Portfolio Recovery Expands Credit - Analyst Blog

Yesterday, Portfolio Recovery Associates Inc. (PRAA) announced the expansion of its credit facility to $407.5 million from $365 million, according to the new four-year credit agreement effective December 20, 2010. The revolving credit is part of the existing credit facility of $365 million was scheduled to expire in May 2011.

Accordingly, the new credit facility comprises a revolving credit facility of $357.5 million that is supposed to mature on December 20, 2014 and a $50 million fixed rate term loan, scheduled to mature on May 4, 2012. Further, the revolving facility will automatically be increased by $50 million upon the maturity of the fixed rate term loan.

The new credit facility will be jointly arranged and managed by Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Securities LLC. Besides, Bank of America N.A. of Bank of America Corp. (BAC) is the administrative agent and Wells Fargo Bank N.A. of Wells Fargo & Co. (WFC) is the syndication agent. Sun Trust Bank Inc. (STI) is the documentation agent of the new credit facility.

Earnings Recap

Portfolio Recovery's third quarter operating earnings of $1.08 per share surpassed the Zacks Consensus Estimate of $1.05 and the year-ago earnings of 65 cents per share. The strong earnings were primarily driven by higher-than-expected top-line growth attributable to continuous improvement in core call center and legal collections.

Moreover, investments in bankruptcy portfolios continued to mature, which in turn helped surmount the weak economy and add significant investments in the legal pipeline. Portfolio Recovery's total revenue increased 39% year over year to $95.5 million, exceeding the Zacks Consensus Estimate of $90.0 million.

Cash collections jumped 49% year over year to $137.4 million. However, consumer collections continued to remain sluggish owing to seasonal weakness.

Portfolio Recovery exited the third quarter with net repayments of $1.0 million on its line of credit. As of September 30, 2010, Portfolio Recovery had $76.5 million available under its line of credit.

 

Moreover, Portfolio Recovery's long-term investments are also benefiting the core portfolio, while also helping the company overcome the economic volatility. Besides, the new credit facility has further enhanced the company's liquidity auguring well for Portfolio Recovery's expansion plans for long-term growth.

 

We maintain a Neutral recommendation on the stock with a Zacks #3 Rank. The Zacks Consensus Estimate for the fourth quarter currently stands at $1.12 per share. This would be about 39.6% higher than the year-ago results.

 
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