Asta Whittling Down $7 billion Portfolio

Investors continue to closely watch debt purchaser Asta Funding after its buy of a massive $6.9 billion portfolio in the first quarter this year for $300 million ("Asta Completes $6.9 billion Portfolio Purchase," 3/6), notes John H. Neff in his recent “Collection Insight Quarterly.” Neff, an analyst with investment manager William Blair & Co. in Chicago, follows the publicly traded debt purchasing industry.

The purchase took some observers by surprise considering Asta (NASDAQ: ASFI), had “spent $200 million on portfolio purchases during all of its fiscal 2006,” writes Neff. 

The purchase caused Englewood Cliffs, N.J.-based Asta’s net debt per share to rise from $6.95 on Dec. 31, 2006, to $25.12 at the end of the first quarter of 2007. Neff credits Asta for working that down to $21.87 net debt per share at the end of the second quarter, however that remains very high compared with its major debt purchasing rivals.

The net debt per share at the end of the second quarter was $1.43 for Portfolio Recovery Associates (NASDAQ: PRAA), for Encore Capital (NASDAQ: ECPG) it was $9.58, and for Asset Acceptance (NASDAQ: AACC) it was $2.22, by Neff’s calculations. 

“Asta Funding has become, with $21.87 in net debt per share, more than 2 times the net debt of Encore Capital, almost 10 times the net debt of Asset Acceptance, and more than 15 times the net debt of Portfolio Recovery.” 

As one of the largest debt purchasers, Asta’s strategic decision to invest $300 million in a single portfolio has impacted the rest of the industry, according to Neff.

During its fiscal third quarter this year, Asta spent “$15.6 million on portfolio purchases, a quarter of what was spent in the first quarter ($62.3 million) and less than half of the purchase price of portfolios during third quarter 2006 ($34.2 million). This should benefit the remaining players who will face that much less competition for portfolios until Asta has digested this large purchase.” 

Neff has an “outperform” rating on Portfolio Recovery and a “market perform” rating on Asset Acceptance. He follows Encore and Asta but doesn’t rate the companies.