Portfolio Recovery Fee for Service Business Thriving Despite Anchor Loss

Bad debt buyer Portfolio Recovery Associates said this week that a key component to its long term growth strategy is increasing the percentage of revenues it derives from its fee-for-service businesses. The company said it was growing those operations even after shuttering its contingency debt collection unit Anchor last month (“Portfolio Recovery Drops Anchor, Shifts Staff,” May 16).

Norfolk, Va.-based Portfolio Recovery (Nasdaq: PRAA) made the remarks in a presentation Wednesday at the William Blair & Company Growth Stock Conference in New York. The company noted that they will “redeploy [Anchor] employees and assets to higher return purchased portfolio business.” But Portfolio Recovery is also gearing up for growth in its more profitable fee-for-service lines.

The company, which makes the vast majority of its money buying debt and collecting it, operates two separate businesses that are fee-based: RDS, which administers revenue and collects debt for government entities, and IGS Nevada, a company that offers collateral-location services for credit originators. PRA acquired RDS in 2005 (“Portfolio Recovery Associates Acquires Government Collections Firm Alatax for $17.5 million,” Aug. 1, 2005) and IGS in 2004 (“Portfolio Recovery Associates Acquires Skip Tracing Firm,” Oct. 4, 2004).

The fee-for-service business has been growing steadily for PRA in the current decade. In 2000, 4 percent of its revenues came from its fee businesses; in 2007 it was 16 percent. For the first quarter of 2008, the company said that 18 percent of its revenues came from fee-for-service work.

PRA reiterated that selective acquisitions would be a part of its growth plan, in addition to strategic hires to expand organically.

Portfolio Recovery also noted that purchased bankruptcy accounts are making up a larger portion of its revenue stream. In the fourth quarter of 2007, 25 percent of its revenues came from bankrupt accounts. In the first quarter of this year, the total had nudged up to around 27 percent. The company said that it started buying bankrupt accounts in 2004.

PRA said that it currently employs 1,750 people at seven offices in Alabama, Kansas, Nevada, Tennessee, Virginia, and the Philippines.