Asta Funding Reports Quarterly Loss on $35 million Impairment Charge

Bad debt buyer Asta Funding reported Monday it lost $7.7 million in its fiscal second quarter as it took a $30.3 million charge on a $6.9 billion debt portfolio purchased last year (“Asta Completes $6.9 billion Portfolio Purchase,” March 6, 2007).

Englewood Cliffs, N.J.-based Asta Funding, Inc.’s (Nasdaq: ASFI) net loss in the first three calendar months of 2008 amounted to 54 cents per share. Analysts surveyed by Thompson Financial anticipated earnings north of 70 cents per share. In the year ago period Asta reported net income of $12.6 million, or 85 cents per share.

Revenues were up 4 percent in the quarter to $33.9 million, but net cash collections on purchased portfolios fell to $44.9 million, a 28 percent decrease from the $62.2 million in the same period a year ago. For the first six months of Asta’s 2008 fiscal year, net cash collections on purchased portfolios is down 8.7 percent compared to 2007. Gross collections for the first half Asta’s fiscal year are down 8.4 percent compared to the same time a year ago.

In a filing with the U.S. Securities and Exchange Commission Monday, Asta said that the sharp decline in net cash collections was due primarily to a shift in collection strategy. The company is focusing more on the legal collections channel and the ramp-up has driven collections costs – commissions and fees to third-parties – up nearly 20 percent in the first half of 2008. Asta said the increases are being driven by its $6.9 billion portfolio purchase last year as it pays higher than expected up front court costs.

Asta reported that it took a total of $35 million in impairment charges in the quarter, up from the $2.4 million in impairments it took in Q2 2007. Of the impairments, $30.3 million were assigned to the $6.9 billion portfolio. The remaining $4.7 million in impairments were on five other portfolios, according to the SEC filing.

Gary Stern, Asta’s president and CEO, said in a press release, "With regard to our large portfolio purchase, consummated a little over a year ago, our actual collections were slower than our original expectations. ... This is a result of a variety of factors, including the effects of the economic downturn."

Earlier this month, Mark Hughes, who covers Asta for SunTrust Robinson Humphrey, foretold the large impairment in an investment note, writing that Asta was examining its evaluation of the large portfolio "which could mean a large impairment charge," ("Asta Funding Gets Loan from Controlling Stern Family; Shares Tank," May 2).

Investors reacted unevenly to the news, sending Asta’s stock down more than 2 percent in early trading Tuesday to around $8.30 per share.

Audrey Snell, an analyst that covers Asta’s stock for Kaufman Bros., reiterated her “Hold” rating on the shares in a research note Tuesday. “While we think the risk/reward has deteriorated as a result of poor collections on its largest portfolio purchase, we think the stock is too cheap to sell at these levels,” according to Snell.

Asta did not announce a conference call for investors in its release Monday, but Stern did comment, "We plan on having an investor day and hope to announce a date and details in the near future."