Months Ended September 30,
| 2015 |  | 2014 |  | 2015 |  | 2014
Balance at beginning of period | $ | 68,454 |  |  | $ | 86,428 |  |  | $ | 75,673 |  |  | $ | 93,080 |
Provision for portfolio allowances | 8,322 |  |  | — |  |  | 8,322 |  |  | — |
Reversal of prior allowances | (5,061 | ) |  | (5,803 | ) |  | (12,280 | ) |  | (12,455 | )
Balance at end of period | $ | 71,715 |  |  | $ | 80,625 |  |  | $ | 71,715 |  |  | $ | 80,625 |

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- Definition The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=49124121&loc=d3e5066-111524 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.3,4) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 50 -Paragraph 11 -URI http://asc.fasb.org/extlink&oid=49124121&loc=d3e5162-111524 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(k)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=49124121&loc=d3e5074-111524 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 03 -Paragraph 7 -Article 9 + Details
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