ECPG Q2 2024: US Collections at 2.3x, $1.2B Credit Facility Secured
- Robust Collection Multiples: The Q&A highlighted a U.S. vintage collection multiple of 2.3x and a Europe multiple of 2.1x, underlining the strength of collection performance despite minor fluctuations from previous quarters.
- Ample Funding Availability: Management confirmed that the global credit facility remains fully committed at $1.2 billion, ensuring sufficient liquidity to capitalize on high-return opportunities in the U.S. market.
- Stable Consumer Behavior and Efficient Collections: Executives emphasized that U.S. consumer payment behavior continues to be stable with consistent collections, while legal collections remain controlled (around 35%–36% for MCM), which supports ongoing growth in cash generation and earnings.
- Declining U.S. Collections Multiples: The Q&A revealed that the U.S. collections multiple decreased from 2.4x to 2.3x, which could signal modest weakness in the underlying portfolio performance.
- Uncertainty in Future Interest Expense: Management declined to quantify interest expense guidance for 2025, reflecting uncertainty about future funding costs if market interest rates shift.
- Potential Vulnerability to Vintage and Consumer Behavior Shifts: While executives downplayed significant vintage differences, they acknowledged minor volatility in performance versus forecast. This leaves the company mildly exposed to any broader deterioration in consumer payment behavior or vintage performance that could impact collections.
-
Collections Multiples
Q: What are the US and UK multiples?
A: Management reported year-to-date collections multiples of 2.3x for the US and 2.1x for Europe, noting the US number is down slightly from 2.4x but still reflects strong, like-for-like returns despite product mix differences. -
Funding Capacity
Q: How available is your credit facility?
A: They confirmed that the facility is fully committed, with $1.2 billion available to deploy capital where returns are most attractive. -
Interest Expense
Q: What is the outlook on interest expense next year?
A: Management did not quantify next year’s interest expense, stating that current trends are expected to continue if interest rates remain stable. -
Consumer Stability & Funding Flexibility
Q: Are consumer payments and funding limits stable in the US?
A: Management noted that US consumer payment behavior remains stable, and there are no restrictions from the global credit facility, allowing flexible allocation to high-return US opportunities. -
Legal Expenses
Q: How are legal collections affecting performance?
A: Increased legal collections expenses in the US MCM business, averaging around 35–36%, are seen as a natural outcome of higher purchasing, with overall performance remaining solid. -
Vintage Differences
Q: Were there any notable vintage differences?
A: Management observed only minor vintage impacts, which they consider as routine forecasting noise without major concerns.
Research analysts covering ENCORE CAPITAL GROUP.