Debt-buying giant PRA Group, based in Norfolk, Va., has seen negative operating leverage in recent years because of the effects of the global economy, according to Zacks Investment Research. 

Operating expenses have risen, weighing on margins. Also, an unfavorable jury verdict in May could increase expenses and dampen operating margins going forward. In that case, a Jackson County, Mo. jury awarded a Kansas City woman $251,000 in damages and assessed $82 million in punitive damages against Portfolio Recovery Associates, a PRA Group subsidiary that sued her for a debt she said was not hers.  PRA Group in recent quarters has seen an increase in borrowing costs and an increase in leverage, resulting in higher interest expenses. The first nine months of this year were no exception and Zacks reports increased borrowings have led to deterioration in financial leverage, which might make the company more vulnerable to adverse economic conditions or industry hazards.  Still, PRA Group’s inorganic growth initiatives have helped it expand beyond its core debt collection business into government collections, audit services and claims settlement. Moreover, both cash collections and collector productivity (cash collections per hour paid) continue to be at record highs as efficiency builds at PRA Group’s operating call centers and the company continues to hire new collectors, according to Zacks. The company’s bottom line has shown some improvement over the past few years. The company also has made key investments in new debt portfolios in the U.S. and the U.K.  A strong balance sheet helps the company invest in an improving portfolio of acquired accounts in North America and Europe. Any streak of deal wins and portfolio acquisitions helps stimulate future collection activity and can strengthen the supply and pricing chain for the firm.
But it remains a question just how much the Missouri jury verdict will impact the company. In the case, Maria Guadalupe Mejia Alcantara learned in 2013 that she was being sued for not paying a credit card debt of $1,130.14. Gina Chiala, Alcantara’s attorney, said the punitive damages assessment of $82 million was meant to send a message not only to the company but to others that she said often attempt to collect debts without supporting documentation. Chiala's firm, Slough Connealy Irwin & Madden, began representing Alcantara more than two years ago. The firm filed counterclaims for violation of the Fair Debt Collection Practices Act and malicious prosecution. In October 2014, the case was decided by a judge in Alcantara’s favor. The judge found that the defendant had engaged in bad-faith conduct and discovery abuse. It was the subsequent jury trial held to determine damages that concluded in May. 


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