Buyers of charged-off consumer debt say they are cautious about making purchases — for now.
When discussing first-quarter results, several of the publicly traded companies in this business spoke of restrained purchasing to later take advantage of downward-trending debt prices. At least one of them said that would remain the case this quarter.
"We carefully controlled our levels of purchasing in the first quarter and expect to do so again in the second quarter in order to free up capital to purchase at what we expect will be more advantageous pricing in the second half of 2009 and early 2010," said Mark Redman, the chief financial officer at Asset Acceptance Capital Corp. in Warren, Mich.
Asset Acceptance spent $22.1 million in the first quarter to buy charged-off consumer debt portfolios with a face value of $747.8 million, for a blended rate of 2.95 cents on the dollar.
A year earlier, Asset Acceptance had spent $22 million to buy debt with a face value of $542.8 million, for a blended rate of 4.06 cents on the dollar.
Similarly, Gary Stern, the chairman and chief executive officer of Asta Funding Inc. in Englewood Cliffs, N.J., told analysts last month, "In the near term our focus will remain to continue [lowering] debt levels while being highly selective as to purchases in this environment."
Though Asta's purchases were "low" during its fiscal second quarter, which ended March 31, Stern said, in April it identified "some attractive opportunities" and acquired portfolios with a face value of roughly $64.2 million at a cost of $3.7 million.
Brandon Black, the president and CEO of Encore Capital Group, agreed that "while the supply of charged-off credit card debt has reached a historically high level, the number of well-capitalized consumer debt buyers is shrinking and portfolio prices are trending down."
Encore Capital, a San Diego debt buyer, invested $55.9 million last quarter to purchase debt with a face value of $1.3 billion, compared with a $47.9 million investment in debt with a face value of $1.2 billion a year earlier.
Portfolio Recovery Associates Inc., a Norfolk, Va., debt purchaser, paid $52 million to acquire 87 portfolios from 19 different sellers during the first quarter. The face value of the purchased accounts totaled $961 million.
Bottom-line results for these companies have been mixed.
Asta's net loss narrowed to $5.2 million for its fiscal second quarter, from a $7.7 million loss a year earlier. Encore's profit jumped 32.4%, to $9 million, last quarter. But Asset Acceptance's profits dropped 32.4% from a year earlier, to $4.6 million last quarter, and Portfolio Recovery Associates' earnings fell 15.1%, to $10.1 million. At NCO Group Inc. of Horsham, Pa., which gets most of its revenue from collecting bad debt on behalf of other creditors, the debt-buying unit swung to a loss of $774,000, from a $1.6 million profit.