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PRA Group
PRAA
#6604
Rank
$0.68 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$17.50
Share price
1.51%
Change (1 day)
-15.13%
Change (1 year)
๐Ÿ’ณ Financial services
Categories
  1. PRA Group
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2021 Q1

PRA Group - 10-Q quarterly report FY2021 Q1


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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2021
☐ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ________ to ________
Commission File Number: 000-50058
PRA Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware75-3078675
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)

120 Corporate Boulevard
Norfolk, Virginia 23502
(Address of principal executive offices)

(888) 772-7326
(Registrant's Telephone No., including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par value per sharePRAANASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  þ   No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  þ   No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer  þ   Accelerated filer  ¨   Non-accelerated filer  ¨   Smaller reporting company  ☐ Emerging growth company  ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐   No  þ

The number of shares of the registrant's common stock outstanding as of May 5, 2021 was 45,799,855.


Table of Contents

Item 1.
3
Consolidated Balance Sheets
3
Consolidated Income Statements
4
Consolidated Statements of Comprehensive Income/(Loss)
5
Consolidated Statement of Changes in Equity
6
Consolidated Statements of Cash Flows
7
Notes to Consolidated Financial Statements
8
1. Organization and Business
8
2. Change in Accounting Principle
9
          3. Finance Receivables, net
9
          4. Investments
12
5. Goodwill
12
          6. Leases
13
          7. Borrowings
14
          8. Derivatives
17
          9. Fair Value
18
10. Accumulated Other Comprehensive Loss
21
          11. Earnings per Share
21
          12. Income Taxes
22
22
14. Recently Issued Accounting Standards
23
Item 2.
25
Item 3.
44
Item 4.
45
Item 1.
46
Item 1A.
46
Item 2.
46
Item 3.
46
Item 4.
46
Item 5.
46
Item 6.
46
Signatures
47
2

Part I. Financial Information
Item 1. Financial Statements (Unaudited)
PRA Group, Inc.
Consolidated Balance Sheets
March 31, 2021 and December 31, 2020
(Amounts in thousands)
(unaudited)
March 31,
2021		December 31,
2020
Assets
Cash and cash equivalents$92,798 $108,613 
Restricted cash16,057 12,434 
Investments54,682 55,759 
Finance receivables, net3,372,666 3,514,788 
Other receivables, net3,223 13,194 
Income taxes receivable27,246 21,928 
Deferred tax assets, net72,523 83,205 
Right-of-use assets50,839 52,951 
Property and equipment, net56,825 58,356 
Goodwill492,751 492,989 
Other assets38,920 38,844 
Total assets$4,278,530 $4,453,061 
Liabilities and Equity
Liabilities:
Accounts payable$4,817 $5,294 
Accrued expenses76,684 97,320 
Income taxes payable31,853 29,692 
Deferred tax liabilities, net39,739 40,867 
Lease liabilities55,322 57,348 
Interest-bearing deposits124,998 132,739 
Borrowings2,501,133 2,661,289 
Other liabilities40,755 54,986 
Total liabilities2,875,301 3,079,535 
Equity:
Preferred stock, $0.01 par value, 2,000 shares authorized, no shares issued and outstanding— — 
Common stock, $0.01 par value, 100,000 shares authorized, 45,799 shares issued and outstanding at March 31, 2021; 100,000 shares authorized, 45,585 shares issued and outstanding at December 31, 2020458 456 
Additional paid-in capital47,236 75,282 
Retained earnings1,582,384 1,511,970 
Accumulated other comprehensive loss(253,576)(245,791)
Total stockholders' equity - PRA Group, Inc.1,376,502 1,341,917 
Noncontrolling interest26,727 31,609 
Total equity1,403,229 1,373,526 
Total liabilities and equity$4,278,530 $4,453,061 
The accompanying notes are an integral part of these Consolidated Financial Statements.
3

PRA Group, Inc.
Consolidated Income Statements
For the three months ended March 31, 2021 and 2020
(unaudited)
(Amounts in thousands, except per share amounts)
Three Months Ended March 31,
20212020
Revenues:
Portfolio income$231,672 $262,022 
Changes in expected recoveries50,136 (12,816)
Fee income2,181 2,209 
Other revenue5,480 369 
Total revenues289,469 251,784 
Operating expenses:
Compensation and employee services73,984 75,171 
Legal collection fees12,926 14,572 
Legal collection costs21,312 34,447 
Agency fees15,591 13,376 
Outside fees and services20,760 19,394 
Communication12,663 13,511 
Rent and occupancy4,480 4,484 
Depreciation and amortization3,981 4,084 
Other operating expenses13,018 12,205 
Total operating expenses178,715 191,244 
   Income from operations110,754 60,540 
Other income and (expense):
Interest expense, net(31,552)(37,211)
Foreign exchange (loss)/gain(26)2,283 
Other26 (76)
Income before income taxes79,202 25,536 
Income tax expense17,322 3,100 
Net income61,880 22,436 
Adjustment for net income attributable to noncontrolling interests3,474 3,301 
Net income attributable to PRA Group, Inc.$58,406 $19,135 
Net income per common share attributable to PRA Group, Inc.:
Basic$1.28 $0.42 
Diluted$1.27 $0.42 
Weighted average number of shares outstanding:
Basic45,669 45,452 
Diluted46,045 45,784 
The accompanying notes are an integral part of these Consolidated Financial Statements.
4

PRA Group, Inc.
Consolidated Statements of Comprehensive Income/(Loss)
For the three months ended March 31, 2021 and 2020
(unaudited)
(Amounts in thousands)
Three Months Ended March 31,
20212020
Net income$61,880 $22,436 
Other comprehensive income/(loss), net of tax:
Currency translation adjustments(24,531)(108,076)
Cash flow hedges12,323 (20,568)
Debt securities available-for-sale— 170 
Other comprehensive loss(12,208)(128,474)
Total comprehensive income/(loss)49,672 (106,038)
Less comprehensive loss attributable to noncontrolling interests(950)(10,574)
Comprehensive income/(loss) attributable to PRA Group, Inc.$50,622 $(95,464)
The accompanying notes are an integral part of these Consolidated Financial Statements.
5

PRA Group, Inc.
Consolidated Statements of Changes in Equity
For the three months ended March 31, 2021 and 2020
(unaudited)
(Amounts in thousands)

Common StockAdditional Paid-InRetainedAccumulated Other ComprehensiveNoncontrollingTotal
SharesAmountCapitalEarnings(Loss)InterestEquity
Balance at December 31, 202045,585 $456 $75,282 $1,511,970 $(245,791)$31,609 $1,373,526 
Effect of change in accounting principle (1)
— — (26,697)12,008 — — (14,689)
Balance at January 1, 202145,585 456 48,585 1,523,978 (245,791)31,609 1,358,837 
Components of comprehensive income, net of tax:
Net income— — — 58,406 — 3,474 61,880 
Currency translation adjustments— — — — (20,108)(4,423)(24,531)
Cash flow hedges— — — — 12,323 — 12,323 
Distributions to noncontrolling interest— — — — — (3,933)(3,933)
Vesting of restricted stock214 2 (2)— — — — 
Share-based compensation expense— — 4,113 — — — 4,113 
Employee stock relinquished for payment of taxes— — (5,460)— — — (5,460)
Balance at March 31, 202145,799 $458 $47,236 $1,582,384 $(253,576)$26,727 $1,403,229 
Common StockAdditional Paid-InRetainedAccumulated Other ComprehensiveNoncontrollingTotal
SharesAmountCapitalEarnings(Loss)InterestEquity
Balance at December 31, 201945,416 $454 $67,321 $1,362,631 $(261,018)$57,625 $1,227,013 
Components of comprehensive income, net of tax:
Net income— — — 19,135 — 3,301 22,436 
Currency translation adjustments— — — — (94,201)(13,875)(108,076)
Cash flow hedges— — — — (20,568)— (20,568)
Debt securities available-for-sale— — — — 170 — 170 
Vesting of restricted stock124 1 — — — — 1 
Share-based compensation expense— — 2,857 — — — 2,857 
Employee stock relinquished for payment of taxes— — (3,157)— — — (3,157)
Balance at March 31, 202045,540 $455 $67,021 $1,381,766 $(375,617)$47,051 $1,120,676 

(1) Refer to Note 2 for further detail.

The accompanying notes are an integral part of these Consolidated Financial Statements.

6

PRA Group, Inc.
Consolidated Statements of Cash Flows
For the three months ended March 31, 2021 and 2020
(unaudited)
(Amounts in thousands)
Three Months Ended March 31,
20212020
Cash flows from operating activities:
Net income$61,880 $22,436 
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation expense4,113 2,857 
Depreciation and amortization3,981 4,084 
Amortization of debt discount and issuance costs2,256 5,857 
Changes in expected recoveries(50,136)12,816 
Deferred income taxes10,371 (12,755)
Net unrealized foreign currency transactions2,134 24,873 
Fair value in earnings for equity securities(107)(7,566)
Other(419)(135)
Changes in operating assets and liabilities:
Other assets670 (1,242)
Other receivables, net10,043 (545)
Accounts payable(431)221 
Income taxes payable, net(3,669)3,835 
Accrued expenses(20,227)(8,990)
Other liabilities(336)994 
Right of use asset/lease liability85 66 
Net cash provided by operating activities20,208 46,806 
Cash flows from investing activities:
Purchases of property and equipment, net(2,366)(7,639)
Purchases of finance receivables(159,328)(271,845)
Recoveries applied to negative allowance328,559 236,656 
Proceeds from sales and maturities of investments764 648 
Business acquisition, net of cash acquired(647)— 
Net cash provided by/(used in) investing activities166,982 (42,180)
Cash flows from financing activities:
Proceeds from lines of credit45,369 315,118 
Principal payments on lines of credit(226,621)(227,459)
Principal payments on long-term debt(2,500)(2,500)
Payments of origination cost and fees(113)(8,203)
Tax withholdings related to share-based payments(5,460)(3,156)
Distributions paid to noncontrolling interest(3,933)— 
Net increase/(decrease) in interest-bearing deposits303 (1,658)
Net cash (used in)/provided by financing activities(192,955)72,142 
Effect of exchange rate on cash(6,427)(16,575)
Net (decrease)/increase in cash, cash equivalents and restricted cash(12,192)60,193 
Cash, cash equivalents and restricted cash beginning of period121,047 123,807 
Cash, cash equivalents and restricted cash, end of period$108,855 $184,000 
Supplemental disclosure of cash flow information:
Cash paid for interest$32,622 $30,502 
Cash paid for income taxes10,463 12,100 
The accompanying notes are an integral part of these Consolidated Financial Statements.
7
PRA Group, Inc.
Notes to Consolidated Financial Statements

1. Organization and Business:
As used herein, the terms "PRA Group," the "Company," or similar terms refer to PRA Group, Inc. and its subsidiaries.
PRA Group, Inc., a Delaware corporation, is a global financial and business services company with operations in the Americas, Europe and Australia. The Company's primary business is the purchase, collection and management of portfolios of nonperforming loans. The Company also provides fee-based services on class action claims recoveries and by servicing consumer bankruptcy accounts in the United States ("U.S.").
Basis of presentation: The Consolidated Financial Statements of the Company are prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). The accompanying interim financial statements have been prepared in accordance with the instructions for Quarterly Reports on Form 10-Q and, therefore, do not include all information and Notes to the Consolidated Financial Statements necessary for a complete presentation of financial position, results of operations, comprehensive income/(loss) and cash flows in conformity with GAAP. In the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair presentation of the Company's Consolidated Balance Sheets as of March 31, 2021 and its Consolidated Income Statements, Statements of Comprehensive Income/(Loss), Statements of Changes in Equity and Statements of Cash Flows for the three months ended March 31, 2021 and 2020, have been included. The Company's Consolidated Income Statements for the three months ended March 31, 2021 may not be indicative of future results.
These unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 (the "2020 Form 10-K").
Consolidation: The Consolidated Financial Statements include the accounts of PRA Group and other entities in which the Company has a controlling interest. All significant intercompany accounts and transactions have been eliminated.
Entities in which the Company has a controlling financial interest, through ownership of the majority of the entities’ voting equity interests, or through other contractual rights that give the Company control, consist of entities which purchase and collect on portfolios of nonperforming loans.
Investments in companies in which the Company has significant influence over operating and financing decisions, but does not own a majority of the voting equity interests, are accounted for in accordance with the equity method of accounting, which requires the Company to recognize its proportionate share of the entity’s net earnings. These investments are included in Other assets, with income or loss included in Other revenue.
The Company performs on-going reassessments of whether changes in the facts and circumstances regarding the Company’s involvement with an entity cause the Company’s consolidation conclusion to change.
Segments: Under the guidance of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") ASC Topic 280 "Segment Reporting" ("ASC 280"), the Company has determined that it has several operating segments that meet the aggregation criteria of ASC 280, and, therefore, it has one reportable segment, accounts receivable management. This conclusion is based on similarities among the operating units, including economic characteristics, the nature of the products and services, the nature of the production processes, the types or class of customer for their products and services, the methods used to distribute their products and services and the nature of the regulatory environment.
The following table shows the amount of revenue generated for the three months ended March 31, 2021 and 2020, and long-lived assets held at March 31, 2021 and 2020, both for the U.S., the Company's country of domicile, and outside of the U.S. (amounts in thousands):
As of and for theAs of and for the
Three Months Ended March 31, 2021Three Months Ended March 31, 2020
Revenues (2)
Long-Lived Assets
Revenues (2)
Long-Lived Assets
United States$178,181 $96,630 $153,335 $115,053 
United Kingdom48,177 2,269 36,340 3,076 
Other (1)
63,111 8,765 62,109 8,408 
Total$289,469 $107,664 $251,784 $126,537 
(1) None of the countries included in "Other" comprise greater than 10% of the Company's consolidated revenues or long-lived assets.
(2) Based on the Company’s financial statement information used to produce the Company's general-purpose financial statements, it is impracticable to report further breakdowns of revenues from external customers by product or service.
8
PRA Group, Inc.
Notes to Consolidated Financial Statements
Revenues are attributed to countries based on the location of the related operations. Long-lived assets consist of net property and equipment and right-of-use assets. The Company reports revenues earned from collection activities on nonperforming loans, fee-based services and investments. For additional information on the Company's investments, see Note 4.
2. Change in Accounting Principle:
In August 2020, the FASB issued Accounting Standards Update ("ASU") 2020-06 Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ("ASU 2020-06"). ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock. Additionally, ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and simplifies the diluted earnings per share ("EPS") calculation in certain areas.
The Company accounts for its 3.50% Convertible Notes due 2023 (the "2023 Notes" or the "Convertible Notes") in accordance with ASC 470-20, "Debt with Conversion and Other Options" ("ASC 470"). Under ASU 2020-06, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under ASC Topic 815 "Derivatives and Hedging" ("ASC 815"), or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost. The Company adopted the standard using a modified retrospective method, with adjustments which increased retained earnings by $12.0 million, reduced additional paid-in capital by $26.7 million and increased the net carrying amount of the 2023 Notes by $19.8 million at January 1, 2021. Additionally, the effect of adoption reduced interest expense for the three months ended March 31, 2021 by $2.0 million, increased net income by $1.6 million and increased earnings per share by $0.04 per share. For more information on the 2023 Notes, see Note 7.
3. Finance Receivables, net:
Finance receivables, net consisted of the following at March 31, 2021 and December 31, 2020 (amounts in thousands):
March 31, 2021December 31, 2020
Amortized cost$— $— 
Negative allowance for expected recoveries (1)
3,372,666 3,514,788 
Balance at end of period$3,372,666 $3,514,788 
(1) The negative allowance balance includes certain portfolios of nonperforming loans for which the Company holds a beneficial interest representing approximately 1% of the balance.
Changes in the negative allowance for expected recoveries by portfolio segment for the three months ended March 31, 2021 and 2020 were as follows (amounts in thousands):
March 31, 2021
CoreInsolvencyTotal
Balance at beginning of period$3,019,477 $495,311 $3,514,788 
Initial negative allowance for expected recoveries - portfolio acquisitions (1)
133,007 25,954 158,961 
Foreign currency translation adjustment(24,249)1,589 (22,660)
Recoveries applied to negative allowance (2)
(285,171)(43,388)(328,559)
Changes in expected recoveries (3)
48,410 1,726 50,136 
Balance at end of period$2,891,474 $481,192 $3,372,666 
9
PRA Group, Inc.
Notes to Consolidated Financial Statements
March 31, 2020
CoreInsolvencyTotal
Balance at beginning of period$3,051,426 $462,739 $3,514,165 
Initial negative allowance for expected recoveries - portfolio acquisitions (1)
233,687 39,550 273,237 
Foreign currency translation adjustment(120,214)(9,642)(129,856)
Recoveries applied to negative allowance (2)
(199,038)(37,618)(236,656)
Changes in expected recoveries (3)
(16,477)3,661 (12,816)
Balance at end of period$2,949,384 $458,690 $3,408,074 
(1) Initial negative allowance for expected recoveries - portfolio acquisitions
Portfolio acquisitions for the three months ended March 31, 2021 and 2020 were as follows (amounts in thousands):
March 31, 2021
CoreInsolvencyTotal
Face value$1,088,655 $134,811 $1,223,466 
Noncredit discount(132,532)(7,498)(140,030)
Allowance for credit losses at acquisition(823,116)(101,359)(924,475)
Purchase price$133,007 $25,954 $158,961 
March 31, 2020
CoreInsolvencyTotal
Face value$1,891,142 $177,454 $2,068,596 
Noncredit discount(213,289)(13,032)(226,321)
Allowance for credit losses at acquisition(1,444,166)(124,872)(1,569,038)
Purchase price$233,687 $39,550 $273,237 
The initial negative allowance recorded on portfolio acquisitions for the three months ended March 31, 2021 and 2020 were as follows (amounts in thousands):
March 31, 2021
CoreInsolvencyTotal
Allowance for credit losses at acquisition$(823,116)$(101,359)$(924,475)
Writeoffs, net823,116 101,359 924,475 
Expected recoveries133,007 25,954 158,961 
Initial negative allowance for expected recoveries$133,007 $25,954 $158,961 
March 31, 2020
CoreInsolvencyTotal
Allowance for credit losses at acquisition$(1,444,166)$(124,872)$(1,569,038)
Writeoffs, net1,444,166 124,872 1,569,038 
Expected recoveries233,687 39,550 273,237 
Initial negative allowance for expected recoveries$233,687 $39,550 $273,237 



10
PRA Group, Inc.
Notes to Consolidated Financial Statements
(2) Recoveries applied to negative allowance
Recoveries applied to the negative allowance were computed as follows for the three months ended March 31, 2021 and 2020 (amounts in thousands):
March 31, 2021
CoreInsolvencyTotal
Recoveries (a)
$500,332 $59,899 $560,231 
Less - amounts reclassified to portfolio income (b)
215,161 16,511 231,672 
Recoveries applied to negative allowance$285,171 $43,388 $328,559 
March 31, 2020
CoreInsolvencyTotal
Recoveries (a)
$440,694 $57,984 $498,678 
Less - amounts reclassified to portfolio income (b)
241,656 20,366 262,022 
Recoveries applied to negative allowance$199,038 $37,618 $236,656 
(a) Recoveries includes cash collections, buybacks and other cash-based adjustments.
(b) For more information, refer to the Company's discussion of portfolio income within finance receivables and income recognition within Note 1 of the Company's Consolidated Financial Statements included in Item 8 of the 2020 Form 10-K.
(3) Changes in expected recoveries
Changes in expected recoveries consisted of the following for the three months ended March 31, 2021 and 2020 (amounts in thousands):
March 31, 2021
CoreInsolvencyTotal
Changes in expected future recoveries $(46,502)$(6,350)$(52,852)
Recoveries received in excess of forecast94,912 8,076 102,988 
Changes in expected recoveries$48,410 $1,726 $50,136 
March 31, 2020
CoreInsolvencyTotal
Changes in expected future recoveries $(20,524)$(102)$(20,626)
Recoveries received in excess of forecast4,047 3,763 7,810 
Changes in expected recoveries$(16,477)$3,661 $(12,816)
In order to make estimates of future cash collections, the Company considered historical performance, current economic forecasts, short-term and long-term growth in the various geographies in which the Company operates and consumer habits. The Company considered recent collection activity in its determination to adjust assumptions related to near-term estimated remaining collections ("ERC") for certain pools. Based on these considerations, the Company’s estimates incorporate changes in both amounts and in the timing of expected cash collections over the forecast period.
For the three months ended March 31, 2021, changes in expected recoveries were a positive $50.1 million. This reflects $103.0 million in recoveries received in excess of forecast, which was largely due to significant cash collections overperformance, reduced by a $52.9 million negative adjustment to changes in expected future recoveries. The changes in expected future recoveries reflect the Company's assumption that the majority of the current quarter overperformance was due to acceleration in the timing of cash collections rather than an increase to total expected collections resulting in a present value adjustment.
For the three months ended March 31, 2020, changes in expected recoveries were a negative $12.8 million. This reflected a $20.6 million negative adjustment to the present value of expected future recoveries primarily related to an expected delay in cash collections from the impact of the novel coronavirus ("COVID-19") pandemic, partially offset by $7.8 million in recoveries received in excess of forecast in the quarter.
11
PRA Group, Inc.
Notes to Consolidated Financial Statements
4. Investments:
Investments consisted of the following at March 31, 2021 and December 31, 2020 (amounts in thousands):
March 31, 2021December 31, 2020
Debt securities
Available-for-sale$5,308 $5,368 
Equity securities
Exchange traded funds34,841 34,847 
Private equity funds6,155 6,123 
Mutual funds896 1,023 
Equity method investments7,482 8,398 
Total investments$54,682 $55,759 
Debt Securities
Available-for-sale
Government bonds: The Company's investments in government bonds are classified as available-for-sale and are stated at fair value.
The amortized cost and estimated fair value of investments in debt securities at March 31, 2021 and December 31, 2020 were as follows (amounts in thousands):
March 31, 2021
Amortized CostGross Unrealized GainsGross Unrealized LossesAggregate Fair Value
Available-for-sale
Government bonds$5,179 $129 $— $5,308 
December 31, 2020
Amortized CostGross Unrealized GainsGross Unrealized LossesAggregate Fair Value
Available-for-sale
Government bonds$5,239 $129 $— $5,368 
Equity Securities
Exchange traded funds: The Company invests in certain treasury bill exchange traded funds, which are accounted for as equity securities and carried at fair value. Gains and losses from these investments are included within Other income and (expense) in the Company's Consolidated Income Statements.
Private equity funds: Investments in private equity funds represent limited partnerships in which the Company has less than a 1% interest.
Mutual funds: Mutual funds represent funds held in Brazil in a Brazilian real denominated mutual fund benchmarked to the U.S. dollar that invests principally in Brazilian fixed income securities. The investments are carried at fair value based on quoted market prices. Gains and losses from this investment are included as a foreign exchange component of Other income and (expense) in the Company's Consolidated Income Statements.
Equity Method Investments
The Company has an 11.7% interest in RCB Investimentos S.A. ("RCB"), a servicing platform for nonperforming loans in Brazil. This investment is accounted for on the equity method because the Company exercises significant influence over RCB’s operating and financial activities. Accordingly, the Company’s investment in RCB is adjusted for the Company’s proportionate share of RCB’s earnings or losses, capital contribution made and distributions received.
5. Goodwill:
The Company performs an annual review of goodwill as of October 1 of each year or more frequently if indicators of impairment exist. The Company performed its most recent annual review as of October 1, 2020 and concluded that no goodwill
12
PRA Group, Inc.
Notes to Consolidated Financial Statements
impairment was necessary. The Company performed its quarterly assessment by evaluating whether any triggering events had occurred as of March 31, 2021, which included considering current market conditions. The Company concluded that no triggering event had occurred as of March 31, 2021 and will continue to monitor the market for any adverse conditions.
The changes in goodwill for the three months ended March 31, 2021 and 2020, were as follows (amounts in thousands):
Three Months Ended March 31,
20212020
Balance at beginning of period$492,989 $480,794 
Change in foreign currency translation adjustment(238)(62,229)
Balance at end of period$492,751 $418,565 
6. Leases:
The Company's operating lease portfolio primarily includes corporate offices and call centers. The majority of its leases have remaining lease terms of one year to 15 years, some of which include options to extend the leases for five years, and others include options to terminate the leases within one year. Exercises of lease renewal options are typically at the Company's sole discretion and are included in its right-of-use ("ROU") assets and lease liabilities based upon whether the Company is reasonably certain of exercising the renewal options. The Company has lease agreements with lease and non-lease components, which are generally accounted for separately. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.
As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments.
The components of lease expense for the three months ended March 31, 2021 and 2020, were as follows (amounts in thousands):
Three Months Ended March 31,
20212020
Operating lease expense$2,981 $3,063 
Short-term lease expense676 693 
Total lease expense$3,657 $3,756 
Supplemental cash flow information and non-cash activity related to leases for the three months ended March 31, 2021 and 2020 were as follows (amounts in thousands):
Three Months Ended March 31,
20212020
Cash paid for amounts included in the measurement of operating lease liabilities$2,865 $2,991 
ROU assets obtained in exchange for operating lease obligations304 531 
Lease term and discount rate information related to operating leases were as follows as of the dates indicated:
Three Months Ended March 31,
20212020
Weighted-average remaining lease term (years)9.010.6
Weighted-average discount rate4.72 %4.89 %




13
PRA Group, Inc.
Notes to Consolidated Financial Statements
Maturities of lease liabilities at March 31, 2021 are as follows for the following periods (amounts in thousands):
Operating Leases
For the nine months ending December 31, 2021$8,821 
For the year ending December 31, 20229,745 
For the year ending December 31, 20237,421 
For the year ending December 31, 20246,374 
For the year ending December 31, 20256,178 
Thereafter29,877 
Total lease payments$68,416 
Less: imputed interest13,094 
Total$55,322 
7. Borrowings:
The Company's borrowings consisted of the following as of the dates indicated (amounts in thousands):
March 31, 2021December 31, 2020
Americas revolving credit (1)
$376,392 $405,706 
Europe revolving credit1,023,039 1,171,890 
Term loan467,500 470,000 
Senior Notes300,000 300,000 
Convertible Notes345,000 345,000 
2,511,931 2,692,596 
Less: Debt discount and issuance costs(10,798)(31,307)
Total$2,501,133 $2,661,289 
(1) Includes North American revolver and Colombian revolver.
The following principal payments are due on the Company's borrowings as of March 31, 2021 for the 12-month periods ending March 31, (amounts in thousands):
2022$10,979 
20231,033,708 
2024355,000 
2025812,244 
2026300,000 
Total$2,511,931 
The Company determined that it was in compliance with the covenants of its financing arrangements as of March 31, 2021.
North American Revolving Credit and Term Loan
The Company has a credit agreement with Bank of America, N.A., as administrative agent, Bank of America, National Association, acting through its Canada branch, as the Canadian administrative agent, and a syndicate of lenders named therein,(the "North American Credit Agreement").
The total credit facility under the North American Credit Agreement includes an aggregate principal amount of $1.5 billion (subject to compliance with a borrowing base and applicable debt covenants), which consists of (i) a fully-funded $467.5 million term loan, (ii) a $1.0 billion domestic revolving credit facility, and (iii) a $75.0 million Canadian revolving credit facility. The facility includes an accordion feature for up to $500.0 million in additional commitments (at the option of the lender) and also provides for up to $25.0 million of letters of credit and a $25.0 million swingline loan sub-limit that would reduce amounts available for borrowing. The term and revolving loans accrue interest, at the option of the Company, at either the base rate or the Eurodollar rate (as defined in the North American Credit Agreement), for the applicable term plus 2.50% per annum in the case of the Eurodollar rate loans. The revolving loans within the credit facility are subject to a 0.75% floor.
14
PRA Group, Inc.
Notes to Consolidated Financial Statements
The revolving credit facilities also bear an unused line fee of 0.375% per annum, payable quarterly in arrears. The loans under the North American Credit Agreement mature May 5, 2024. As of March 31, 2021, the unused portion of the North American Credit Agreement was $700.3 million. Considering borrowing base restrictions, as of March 31, 2021, the amount available to be drawn was $251.0 million.
The North American Credit Agreement is secured by a first priority lien on substantially all of the Company's North American assets. The North American Credit Agreement contains restrictive covenants and events of default including the following:
•the ERC borrowing base is 35% for all eligible core asset pools and 55% for all insolvency eligible asset pools;
•the consolidated total leverage ratio cannot exceed 3.50 to 1.0 as of the end of any fiscal quarter;
•the consolidated senior secured leverage ratio cannot exceed 2.25 to 1.0 as of the end of any fiscal quarter;
•subject to no default or event of default, cash dividends and distributions during any fiscal year cannot exceed $20.0 million; and
•the Company must maintain positive consolidated income from operations during any fiscal quarter.
European Revolving Credit Facility
European subsidiaries of the Company ("PRA Europe") are parties to a credit agreement with DNB Bank ASA and a syndicate of lenders named therein, for a Multicurrency Revolving Credit Facility (such agreement as later amended or modified, the "European Credit Agreement"). On March 12, 2021, the Company entered into the Seventh Amendment and Restatement to its European Credit Agreement that, among other things, increased borrowings by $50.0 million through the accordion feature.
The European Credit Agreement provides borrowings for an aggregate amount of approximately $1.35 billion (subject to the borrowing base), accrues interest at the Interbank Offered Rate plus 2.70% - 3.80% (as determined by the estimated remaining collections ratio ("ERC Ratio") as defined in the European Credit Agreement), bears an unused line fee, currently 1.23% per annum, or 35% of the margin, is payable monthly in arrears and matures February 19, 2023. The European Credit Agreement also includes an overdraft facility in the aggregate amount of $40.0 million (subject to the borrowing base), which accrues interest (per currency) at the daily rates as published by the facility agent, bears a facility line fee of 0.125% per quarter, payable quarterly in arrears and matures February 19, 2023. As of March 31, 2021, the unused portion of the European Credit Agreement (including the overdraft facility) was $367.0 million. Considering borrowing base restrictions and other covenants as of March 31, 2021, the amount available to be drawn under the European Credit Agreement (including the overdraft facility) was $237.0 million.
The European Credit Agreement is secured by the shares of most of the Company's European subsidiaries and all intercompany loans receivable in Europe. The European Credit Agreement contains restrictive covenants and events of default including the following:
•the ERC Ratio cannot exceed 45%;
•the gross interest-bearing debt ratio in Europe cannot exceed 3.25 to 1.0 as of the end of any fiscal quarter;
•interest bearing deposits in AK Nordic AB cannot exceed SEK 1.2 billion; and
•PRA Europe's cash collections must meet certain thresholds, measured on a quarterly basis.
Colombian Revolving Credit Facility
PRA Group Colombia Holding SAS, is party to a credit agreement with Bancolombia in an aggregate amount of approximately $5.3 million. As of March 31, 2021, the outstanding balance under the credit agreement was approximately $1.6 million, with a weighted average interest rate of 7.13%. The outstanding balance accrues interest at the Indicador Bancario de Referencia rate plus a weighted average spread of 2.74%, is payable quarterly in arrears, amortizes quarterly and matures on October 17, 2022 (per the credit agreement, maturity represents three years from the last draw). This credit facility is fully collateralized using time deposits with the lender. As of March 31, 2021, the unused portion of the credit agreement was approximately $3.7 million.
Senior Notes due 2025
On August 27, 2020, the Company completed the private offering of $300.0 million in aggregate principal amount of its 7.375% Senior Notes due September 1, 2025 (the "2025 Notes" or "Senior Notes"). The 2025 Notes were issued pursuant to an Indenture dated August 27, 2020 (the "2020 Indenture"), between the Company and Regions Bank, as a trustee. The 2020
15
PRA Group, Inc.
Notes to Consolidated Financial Statements
Indenture contains customary terms and covenants, including certain events of default after which the 2025 Notes may be due and payable immediately. The 2025 Notes are senior unsecured obligations of the Company and are guaranteed on a senior unsecured basis by all of the Company's existing and future domestic restricted subsidiaries that guarantee the North American Credit Agreement, subject to certain exceptions. Interest on the 2025 Notes is payable semi-annually, in arrears, on March 1 and September 1 of each year.
On or after September 1, 2022, the 2025 Notes may be redeemed, in whole or in part, at a price equal to 103.688% of the aggregate principal amount of the 2025 Notes being redeemed. The applicable redemption price changes if redeemed during the 12-months beginning September 1 of each year to, 101.844% for 2023 and then 100% for 2024 and thereafter.
In addition, on or before September 1, 2022, the Company may redeem up to 40% of the aggregate principal amount of the 2025 Notes at a redemption price of 107.375% plus accrued and unpaid interest subject to the rights of holders of the 2025 Notes with the net cash proceeds of a public offering of common stock of the Company provided, that at least 60% in aggregate principal amount of the 2025 Notes remains outstanding immediately after the occurrence of such redemption and that such redemption will occur within 90 days of the date of the closing of such public offering.
In the event of a Change of Control (as defined in the 2020 Indenture), the Company must offer to repurchase all of the 2025 Notes (unless otherwise redeemed) at a price equal to 101% of their aggregate principal amount, plus accrued and unpaid interest. If the Company sells assets under certain circumstances and does not use the proceeds for specified purposes, the Company will be required to make an offer to repurchase the 2025 Notes at 100% of their principal amount, plus accrued and unpaid interest.
Convertible Senior Notes due 2023
On May 26, 2017, the Company completed the private offering of $345.0 million in aggregate principal amount of its 3.50% Convertible Senior Notes due June 1, 2023. The 2023 Notes were issued pursuant to an Indenture, dated May 26, 2017 (the "2017 Indenture"), between the Company and Regions Bank, as trustee. The 2017 Indenture contains customary terms and covenants, including certain events of default after which the 2023 Notes may be due and payable immediately. The 2023 Notes are senior unsecured obligations of the Company. Interest on the 2023 Notes is payable semi-annually, in arrears, on June 1 and December 1 of each year.
The holders of the 2023 Notes have the right to convert all, or a portion of, the 2023 Notes upon occurrence of specific events prior to the close of business on the business day immediately preceding prior to March 1, 2023 including:
•if during any calendar quarter, the last reported sales price of the Company's common stock is greater than 130% of the conversion price for at least 20 trading days during the period of 30 consecutive trading days;
•if the trading price of the 2023 Notes is less than 98% of the product of the last reported sales price of the Company's common stock and the conversion rate for a 10 consecutive trading day period;
•the Company elects to issue to all, or substantially all, holders of its common stock any rights, options or warrants entitling them, for a period of more than 45 calendar days, to subscribe for or purchase shares at a price per share that is less than the average of the last reported sales price (as defined in the 2017 Indenture) for the 10 consecutive trading day-period ending on the trading day immediately preceding the date of announcement of such issuance;
•the Company elects to distribute to all, or substantially all, holders of its common stock the Company’s assets, debt securities or rights to purchase securities of the Company, which distribution has a share value exceeding 10% of the last reported sale price (as defined in the 2017 Indenture) on the trading day preceding the announcement of such distribution; or
•a transaction occurs that constitutes a fundamental change (as defined in the 2017 Indenture) or, the Company is party to a consolidation, merger, binding share exchange, or transfer or lease of all, or substantially all, of the Company’s assets.
On or after March 1, 2023, the 2023 Notes will be convertible at any time. As of March 31, 2021, the Company does not believe that any of the conditions allowing holders of the 2023 Notes to convert their notes has occurred.
Furthermore, the Company has the right, at its election, to redeem all or any part of the outstanding 2023 Notes at any time on or after June 1, 2021 for cash, but only if the last reported sale price (as defined in the 2017 Indenture) of the Company's common stock exceeds 130% of the conversion price on each of at least 20 trading days during the 30 consecutive trading days ending on and including the trading day immediately before the date the Company sends the related redemption notice.
16
PRA Group, Inc.
Notes to Consolidated Financial Statements
The conversion rate for the 2023 Notes is 21.6275 shares per $1,000 principal amount of 2023 Notes, which is equivalent to an initial conversion price of approximately $46.24 per share of the Company's common stock, and is subject to adjustment in certain circumstances pursuant to the 2017 Indenture. Upon conversion, holders of the 2023 Notes will receive cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock, at the Company's election. The Company has made an irrevocable election to settle conversions by paying holders of the 2023 Notes cash up to the aggregate principal amount of the 2023 Notes and shares of the Company's common stock or a combination of cash and shares of the Company's common stock, at the Company's election, for the remaining amounts owed, if any.
In accordance with authoritative guidance related to derivatives and hedging and earnings per share, only the conversion spread is included in the diluted EPS calculation, if dilutive. Under such method, the settlement of the conversion spread has a dilutive effect when the market conversion criteria is met.
The Company determined that the fair value of the 2023 Notes at the date of issuance was approximately $298.8 million, and designated the residual value of approximately $46.2 million as the equity component. Additionally, the Company allocated approximately $8.3 million of the $9.6 million 2023 Notes issuance cost as debt issuance cost and the remaining $1.3 million as equity issuance cost. Upon adoption of ASU 2020-06, the equity classification model was eliminated, resulting in an adjustment to retained earnings and an increase to the 2023 Notes. Refer to Note 2, Change in Accounting Principle, for further information.
The balances of the liability and equity components of the Company's convertible notes outstanding as of March 31, 2021 and December 31, 2020, were as follows (amounts in thousands):
March 31, 2021December 31, 2020
Liability component - principal amount$345,000 $345,000 
Unamortized debt discount— (20,603)
Unamortized debt issuance costs(3,732)(3,335)
Liability component - net carrying amount$341,268 $321,062 
Equity component$— $44,910 
The Company amortizes debt issuance costs over the life of the debt using the effective interest method. Upon adoption of ASU 2020-06 the debt discount was eliminated and the debt issuance costs were remeasured, resulting in an effective interest rate of 4.00%.
Interest expense related to the Company's convertible notes for the three months ended March 31, 2021 and 2020, was as follows (amounts in thousands):
Three Months Ended March 31,
2021
2020 (1)
Interest expense - stated coupon rate$3,019 $5,175 
Interest expense - amortization of debt discount— 3,217 
Interest expense - amortization of debt issuance costs$404 $606 
Total interest expense - convertible notes$3,423 $8,998 
(1) 2020 amounts include interest expense related to the 3.00% Convertible Senior Notes due August 1, 2020, which were repaid in the third quarter of 2020. Refer to Note 7 of the Company's Consolidated Financial Statements included in Item 8 of the 2020 Form 10-K.
8. Derivatives:
The Company periodically enters into derivative financial instruments, typically interest rate swap agreements, interest rate caps and foreign currency contracts to reduce its exposure to fluctuations in interest rates on variable-rate debt and foreign currency exchange rates. The Company does not utilize derivative financial instruments with a level of complexity or with a risk greater than the exposure to be managed nor does it enter into or hold derivatives for trading or speculative purposes. The Company periodically reviews the creditworthiness of the counterparty to assess the counterparty’s ability to honor its obligation. Counterparty default would expose the Company to fluctuations in interest and currency rates. Derivative financial instruments are recognized at fair value in the Consolidated Balance Sheets, in accordance with the guidance of ASC 815. In 2020, the Company adopted ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effect of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). ASU 2020-04 allows the Company to elect certain expedients to continue accounting for its interest rate swap contracts designated as cash flow hedges.
17
PRA Group, Inc.
Notes to Consolidated Financial Statements
The following table summarizes the fair value of derivative instruments in the Company's Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020 (amounts in thousands):
March 31, 2021December 31, 2020
Balance Sheet LocationFair ValueBalance Sheet LocationFair Value
Derivatives designated as hedging instruments:
Interest rate contractsOther assets$1,413 Other assets$— 
Interest rate contractsOther liabilities29,081 Other liabilities43,017 
Derivatives not designated as hedging instruments:
Foreign currency contractsOther assets3,437 Other assets3,512 
Foreign currency contractsOther liabilities2,369 Other liabilities2,415 
Derivatives Designated as Hedging Instruments:
Changes in fair value of derivative contracts designated as cash flow hedging instruments are recognized in other comprehensive income ("OCI"). As of March 31, 2021 and December 31, 2020, the notional amount of interest rate contracts designated as cash flow hedging instruments was $901.8 million and $967.2 million, respectively. Derivatives designated as cash flow hedging instruments were evaluated and remain highly effective at March 31, 2021 and have initial terms of one to five years. The Company estimates that approximately $9.1 million of net derivative loss included in OCI will be reclassified into earnings within the next 12 months.
The following table summarizes the effects of derivatives designated as cash flow hedging instruments on the Consolidated Financial Statements for the three months ended March 31, 2021 and 2020 (amounts in thousands):
Gain or (loss) recognized in OCI, net of tax
Derivatives designated as cash flow hedging instrumentsMarch 31, 2021March 31, 2020
Interest rate contracts$9,692 $(21,350)
Gain or (loss) reclassified from OCI into income
Location of gain or (loss) reclassified from OCI into incomeMarch 31, 2021March 31, 2020
Interest expense, net$(3,336)$(1,012)
Derivatives Not Designated as Hedging Instruments:
Changes in fair value of derivative contracts not designated as hedging instruments are recognized in earnings. The Company also enters into foreign currency contracts to economically hedge the foreign currency re-measurement exposure related to certain balances that are denominated in currencies other than the functional currency of the entity. As of March 31, 2021 and December 31, 2020, the notional amount of foreign currency contracts that are not designated as hedging instruments was $447.2 million and $500.8 million, respectively.
The following table summarizes the effects of derivatives not designated as hedging instruments on the Company’s Consolidated Income Statements for the three months ended March 31, 2021 and 2020 (amounts in thousands):
Amount of gain or (loss) recognized in income
Derivatives not designated as hedging instrumentsLocation of gain or (loss) recognized in incomeMarch 31, 2021March 31, 2020
Foreign currency contractsForeign exchange (loss)/gain$2,097 $26,786 
Foreign currency contractsInterest expense, net114 (1,001)
Interest rate contractsInterest expense, net— 1,038 
9. Fair Value:
As defined by ASC Topic 820, "Fair Value Measurement and Disclosures" ("ASC 820"), fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 requires the consideration of differing levels of inputs in the determination of fair values.
Those levels of input are summarized as follows:
•Level 1: Quoted prices in active markets for identical assets and liabilities.
18
PRA Group, Inc.
Notes to Consolidated Financial Statements
•Level 2: Observable inputs other than Level 1 quoted prices, such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
•Level 3: Unobservable inputs that are supported by little or no market activity. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques as well as instruments for which the determination of fair value requires significant management judgment or estimation.
The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.
Financial Instruments Not Required To Be Carried at Fair Value
In accordance with the disclosure requirements of ASC Topic 825, "Financial Instruments" ("ASC 825"), the table below summarizes fair value estimates for the Company's financial instruments that are not required to be carried at fair value. The total of the fair value calculations presented does not represent, and should not be construed to represent, the underlying value of the Company.
The carrying amounts in the table are recorded in the Consolidated Balance Sheets at March 31, 2021 and December 31, 2020 (amounts in thousands):
March 31, 2021December 31, 2020
Carrying
Amount		Estimated
Fair Value		Carrying
Amount		Estimated
Fair Value
Financial assets:
Cash and cash equivalents$92,798 $92,798 $108,613 $108,613 
Restricted cash16,057 16,057 12,434 12,434 
Finance receivables, net3,372,666 3,365,936 3,514,788 3,541,159 
Financial liabilities:
Interest-bearing deposits124,998 124,998 132,739 132,739 
Revolving lines of credit1,399,431 1,399,431 1,577,596 1,577,596 
Term loan467,500 467,500 470,000 470,000 
Senior Notes300,000 321,495 300,000 324,408 
Convertible Notes345,000 370,627 324,397 376,012 
Disclosure of the estimated fair values of financial instruments often requires the use of estimates. The carrying amount and estimates of the fair value of the Company's debt obligations outlined above do not include any related debt issuance costs associated with the debt obligations. The Company uses the following methods and assumptions to estimate the fair value of financial instruments:
Cash and cash equivalents and restricted cash: The carrying amount approximates fair value and quoted prices for identical assets that can be found in active markets. Accordingly, the Company estimates the fair value of cash, cash equivalents and restricted cash using Level 1 inputs.
Finance receivables, net: The Company estimates the fair value of these receivables using proprietary pricing models that the Company utilizes to make portfolio acquisition decisions. Accordingly, the Company's fair value estimates use Level 3 inputs as there is little observable market data available and management is required to use significant judgment in its estimates.
Interest-bearing deposits: The carrying amount approximates fair value due to the short-term nature of the deposits and the observable quoted prices for similar instruments in active markets. Accordingly, the Company uses Level 2 inputs for its fair value estimates.
Revolving lines of credit: The carrying amount approximates fair value due to the short-term nature of the interest rate periods and the observable quoted prices for similar instruments in active markets. Accordingly, the Company uses Level 2 inputs for its fair value estimates.
Term loan: The carrying amount approximates fair value due to the short-term nature of the interest rate periods and the observable quoted prices for similar instruments in active markets. Accordingly, the Company uses Level 2 inputs for its fair value estimate.
19
PRA Group, Inc.
Notes to Consolidated Financial Statements
Senior and Convertible Notes: The fair value estimates for the Senior Notes and the Convertible Notes incorporate quoted market prices, which were obtained from secondary market broker quotes, which were derived from a variety of inputs including client orders, information from their pricing vendors, modeling software and actual trading prices when they occur. Accordingly, the Company uses Level 2 inputs for its fair value estimates. Furthermore, in the table above, the carrying amount of December 31, 2020 represents the Convertible Notes net of the debt discount. Upon adoption of ASU 2020-06, the carrying amount of the Convertible Notes reflects face value as the debt discount was eliminated.
Financial Instruments Required To Be Carried At Fair Value
The carrying amounts in the following table are measured at fair value on a recurring basis in the accompanying Consolidated Balance Sheets at March 31, 2021 and December 31, 2020 (amounts in thousands):
Fair Value Measurements as of March 31, 2021
Level 1Level 2Level 3Total
Assets:
Available-for-sale investments
Government bonds$5,308 $— $— $5,308 
Fair value through net income
Exchange traded funds34,841 — — 34,841 
Mutual funds896 — — 896 
Derivative contracts (recorded in other assets)— 4,850 — 4,850 
Liabilities:
Derivative contracts (recorded in other liabilities)— 31,450 — 31,450 
Fair Value Measurements as of December 31, 2020
Level 1Level 2Level 3Total
Assets:
Available-for-sale investments
Government bonds$5,368 $— $— $5,368 
Fair value through net income
Exchange traded funds34,847 — — 34,847 
Mutual funds1,023 — — 1,023 
Derivative contracts (recorded in other assets)— 3,512 — 3,512 
Liabilities:
Derivative contracts (recorded in other liabilities)— 45,432 — 45,432 
Available-for-sale investments
Government bonds: Fair value of the Company's investment in government bonds is estimated using quoted market prices. Accordingly, the Company uses Level 1 inputs.
Fair value through net income investments
Exchange traded funds: Fair value of the Company's investment in exchange traded funds is estimated using quoted market prices. Accordingly, the Company uses Level 1 inputs.
Mutual funds: Fair value of the Company's investment in mutual funds is estimated using quoted market prices. Accordingly, the Company uses Level 1 inputs.
Derivative contracts: The estimated fair value of the derivative contracts is determined using industry standard valuation models. These models project future cash flows and discount the future amounts to a present value using market-based observable inputs, including interest rate curves and other factors. Accordingly, the Company uses Level 2 inputs for its fair value estimates.

20
PRA Group, Inc.
Notes to Consolidated Financial Statements
Investments measured using net asset value ("NAV")
Private equity funds: This class of investments consists of private equity funds that invest primarily in loans and securities including single-family residential debt; corporate debt products; and financially-oriented, real-estate-rich and other operating companies in the Americas, Western Europe and Japan. These investments are subject to certain restrictions regarding transfers and withdrawals. The investments cannot be redeemed with the funds. Instead, the nature of the investments in this class is that distributions are received through the liquidation of the underlying assets of the fund. The investments are expected to be returned through distributions as a result of liquidations of the funds' underlying assets over one to five years. The fair value of these private equity funds following the application of the NAV practical expedient was $6.2 million and $6.1 million as of March 31, 2021 and December 31, 2020, respectively.
10. Accumulated Other Comprehensive Loss:
The following table provides details about the reclassifications from accumulated other comprehensive loss for the three months ended March 31, 2021 and 2020 (amounts in thousands):
Three Months Ended March 31,
Gains and losses on cash flow hedges20212020Affected line in the Consolidated Income Statement
Interest rate swaps$(3,336)$(1,012)Interest expense, net
Income tax effect of item above705 230 Income tax expense
Total losses on cash flow hedges$(2,631)$(782)Net of tax
The following table represents the changes in accumulated other comprehensive loss by component, after tax, for the three months ended March 31, 2021 and 2020 (amounts in thousands):
Three Months Ended March 31, 2021
Debt SecuritiesCash FlowCurrency TranslationAccumulated Other
Available-for-saleHedgesAdjustments
Comprehensive Loss (1)
Balance at beginning of period$127 $(33,349)$(212,569)$(245,791)
Other comprehensive loss before reclassifications— 9,692 (20,108)(10,416)
Reclassifications, net— 2,631 — 2,631 
Net current period other comprehensive loss— 12,323 (20,108)(7,785)
Balance at end of period$127 $(21,026)$(232,677)$(253,576)
Three Months Ended March 31, 2020
Debt SecuritiesCash FlowCurrency TranslationAccumulated Other
Available-for-saleHedgesAdjustments
Comprehensive Loss (1)
Balance at beginning of period$(44)$(13,088)$(247,886)$(261,018)
Other comprehensive loss before reclassifications170 (21,350)(94,201)(115,381)
Reclassifications, net— 782 — 782 
Net current period other comprehensive loss170 (20,568)(94,201)(114,599)
Balance at end of period$126 $(33,656)$(342,087)$(375,617)
(1) Net of deferred taxes for unrealized losses from cash flow hedges of $6.4 million and $10.0 million for the three months ended March 31, 2021 and 2020, respectively.
11. Earnings per Share:
Basic earnings per share ("EPS") are computed by dividing net income available to common stockholders of PRA Group, Inc. by weighted average common shares outstanding. Diluted EPS are computed using the same components as basic EPS with the denominator adjusted for the dilutive effect of the Convertible Notes and nonvested share awards, if dilutive. There has been no dilutive effect of the Convertible Notes since issuance through March 31, 2021. Share-based awards that are contingent upon the attainment of performance goals are included in the computation of diluted EPS if the effect is dilutive. The dilutive effect of nonvested shares is computed using the treasury stock method, which assumes any proceeds that could be
21
PRA Group, Inc.
Notes to Consolidated Financial Statements
obtained upon the vesting of nonvested shares would be used to purchase common shares at the average market price for the period.
The following table provides a reconciliation between the computation of basic EPS and diluted EPS for the three months ended March 31, 2021 and 2020 (amounts in thousands, except per share amounts):
For the Three Months Ended March 31,
20212020
Net Income Attributable to PRA Group, Inc.Weighted
Average
Common Shares		EPSNet Income Attributable to PRA Group, Inc.Weighted
Average
Common Shares		EPS
Basic EPS$58,406 45,669 $1.28 $19,135 45,452 $0.42 
Dilutive effect of nonvested share awards— 376 (0.01)— 332 — 
Diluted EPS$58,406 46,045 $1.27 $19,135 45,784 $0.42 
There were no options outstanding, antidilutive or otherwise, as of March 31, 2021 and 2020.
12. Income Taxes:
The Company accounts for income taxes in accordance with FASB ASC Topic 740 "Income Taxes" ("ASC 740") as it relates to the provision for income taxes and uncertainty in income taxes. The guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
At March 31, 2021, the tax years subject to examination by the major federal, state and international taxing jurisdictions are 2013 and subsequent years.
The Company intends for predominantly all international earnings to be indefinitely reinvested in its international operations; therefore, the recording of deferred tax liabilities for such unremitted earnings is not required. If international earnings were repatriated, the Company may need to accrue and pay taxes, although foreign tax credits may be available to partially reduce U.S. income taxes. The amount of cash on hand related to international operations with indefinitely reinvested earnings was $62.2 million and $97.0 million as of March 31, 2021 and December 31, 2020, respectively.
13. Commitments and Contingencies:
Employment Agreements:
The Company has entered into employment agreements with each of its U.S. executive officers, which expire on December 31, 2023. Such agreements provide for base salary payments as well as potential discretionary bonuses that consider the Company’s overall performance against its short and long-term financial and strategic objectives. The agreements also contain customary confidentiality and non-compete provisions. At March 31, 2021, estimated future compensation under these agreements was approximately $17.8 million. Outside the U.S., the Company has entered into employment agreements with certain employees pursuant to local country regulations. Generally, these agreements do not have expiration dates. As a result it is impractical to estimate the amount of future compensation under these agreements. Accordingly, the future compensation under these agreements is not included in the $17.8 million total above.
Forward Flow Agreements:
The Company is party to several forward flow agreements that allow for the purchase of nonperforming loans at pre-established prices. The maximum remaining amount to be purchased under forward flow agreements at March 31, 2021, was approximately $640.7 million.
Finance Receivables:
Certain agreements for the purchase of finance receivables portfolios contain provisions that may, in limited circumstances, require the Company to refund a portion or all of the collections subsequently received by the Company on particular accounts. The potential refunds as of the balance sheet date are not considered to be significant.
22
PRA Group, Inc.
Notes to Consolidated Financial Statements
Litigation and Regulatory Matters:
The Company and its subsidiaries are from time to time subject to a variety of routine legal and regulatory claims, inquiries and proceedings and regulatory matters, most of which are incidental to the ordinary course of its business. The Company initiates lawsuits against customers and is occasionally countersued by them in such actions. Also, customers, either individually, as members of a class action, or through a governmental entity on behalf of customers, may initiate litigation against the Company in which they allege that the Company has violated a state or federal law in the process of collecting on an account. From time to time, other types of lawsuits are brought against the Company. Additionally, the Company receives subpoenas and other requests or demands for information from regulators or governmental authorities who are investigating the Company's debt collection activities.
The Company accrues for potential liability arising from legal proceedings and regulatory matters when it is probable that such liability has been incurred and the amount of the loss can be reasonably estimated. This determination is based upon currently available information for those proceedings in which the Company is involved, taking into account the Company's best estimate of such losses for those cases for which such estimates can be made. The Company's estimate involves significant judgment, given the varying stages of the proceedings (including the fact that many of them are currently in preliminary stages), the number of unresolved issues in many of the proceedings (including issues regarding class certification and the scope of many of the claims), and the related uncertainty of the potential outcomes of these proceedings. In making determinations of the likely outcome of pending litigation, the Company considers many factors, including, but not limited to, the nature of the claims, the Company's experience with similar types of claims, the jurisdiction in which the matter is filed, input from outside legal counsel, the likelihood of resolving the matter through alternative mechanisms, the matter's current status and the damages sought or demands made. Accordingly, the Company's estimate will change from time to time, and actual losses could be more than the current estimate.
The Company believes that the estimate of the aggregate range of reasonably possible losses in excess of the amount accrued for its legal proceedings outstanding at March 31, 2021, where the range of loss can be estimated, was not material.
In certain legal proceedings, the Company may have recourse to insurance or third-party contractual indemnities to cover all or portions of its litigation expenses, judgments, or settlements. Loss estimates and accruals for potential liability related to legal proceedings are typically exclusive of potential recoveries, if any, under the Company's insurance policies or third-party indemnities.
Matters that are not considered routine legal proceedings were disclosed previously in the 2020 Form 10-K.
14. Recently Issued Accounting Standards:
Recently issued accounting standards adopted:
Income Taxes
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). ASU 2019-12 removes certain exceptions for recognizing deferred taxes for investments and calculating income taxes in interim periods. Additionally, the standard adds guidance to reduce complexity in certain areas, including recognizing taxes for tax goodwill and allocating taxes to members of a consolidated group. ASU 2019-12 is effective for annual and interim periods beginning after December 15, 2020 on a prospective basis, and early adoption is permitted. The Company adopted ASU 2019-12 on January 1, 2021 with no material impact to its financial statements upon adoption.
Investments-Equity Securities
In January 2020, the FASB issued ASU 2020-01 “Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815” ("ASU 2020-01"). ASU 2020-01 clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323, Investments-Equity Method and Joint Ventures, for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. Additionally, it clarifies that, when determining the accounting for certain forward contracts and purchased options a company should not consider, whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option. The Company adopted ASU 2020-01 on January 1, 2021 with no impact to its financial statements upon adoption.

23
PRA Group, Inc.
Notes to Consolidated Financial Statements
Accounting for Convertible Instruments
Effective January 1, 2021, the Company early adopted ASU 2020-06. Refer to Note 2 for details.
Reference Rate Reform
In January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform (Topic 848): Overall" ("ASU 2021-01"). ASU 2021-01 expands the scope of ASC 848 to include derivatives affected by the discounting transition for certain optional expedients and exceptions. ASU 2021-01 is effective immediately for a limited time through December 31, 2022. The Company is evaluating the impact of ASU 2021-01 but does not expect it to have a material impact on its financial statements.
Recently issued accounting standards not yet adopted:
The Company does not expect that any other recently issued accounting pronouncements will have a material effect on its Consolidated Financial Statements.
24

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
All references in this Quarterly Report on Form 10-Q (this "Quarterly Report") to "PRA Group," "we," "us," "the Company" or similar terms are to PRA Group, Inc. and its subsidiaries.
Forward-Looking Statements:
This Quarterly Report contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Statements other than statements of historical fact are forward-looking statements, including statements regarding overall cash collection trends, operating cost trends, liquidity and capital needs and other statements of expectations, beliefs, future plans, strategies and anticipated events or trends. Our results could differ materially from those expressed or implied by such forward-looking statements, or our forward looking statements could be wrong, as a result of risks, uncertainties and assumptions including the following:
•the impact of the novel coronavirus ("COVID-19") pandemic on the markets in which we operate, including business disruptions, unemployment, economic disruption, overall market volatility and the inability or unwillingness of consumers to pay the amounts owed to us;
•our inability to successfully manage the challenges associated with a disease outbreak, including epidemics, pandemics or similar widespread public health concerns, including the COVID-19 pandemic;
•a deterioration in the economic or inflationary environment in the markets in which we operate;
•our inability to replace our portfolios of nonperforming loans with additional portfolios sufficient to operate efficiently and profitably and/or purchase nonperforming loans at appropriate prices;
•our inability to collect sufficient amounts on our nonperforming loans to fund our operations, including as a result of restrictions imposed by federal, state and international laws and regulations;
•changes in accounting standards and their interpretations;
•the recognition of significant decreases in our estimate of future recoveries on nonperforming loans;
•the occurrence of goodwill impairment charges;
•loss contingency accruals that are inadequate to cover actual losses;
•our inability to manage risks associated with our international operations;
•adverse effects from the exit of the United Kingdom ("UK") from the European Union ("EU");
•changes in federal, state, local or international laws or the interpretation of these laws, including tax, bankruptcy and collection laws;
•changes in the administrative practices of various bankruptcy courts;
•our inability to comply with existing and new regulations of the collection industry;
•investigations, reviews, or enforcement actions by governmental authorities, including the Consumer Financial Protection Bureau ("CFPB");
•our inability to comply with data privacy regulations such as the General Data Protection Regulation ("GDPR");
•adverse outcomes in pending litigation or administrative proceedings;
•our inability to retain, expand, renegotiate or replace our credit facilities and our ability to comply with the covenants under our financing arrangements;
•our inability to manage effectively our capital and liquidity needs, including as a result of changes in credit or capital markets;
•changes in interest or exchange rates;
•default by or failure of one or more of our counterparty financial institutions;
•uncertainty about the future of the London Inter-Bank Offer Rate;
•disruptions of business operations caused by cybersecurity incidents or the underperformance or failure of information technology infrastructure, networks or communication systems; and
•the "Risk Factors" in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020 ("2020 Form 10-K") and in other filings with the Securities and Exchange Commission.
You should assume that the information appearing in this Quarterly Report is accurate only as of the date it was issued. Our business, financial condition, results of operations and prospects may have changed since that date. Except as required by law, we assume no obligation to publically update or revise our forward-looking statements after the date of this Quarterly Report and you should not expect us to do so.
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Frequently Used Terms
We may use the following terminology throughout this Quarterly Report:
•"Buybacks" refers to purchase price refunded by the seller due to the return of ineligible accounts.
•"Cash collections" refers to collections on our owned finance receivables portfolios.
•"Cash receipts" refers to cash collections on our owned finance receivables portfolios plus fee income.
•"Change in expected recoveries" refers to the differences of actual recoveries received when compared to expected recoveries and the net present value of changes in estimated remaining collections.
•"Core" accounts or portfolios refer to accounts or portfolios that are nonperforming loans and are not in an insolvent status upon acquisition. These accounts are aggregated separately from insolvency accounts.
•"Estimated remaining collections" or "ERC" refers to the sum of all future projected cash collections on our owned finance receivables portfolios.
•"Insolvency" accounts or portfolios refer to accounts or portfolios of receivables that are in an insolvent status when we purchase them and as such are purchased as a pool of insolvent accounts. These accounts include Individual Voluntary Arrangements ("IVAs"), Trust Deeds in the UK, Consumer Proposals in Canada and bankruptcy accounts in the U.S., Canada, Germany and the UK.
•"Negative Allowance" refers to the present value of cash flows expected to be collected on our finance receivables, carried as an asset on the balance sheet.
•"Portfolio acquisitions" refers to all portfolios added as a result of a purchase, but also includes portfolios added as a result of a business acquisition.
•"Portfolio purchases" refers to all portfolios purchased in the normal course of business and excludes those added as a result of business acquisitions.
•"Portfolio income" reflects revenue recorded due to the passage of time using the effective interest rate calculated based on the purchase price of portfolios and estimated remaining collections.
•"Purchase price" refers to the cash paid to a seller to acquire nonperforming loans.
•"Purchase price multiple" refers to the total estimated collections (as defined below) on owned finance receivables portfolios divided by purchase price.
•"Recoveries" refers to cash collections plus buybacks and other adjustments.
•"Total estimated collections" or "TEC" refers to actual cash collections plus estimated remaining collections on our finance receivables portfolios.
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Overview
We are a global financial and business services company with operations in the Americas, Europe and Australia. Our primary business is the purchase, collection and management of portfolios of nonperforming loans.
We are headquartered in Norfolk, Virginia, and as of March 31, 2021, employed 3,822 full time equivalents. Our shares of common stock are traded on the NASDAQ Global Select Market under the symbol "PRAA."
COVID-19
The COVID-19 pandemic has continued to adversely impact all countries in which we operate. We have taken steps to modify our operations to mitigate adverse effects where possible while conforming with various COVID-19 protocols within the countries in which we operate. We continue to enable employees to work remotely and follow social distancing in the workplaces that remain open. These actions have allowed us to operate our business while minimizing disruption and complying with country-specific, federal, state and local laws, regulations, guidelines and governmental actions related to the pandemic. Additional information regarding the impact of COVID-19 on our business can be found in Part II, Item 7 to our 2020 Form 10-K.
Results of Operations
The results of operations include the financial results of the Company and all of our subsidiaries. The following table sets forth Consolidated Income Statement amounts as a percentage of Total revenues for the periods indicated (dollars in thousands):
For the Three Months Ended March 31,
20212020
Revenues:
Portfolio income$231,672 80.0 %$262,022 104.1 %
Changes in expected recoveries50,136 17.3 (12,816)(5.1)
Fee income2,181 0.8 2,209 0.9 
Other revenue5,480 1.9 369 0.1 
Total revenues289,469 100.0 251,784 100.0 
Operating expenses:
Compensation and employee services73,984 25.6 75,171 29.9 
Legal collection fees12,926 4.5 14,572 5.8 
Legal collection costs21,312 7.4 34,447 13.7 
Agency fees15,591 5.4 13,376 5.3 
Outside fees and services20,760 7.1 19,394 7.7 
Communication12,663 4.4 13,511 5.4 
Rent and occupancy4,480 1.5 4,484 1.8 
Depreciation and amortization3,981 1.4 4,084 1.6 
Other operating expenses13,018 4.5 12,205 4.8 
Total operating expenses178,715 61.8 191,244 76.0 
   Income from operations110,754 38.2 60,540 24.0 
Other income and (expense):
Interest expense, net(31,552)(10.9)(37,211)(14.8)
Foreign exchange (loss)/gain(26)— 2,283 0.9 
Other26 — (76)— 
Income before income taxes79,202 27.3 25,536 10.1 
Income tax expense17,322 5.9 3,100 1.2 
Net income61,880 21.4 22,436 8.9 
Adjustment for net income attributable to noncontrolling interests3,474 1.2 3,301 1.3 
Net income attributable to PRA Group, Inc.$58,406 20.2 %$19,135 7.6 %
27

Three Months Ended March 31, 2021 Compared To Three Months Ended March 31, 2020
Cash Collections
Cash collections for the periods indicated were as follows (amounts in thousands):
For the Three Months Ended March 31,
20212020Change
Americas and Australia Core$347,638 $305,780 $41,858 
Americas Insolvency35,253 43,210 (7,957)
Europe Core149,486 131,340 18,146 
Europe Insolvency23,510 14,243 9,267 
Total cash collections$555,887 $494,573 $61,314 
Cash collections adjusted (1)
$555,887 $502,305 $53,582 
(1) Cash collections adjusted refers to 2020 cash collections remeasured using 2021 exchange rates.

Cash collections were $555.9 million for the three months ended March 31, 2021, an increase of $61.3 million, or 12.4%, compared to $494.6 million for the three months ended March 31, 2020. Cash collections increased in Americas and Australia Core largely due to our U.S. call center and other collections, including higher level of collections through our digital platforms, increasing $54.3 million, or 32.3%. This was primarily due to what we believe to be various circumstances that have provided U.S. consumers with additional discretionary funds and a willingness to voluntarily resolve their debts. This increase was partly offset by a $10.8 million, or 10.4%, decrease in legal collections due to a lower volume of accounts in the legal channel primarily as a result of a shift in collections from the legal channel to our call centers and digital platforms. Cash collections in Americas Insolvency also decreased $8.0 million, or 18.4%, mainly due to the runoff of older portfolios. While cash collections in Other Americas Core decreased $1.6 million, or 4.8%, the primary driver of the decrease was foreign exchange rates. Europe cash collections increased $27.4 million, or 18.8%, primarily reflecting the impact of 2020 purchases.
Revenues
A summary of our revenue generation during the three months ended March 31, 2021 and 2020 is as follows (amounts in thousands):
For the Three Months Ended March 31,
20212020Change
Portfolio income$231,672 $262,022 $(30,350)
Changes in expected recoveries50,136 (12,816)62,952 
Fee income2,181 2,209 (28)
Other revenue5,480 369 5,111 
Total revenues$289,469 $251,784 $37,685 
Portfolio Income
Portfolio income was $231.7 million for the three months ended March 31, 2021, a decrease of $30.3 million, or 11.6%, compared to $262.0 million for the three months ended March 31, 2020. The decrease was mainly due to our assumption that the significant cash overperformance in 2020 was largely acceleration versus an increase in total estimated collections combined with recent purchases not offsetting runoff, primarily in Americas Insolvency and Other Americas.
Changes in Expected Recoveries
Changes in expected recoveries for the three months ended March 31, 2021, were a positive $50.1 million. The change was the net result of recoveries received in excess of forecast of $103.0 million from significant cash collection overperformance reduced by a $52.9 million negative adjustment to changes in expected future recoveries. The changes in expected future recoveries reflect our assumption that the majority of the current quarter overperformance was due to acceleration in the timing of cash collections rather than an increase to total expected collections resulting in a present value adjustment. This compares to a negative $12.8 million for the three months ended March 31, 2020. The change was the net result of recoveries in excess of forecast of $7.8 million reduced by a $20.6 million negative adjustment to changes in expected future recoveries due to an expected delay in cash collections from the impact of COVID-19.
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Other Revenue
Other revenue was $5.5 million for the three months ended March 31, 2021, an increase of $5.1 million compared to $0.4 million for the three months ended March 31, 2020 reflecting a gain on sale from certain other assets.
Operating Expenses
Total operating expenses were $178.7 million for the three months ended March 31, 2021, a decrease of $12.5 million, or 6.5%, compared to $191.2 million for the three months ended March 31, 2020.
Compensation and Employee Services
Compensation and employee services expenses were $74.0 million for the three months ended March 31, 2021, a decrease of $1.2 million, or 1.6%, compared to $75.2 million for the three months ended March 31, 2020. The slight decrease in compensation expense was primarily attributable to a reduction in the U.S. call center workforce due to efficiencies realized mostly offset by higher headcount in Europe. Total full-time equivalents decreased to 3,822 as of March 31, 2021, from 4,014 as of March 31, 2020.
Legal Collection Fees
Legal collection fees represent contingent fees incurred for the cash collections generated by our independent third-party attorney network. Legal collection fees were $12.9 million for the three months ended March 31, 2021, a decrease of $1.7 million, or 11.6%, compared to $14.6 million for the three months ended March 31, 2020. The decrease was due to lower external legal cash collections in the U.S.
Legal Collection Costs
Legal collection costs primarily consist of costs paid to courts where a lawsuit is filed for the purpose of attempting to collect on an account. Legal collection costs were $21.3 million for the three months ended March 31, 2021, a decrease of $13.1 million, or 38.1%, compared to $34.4 million for the three months ended March 31, 2020. The decrease was primarily due to lower levels of accounts placed in the legal channel in the U.S. primarily reflecting a shift in collections from the legal channel to our call centers and digital platforms partially offset by higher levels of accounts placed in the legal channel in Europe.
Agency Fees
Agency fees primarily represent third-party collection fees. Agency fees were $15.6 million for the three months ended March 31, 2021, an increase of $2.2 million, or 16.4%, compared to $13.4 million for the three months ended March 31, 2020 primarily reflecting an increase in agency fees primarily outside of the U.S.
Outside Fees and Services
Outside fees and services expenses were $20.8 million for the three months ended March 31, 2021, an increase of $1.4 million, or 7.2%, compared to $19.4 million for the three months ended March 31, 2020 primarily due to higher fees related to an increased number of debit card transactions.
Interest Expense, Net
Interest expense, net was $31.6 million during the three months ended March 31, 2021, a decrease of $5.6 million, or 15.1%, compared to $37.2 million for the three months ended March 31, 2020 primarily reflecting the 2021 change in accounting related to our convertible notes (see Note 2 to our Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report for further information) and lower levels of average outstanding borrowings on our debt obligations.





29

Interest expense, net consisted of the following for the three months ended March 31, 2021 and 2020 (amounts in thousands):
For the Three Months Ended March 31,
20212020Change
Interest on debt obligations and unused line fees$20,910 $26,498 $(5,588)
Interest on senior notes5,531 — 5,531 
Coupon interest on convertible debt3,019 5,175 (2,156)
Amortization of convertible debt discount— 3,217 (3,217)
Amortization of loan fees and other loan costs2,256 2,640 (384)
Interest income(164)(319)155 
Interest expense, net$31,552 $37,211 $(5,659)
Foreign Exchange (Loss)/Gain
Foreign currency transaction losses were near zero for the three months ended March 31, 2021, compared to foreign currency gains of $2.3 million for the three months ended March 31, 2020. In any given period, we may incur foreign currency transaction gains or losses from transactions in currencies other than the functional currency.
Income Tax Expense
Income tax expense was $17.3 million for the three months ended March 31, 2021, an increase of $14.2 million, or 458.1%, compared to $3.1 million for the three months ended March 31, 2020. The increase was primarily due to higher income before taxes, which increased $53.7 million, or 210.6%, and the mix of earnings between jurisdictions. During the three months ended March 31, 2021, our effective tax rate was 21.9%, compared to 12.1% for the three months ended March 31, 2020. The increase in rate was primarily due to an estimated provision to return adjustment recorded in the prior year and a change in mix of income between countries of operation.
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Supplemental Performance Data
Finance Receivables Portfolio Performance
We purchase nonperforming loans from a variety of credit originators and segregate them into two main portfolio segments: Core or Insolvency, based on the status of the account upon acquisition. In addition, the accounts are further segregated into geographical regions based upon where the account was purchased. The accounts represented in the Insolvency tables below are those portfolios of accounts that were in an insolvency status at the time of purchase. This contrasts with accounts in our Core portfolios that file for bankruptcy/insolvency protection after we purchase them, which continue to be tracked in their corresponding Core portfolio. Core customers sometimes file for bankruptcy/insolvency protection subsequent to our purchase of the related Core portfolio. When this occurs, we adjust our collection practices to comply with bankruptcy/insolvency rules and procedures; however, for accounting purposes, these accounts remain in the original Core pool. Insolvency accounts may be dismissed voluntarily or involuntarily subsequent to our purchase of the Insolvency portfolio. Dismissal occurs when the terms of the bankruptcy are not met by the petitioner. When this occurs, we are typically free to pursue collection outside of bankruptcy procedures; however, for accounting purposes, these accounts remain in the original Insolvency pool.
Purchase price multiples can vary over time due to a variety of factors, including pricing competition, supply levels, age of the receivables acquired, and changes in our operational efficiency. For example, increased pricing competition during the 2005 to 2008 period negatively impacted purchase price multiples of our Core portfolio compared to prior years. Conversely, during the 2009 to 2011 period, additional supply occurred as a result of the economic downturn. This created unique and advantageous purchasing opportunities, particularly within the Insolvency market, relative to the prior four years. Purchase price multiples can also vary among types of finance receivables. For example, we generally incur lower collection costs on our Insolvency portfolio compared with our Core portfolio. This allows us, in general, to pay more for an Insolvency portfolio and experience lower purchase price multiples, while generating similar net income margins when compared with a Core portfolio.
When competition increases and/or supply decreases, pricing often becomes negatively impacted relative to expected collections, and yields tend to trend lower. The opposite tends to occur when competition decreases and/or supply increases.
Within a given portfolio type, to the extent that lower purchase price multiples are the result of more competitive pricing and lower net yields, this will generally lead to lower profitability. As portfolio pricing becomes more favorable on a relative basis, our profitability will tend to increase. Profitability within given Core portfolio types may also be impacted by the age and quality of the receivables, which impact the cost to collect those accounts. Fresher accounts, for example, typically carry lower associated collection expenses, while older accounts and lower balance accounts typically carry higher costs and, as a result, require higher purchase price multiples to achieve the same net profitability as fresher paper.
Revenue recognition under Accounting Standards Codification ("ASC") Topic 326 "Financial Instruments-Credit Losses" ("ASC 326") is driven by estimates of the amount and timing of collections. We record new portfolio acquisitions at the purchase price which reflects the amount we expect to collect discounted at an effective interest rate. During the year of acquisition, the annual pool is aggregated and the blended effective interest rate will change to reflect new buying and new cash flow estimates until the end of the year. At that time, the effective interest rate is fixed at the amount we expect to collect discounted at the rate to equate purchase price to the recovery estimate. During the first year of purchase, we typically do not allow purchase price multiples to expand. Subsequent to the initial year, as we gain collection experience and confidence with a pool of accounts, we regularly update ERC. As a result, our estimate of total collections has often increased as pools have aged. These processes have tended to cause the ratio of ERC to purchase price for any given year of buying to gradually increase over time. Thus, all factors being equal in terms of pricing, one would typically tend to see a higher collection to purchase price ratio from a pool of accounts that was six years from acquisition than a pool that was just two years from acquisition.
The numbers presented in the following tables represent gross cash collections and do not reflect any costs to collect; therefore, they may not represent relative profitability. Due to all the factors described above, readers should be cautious when making comparisons of purchase price multiples among periods and between types of receivables.

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Purchase Price Multiples
as of March 31, 2021
 Amounts in thousands
Purchase Period
Purchase Price (1)(2)
Total Estimated Collections (3)
Estimated Remaining Collections (4)
Current Purchase Price Multiple
Original Estimated Purchase Price Multiple(5)
Americas and Australia Core
1996-2010$1,078,219 $3,397,952 $24,585 315%240%
2011209,602 719,618 15,897 343%245%
2012254,076 652,293 18,061 257%226%
2013390,826 894,640 30,051 229%211%
2014404,117 859,775 45,345 213%204%
2015443,114 913,857 106,551 206%205%
2016455,767 1,098,295 207,608 241%201%
2017532,851 1,211,584 325,675 227%193%
2018653,975 1,368,879 447,682 209%202%
2019581,476 1,239,777 622,713 213%206%
2020435,668 931,493 717,342 214%213%
202188,822 188,644 184,196 212%212%
Subtotal5,528,513 13,476,807 2,745,706 
Americas Insolvency
1996-2010606,395 1,382,677 920 228%180%
2011180,432 370,183 493 205%155%
2012251,395 392,723 184 156%136%
2013227,834 354,943 651 156%133%
2014148,420 218,432 1,695 147%124%
201563,170 87,087 876 138%125%
201691,442 117,159 6,736 128%123%
2017275,257 349,209 51,318 127%125%
201897,879 131,461 58,999 134%127%
2019123,077 158,692 105,361 129%128%
202062,130 84,972 75,489 137%136%
20219,486 13,185 13,168 139%139%
Subtotal2,136,917 3,660,723 315,890 
Total Americas and Australia7,665,430 17,137,530 3,061,596 
Europe Core
201220,409 41,543 — 204%187%
201320,334 25,653 — 126%119%
2014773,811 2,240,653 586,113 290%208%
2015411,340 725,713 250,732 176%160%
2016333,090 562,194 285,405 169%167%
2017252,174 354,024 184,108 140%144%
2018341,775 529,154 346,370 155%148%
2019518,610 776,604 587,133 150%152%
2020324,119 557,506 491,301 172%172%
202143,635 77,780 76,397 178%178%
Subtotal3,039,297 5,890,824 2,807,559 
Europe Insolvency
201410,876 18,228 130 168%129%
201518,973 29,018 1,997 153%139%
201639,338 56,926 8,784 145%130%
201739,235 49,255 17,707 126%128%
201844,908 52,080 32,060 116%123%
201977,218 101,866 72,242 132%130%
2020105,440 135,896 121,891 129%129%
202116,621 20,786 20,151 125%125%
Subtotal352,609 464,055 274,962 
Total Europe3,391,906 6,354,879 3,082,521 
Total PRA Group$11,057,336 $23,492,409 $6,144,117 
(1)Includes the acquisition date finance receivables portfolios that were acquired through our business acquisitions.
(2)For our non-U.S. amounts, purchase price is presented at the exchange rate at the end of the year in which the portfolio was purchased. In addition, any purchase price adjustments that occur throughout the life of the portfolio are presented at the year-end exchange rate for the respective year of purchase.
(3)For our non-U.S. amounts, TEC is presented at the year-end exchange rate for the respective year of purchase.
(4)For our non-U.S. amounts, ERC is presented at the March 31, 2021 exchange rate.
(5)The Original Estimated Purchase Price Multiple represents the purchase price multiple at the end of the year of acquisition.



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Portfolio Financial Information
Year-to-date as of March 31, 2021
Amounts in thousands
Purchase Period
Cash
Collections (1)
Portfolio Income (1)
Changes in Expected Recoveries (1)
Total Portfolio Revenue (1)(2)
Net Finance Receivables as of March 31, 2021 (3)
Americas and Australia Core
1996-2010$3,726 $2,319 $447 $2,766 $5,178 
20112,259 1,405 309 1,714 2,596 
20122,786 1,286 375 1,661 5,638 
20134,968 2,526 (351)2,175 13,495 
20146,937 3,494 (2,154)1,340 19,677 
201511,958 6,355 (4,961)1,394 45,306 
201624,893 11,990 3,908 15,898 84,015 
201741,722 18,236 3,937 22,173 145,799 
201875,462 25,404 10,591 35,995 245,467 
201988,246 35,129 6,417 41,546 331,169 
202080,231 35,446 16,613 52,059 369,418 
20214,450 2,728 838 3,566 87,902 
Subtotal347,638 146,318 35,969 182,287 1,355,660 
Americas Insolvency
1996-2010181 186 (5)181 — 
201176 73 3 76 — 
2012190 72 120 192 — 
2013201 181 20 201 — 
2014298 355 (90)265 190 
2015446 247 (202)45 497 
20162,727 491 241 732 5,429 
201711,752 2,621 468 3,089 43,107 
20187,812 1,778 751 2,529 50,368 
20198,594 2,488 (1,786)702 89,380 
20202,960 1,897 535 2,432 57,174 
202116 101 (14)87 9,553 
Subtotal35,253 10,490 41 10,531 255,698 
Total Americas and Australia382,891 156,808 36,010 192,818 1,611,358 
Europe Core
2012283 — 283 283 — 
2013171 — 171 171 — 
201437,843 25,589 7,184 32,773 159,401 
201513,464 7,427 (6,091)1,336 130,541 
201611,956 6,431 (649)5,782 164,228 
20179,565 3,191 (1,076)2,115 127,233 
201818,365 6,289 4,576 10,865 226,773 
201932,020 10,111 2,450 12,561 390,892 
202024,425 9,595 4,578 14,173 293,315 
20211,394 210 1,015 1,225 43,431 
Subtotal149,486 68,843 12,441 81,284 1,535,814 
Europe Insolvency
201488 48 6 54 55 
2015530 225 5 230 1,335 
20161,762 546 118 664 6,487 
20172,484 398 140 538 15,696 
20182,967 640 (764)(124)27,919 
20196,222 1,554 183 1,737 59,244 
20208,817 2,410 850 3,260 98,227 
2021640 200 1,147 1,347 16,531 
Subtotal23,510 6,021 1,685 7,706 225,494 
Total Europe172,996 74,864 14,126 88,990 1,761,308 
Total PRA Group$555,887 $231,672 $50,136 $281,808 $3,372,666 
(1)For our non-U.S. amounts, amounts are presented using the average exchange rates during the current reporting period.
(2)Total Portfolio Revenue refers to Portfolio Income and Changes in Expected Recoveries combined.
(3)For our non-U.S. amounts, Net Finance Receivables are presented at the March 31, 2021 exchange rate.

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The following table, which excludes any proceeds from cash sales of finance receivables, illustrates historical cash collections, by year, on our portfolios.
Cash Collections by Year, By Year of Purchase (1)
as of March 31, 2021
 Amounts in millions
Cash Collections
Purchase Period
Purchase Price (2)(3)
1996-201020112012201320142015201620172018201920202021Total
Americas and Australia Core
1996-2010$1,078.2 $1,990.5 $367.1 $311.5 $228.4 $157.7 $109.3 $70.2 $46.0 $34.4 $28.4 $18.8 $3.7 $3,366.0 
2011209.6 — 62.0 174.5 152.9 108.5 73.8 48.7 32.0 21.6 16.6 10.9 2.3 703.8 
2012254.1 — — 56.9 173.6 146.2 97.3 60.0 40.0 27.8 17.9 11.8 2.8 634.3 
2013390.8 — — — 101.6 247.8 194.0 120.8 78.9 56.4 36.9 23.2 5.0 864.6 
2014404.1 — — — — 92.7 253.4 170.3 114.2 82.2 55.3 31.9 6.9 806.9 
2015443.1 — — — — — 117.0 228.4 185.9 126.6 83.6 57.2 12.0 810.7 
2016455.8 — — — — — — 138.7 256.5 194.6 140.6 105.9 24.9 861.2 
2017532.9 — — — — — — — 107.3 278.7 256.5 192.5 41.7 876.7 
2018654.0 — — — — — — — — 122.7 361.9 337.7 75.5 897.8 
2019581.5 — — — — — — — — — 143.8 349.0 88.2 581.0 
2020435.7 — — — — — — — — — — 133.0 80.2 213.2 
202188.8 — — — — — — — — — — — 4.4 4.4 
Subtotal5,528.6 1,990.5 429.1 542.9 656.5 752.9 844.8 837.1 860.8 945.0 1,141.5 1,271.9 347.6 10,620.6 
Americas Insolvency
1996-2010606.4 390.9 261.2 270.4 231.0 158.9 51.2 8.6 4.6 2.5 1.4 0.8 0.2 1,381.7 
2011180.4 — 15.2 66.4 82.8 85.8 76.9 36.0 3.7 1.6 0.7 0.5 0.1 369.7 
2012251.4 — — 17.4 103.6 94.1 80.1 60.7 29.3 4.3 1.9 0.9 0.2 392.5 
2013227.8 — — — 52.5 82.6 81.7 63.4 47.8 21.9 2.9 1.3 0.2 354.3 
2014148.4 — — — — 37.0 50.9 44.3 37.4 28.8 15.8 2.2 0.3 216.7 
201563.2 — — — — — 3.4 17.9 20.1 19.8 16.7 7.9 0.4 86.2 
201691.4 — — — — — — 18.9 30.4 25.0 19.9 14.4 2.7 111.3 
2017275.3 — — — — — — — 49.1 97.3 80.9 58.8 11.8 297.9 
201897.9 — — — — — — — — 6.7 27.4 30.5 7.8 72.4 
2019123.1 — — — — — — — — — 13.3 31.4 8.6 53.3 
202062.1 — — — — — — — — — — 6.6 3.0 9.6 
20219.5 — — — — — — — — — — — — — 
Subtotal2,136.9 390.9 276.4 354.2 469.9 458.4 344.2 249.8 222.4 207.9 180.9 155.3 35.3 3,345.6 
Total Americas and Australia7,665.5 2,381.4 705.5 897.1 1,126.4 1,211.3 1,189.0 1,086.9 1,083.2 1,152.9 1,322.4 1,427.2 382.9 13,966.2 
Europe Core
201220.4 — — 11.6 9.0 5.6 3.2 2.2 2.0 2.0 1.5 1.2 0.3 38.6 
201320.3 — — — 7.1 8.5 2.3 1.3 1.2 1.3 0.9 0.7 0.2 23.5 
2014773.8 — — — — 153.2 292.0 246.4 220.8 206.3 172.9 149.8 37.8 1,479.2 
2015411.3 — — — — — 45.8 100.3 86.2 80.9 66.1 54.3 13.4 447.0 
2016333.1 — — — — — — 40.4 78.9 72.6 58.0 48.3 12.0 310.2 
2017252.2 — — — — — — — 17.9 56.0 44.1 36.1 9.6 163.7 
2018341.8 — — — — — — — — 24.3 88.7 71.2 18.4 202.6 
2019518.6 — — — — — — — — — 47.9 125.7 32.0 205.6 
2020324.1 — — — — — — — — — — 32.4 24.4 56.8 
202143.6 — — — — — — — — — — — 1.4 1.4 
Subtotal3,039.2 — — 11.6 16.1 167.3 343.3 390.6 407.0 443.4 480.1 519.7 149.5 2,928.6 
Europe Insolvency
201410.9 — — — — — 4.3 3.9 3.2 2.6 1.5 0.8 0.1 16.4 
201519.0 — — — — — 3.0 4.4 5.0 4.8 3.9 2.9 0.5 24.5 
201639.3 — — — — — — 6.2 12.7 12.9 10.7 7.9 1.8 52.2 
201739.2 — — — — — — — 1.2 7.9 9.2 9.8 2.5 30.6 
201844.9 — — — — — — — — 0.6 8.4 10.3 3.0 22.3 
201977.2 — — — — — — — — — 5.1 21.1 6.2 32.4 
2020105.4 — — — — — — — — — — 6.1 8.8 14.9 
202116.7 — — — — — — — — — — — 0.6 0.6 
Subtotal352.6 — — — — — 7.3 14.5 22.1 28.8 38.8 58.9 23.5 193.9 
Total Europe3,391.8 — — 11.6 16.1 167.3 350.6 405.1 429.1 472.2 518.9 578.6 173.0 3,122.5 
Total PRA Group$11,057.3 $2,381.4 $705.5 $908.7 $1,142.5 $1,378.6 $1,539.6 $1,492.0 $1,512.3 $1,625.1 $1,841.3 $2,005.8 $555.9 $17,088.7 
(1)For our non-U.S. amounts, cash collections are presented using the average exchange rates during the cash collection period.
(2)Includes the finance receivables portfolios that were acquired through our business acquisitions.
(3)For our non-U.S. amounts, purchase price is presented at the exchange rate at the end of the year in which the portfolio was purchased. In addition, any purchase price adjustments that occur throughout the life of the pool are presented at the year-end exchange rate for the respective year of purchase.

34

Estimated remaining collections
The following chart shows our ERC of $6,144.1 million at March 31, 2021 by geographical region (amounts in millions).
praa-20210331_g1.jpg
The following chart shows our ERC by year for the 12 month periods ending March 31 in each of the years represented below. The forecast amounts reflect our estimate at March 31, 2021 of how much we expect to collect on our portfolios. These estimates are translated to U.S. dollar at the March 31, 2021 exchange rate (amounts in millions).
praa-20210331_g2.jpg
Seasonality
Although 2020 deviated from usual seasonal patterns due to the impact of COVID-19, typically cash collections in the Americas tend to be higher in the first half of the year due to the high volume of income tax refunds received by individuals in the U.S., and trend lower as the year progresses. Customer payment patterns in all of the countries in which we operate can be affected by seasonal employment trends, income tax refunds, and holiday spending habits.


35

Cash Collections
The following table displays our quarterly cash collections by geography and portfolio type, for the periods indicated (amounts in thousands).
Cash Collections by Geography and Type
202120202019
Q1Q4Q3Q2Q1Q4Q3Q2
Americas and Australia Core$347,638 $286,524 $336,322 $343,269 $305,780 $276,639 $279,902 $294,243 
Americas Insolvency35,253 36,048 37,344 38,685 43,210 40,801 45,759 49,770 
Europe Core149,486 141,471 131,702 115,145 131,340 126,649 118,917 117,635 
Europe Insolvency23,510 17,830 13,971 12,841 14,243 12,520 8,639 8,626 
Total Cash Collections$555,887 $481,873 $519,339 $509,940 $494,573 $456,609 $453,217 $470,274 
The following table provides additional details on the composition of our Core cash collections for the periods indicated (amounts in thousands).
 Cash Collections by Source - Core Portfolios Only
202120202019
Q1Q4Q3Q2Q1Q4Q3Q2
Call Center and Other Collections$355,043 $296,865 $325,898 $319,236 $288,596 $262,570 $254,798 $264,478 
External Legal Collections65,613 58,481 68,861 70,310 75,699 70,867 75,082 75,624 
Internal Legal Collections76,468 72,649 73,265 68,868 72,825 69,851 68,939 71,776 
Total Core Cash Collections$497,124 $427,995 $468,024 $458,414 $437,120 $403,288 $398,819 $411,878 
Collections Productivity (U.S. Portfolio)
The following tables displays a collections productivity measure for our U.S. Portfolios for the periods indicated.
Cash Collections per Collector Hour Paid
U.S. Portfolio
Call center and other cash collections (1)
20212020201920182017
First Quarter$279 $172 $139 $121 $161 
Second Quarter— 263 139 101 129 
Third Quarter— 246 124 107 125 
Fourth Quarter— 204 128 104 112 
(1)Represents total cash collections less internal legal cash collections, external legal cash collections, and insolvency cash collections from trustee-administered accounts.

Cash Efficiency Ratio
The following table displays our cash efficiency for the periods indicated.
Cash Efficiency Ratio (1)
202120202019
First Quarter68.0%61.5%59.2%
Second Quarter—68.760.4
Third Quarter—65.660.2
Fourth Quarter—61.959.7
Full Year—64.559.9
(1) Calculated by dividing cash receipts less operating expenses by cash receipts.
36

Portfolio Acquisitions
The following graph shows the purchase price of our portfolios by year since 2011. It includes the acquisition date finance receivable portfolios that were acquired through our business acquisitions. The 2021 totals represent portfolio acquisitions through the three months ended March 31, 2021 while the prior year totals are for the full year.
praa-20210331_g3.jpg
The following table displays our quarterly portfolio acquisitions for the periods indicated (amounts in thousands).
Portfolio Acquisitions by Geography and Type
202120202019
Q1Q4Q3Q2Q1Q4Q3Q2
Americas and Australia Core$88,912 $67,460 $84,139 $110,474 $172,697 $118,153 $168,185 $121,996 
Americas Insolvency9,486 12,504 14,328 14,527 20,772 22,650 26,311 26,092 
Europe Core44,095 137,647 74,930 34,247 60,990 218,919 64,728 136,344 
Europe Insolvency16,468 72,171 4,203 5,251 18,778 42,613 19,772 4,715 
Total Portfolio Acquisitions$158,961 $289,782 $177,600 $164,499 $273,237 $402,335 $278,996 $289,147 
Portfolio Acquisitions by Stratification (U.S. Only)
The following table categorizes our quarterly U.S. portfolio acquisitions for the periods indicated into major asset type and delinquency category. Since our inception in 1996, we have acquired more than 57 million customer accounts in the U.S (amounts in thousands).
U.S. Portfolio Acquisitions by Major Asset Type
20212020
Q1Q4Q3Q2Q1
Major Credit Cards$28,230 31.1 %$22,500 28.9 %$23,322 25.7 %$50,270 40.9 %$71,225 38.3 %
Private Label Credit Cards50,180 55.4 48,335 62.1 60,331 66.5 69,651 56.7 104,300 56.0 
Consumer Finance11,861 13.1 5,978 7.6 6,333 7.0 2,430 2.0 2,109 1.1 
Auto Related381 0.4 1,081 1.4 680 0.8 460 0.4 8,510 4.6 
Total$90,652 100.0 %$77,894 100.0 %$90,666 100.0 %$122,811 100.0 %$186,144 100.0 %

37

U.S. Portfolio Acquisitions by Delinquency Category
20212020
Q1Q4Q3Q2Q1
Fresh (1)
$21,502 26.4 %$21,985 33.6 %$25,236 33.1 %$28,847 26.6 %$51,126 30.9 %
Primary (2)
1,360 1.7 1,002 1.5 5,187 6.8 9,887 9.1 18,152 11.0 
Secondary (3)
50,546 62.1 41,164 63.0 44,534 58.3 67,609 62.5 92,855 56.1 
Other (4)
8,050 9.8 1,239 1.9 1,381 1.8 1,941 1.8 3,239 2.0 
Total Core81,458 100.0 %65,390 100.0 %76,338 100.0 %108,284 100.0 %165,372 100.0 %
Insolvency9,194 12,504 14,328 14,527 20,772 
Total$90,652 $77,894 $90,666 $122,811 $186,144 
(1)Fresh accounts are typically past due 120 to 270 days, charged-off by the credit originator and are either being sold prior to any post-charge-off collection activity or placement with a third-party for the first time.
(2)Primary accounts are typically 360 to 450 days past due and charged-off and have been previously placed with one contingent fee servicer.
(3)Secondary accounts are typically more than 660 days past due and charged-off and have been placed with two contingent fee servicers.
(4)Other accounts are typically two to three years or more past due and charged-off and have previously been worked by three or more contingent fee servicers.
Non-GAAP Financial Measures
We report financial results in accordance with U.S. generally accepted accounting principles ("GAAP"). However, management uses certain non-GAAP financial measures including adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA"), to evaluate our operating and financial performance as well as to set performance goals. We present Adjusted EBITDA because we consider it an important supplemental measure of operations and financial performance. Management believes Adjusted EBITDA helps provide enhanced period-to-period comparability of operations and financial performance, as it excludes certain items whose fluctuations from period to period do not necessarily correspond to changes in the operations of our business, and is useful to investors as other companies in the industry report similar financial measures. Adjusted EBITDA should not be considered as an alternative to net income determined in accordance with GAAP. In addition, our calculation of Adjusted EBITDA may not be comparable to the calculation of similarly titled measures presented by other companies.
Adjusted EBITDA is calculated starting with our GAAP financial measure, net income attributable to PRA Group, Inc. and is adjusted for:
•income tax expense (or less income tax benefit);
•foreign exchange loss (or less foreign exchange gain);
•interest expense, net (or less interest income, net);
•other expense (or less other income);
•depreciation and amortization;
•net income attributable to noncontrolling interests; and
•recoveries applied to negative allowance less changes in expected recoveries.









38

The following table is a reconciliation of net income, as reported in accordance with GAAP, to Adjusted EBITDA for the last 12 months ("LTM") as of March 31, 2021 and for the year ended December 31, 2020 (amounts in thousands):
Reconciliation of Non-GAAP Financial Measures
LTMFor the Year Ended
March 31, 2021December 31, 2020
Net income attributable to PRA Group, Inc.$188,610 $149,339 
Adjustments:
Income tax expense55,425 41,203 
Foreign exchange losses/(gains)304 (2,005)
Interest expense, net136,053 141,712 
Other expense (1)
947 1,049 
Depreciation and amortization18,362 18,465 
Adjustment for net income attributable to noncontrolling interests18,576 18,403 
Recoveries applied to negative allowance less Changes in expected recoveries997,313 968,362 
Adjusted EBITDA $1,415,590 $1,336,528 
(1) Other expense reflects non-operating expenses.
Additionally, we evaluate our business using certain ratios that use Adjusted EBITDA. Debt to Adjusted EBITDA is calculated by dividing borrowings by Adjusted EBITDA. The following table reflects our Debt to Adjusted EBITDA for the LTM as of March 31, 2021 and for the year ended December 31, 2020 (amounts in thousands):
Debt to Adjusted EBITDA
LTMFor the Year Ended
March 31, 2021December 31, 2020
Borrowings$2,501,133 $2,661,289 
Adjusted EBITDA$1,415,590 $1,336,528 
Debt to Adjusted EBITDA1.77x1.99x
Liquidity and Capital Resources
We actively manage our liquidity to help provide access to sufficient funding to meet our business needs and financial obligations. As of March 31, 2021, cash and cash equivalents totaled $92.8 million. Of the cash and cash equivalent balance as of March 31, 2021, $62.2 million consisted of cash on hand related to international operations with indefinitely reinvested earnings. See the "Undistributed Earnings of International Subsidiaries" section below for more information.









39

At March 31, 2021, we had the following borrowings outstanding and availability under our credit facilities (amounts in thousands):
OutstandingAvailable without Restrictions
Available with Restrictions (1)
Americas revolving credit (2)
$376,392 $703,995 $254,772 
European revolving credit1,023,039 366,961 236,961 
Term loan467,500 — — 
Senior Notes300,000 — — 
Convertible Notes345,000 — — 
Less: Debt discounts and issuance costs(10,798)— — 
Total$2,501,133 $1,070,956 $491,733 
(1) Available borrowings after calculation of current borrowing base and debt covenants.
(2) Includes North American revolver and Colombian revolver.
An additional funding source for our Europe operations is interest-bearing deposits. Per the terms of our European credit facility, we are permitted to obtain interest-bearing deposit funding of up to SEK 1.2 billion (approximately $137.4 million as of March 31, 2021). Interest-bearing deposits as of March 31, 2021 were $125.0 million.
We determined that we were in compliance with the covenants of our financing arrangements as of March 31, 2021.
We have the ability to slow the purchase of finance receivables if necessary, and use the net cash flow generated from our cash collections from our existing finance receivables to temporarily service our debt and fund existing operations.
Contractual obligations over the next year are primarily related to purchase commitments. As of March 31, 2021, we have forward flow commitments in place for the purchase of nonperforming loans with a maximum purchase price of $640.7 million, of which $621.2 million is due within the next 12 months. The $640.7 million is comprised of $452.7 million for the Americas and Australia and $188.0 million for Europe. We may also enter into new or renewed forward flow commitments and close on spot transactions in addition to the aforementioned forward flow agreements.
Additionally, of our $2.5 billion borrowings at March 31, 2021, estimated interest, unused fees and principal payments for the next 12 months are approximately $106.7 million, of which, $11.0 million relates to principal. Our principal payment obligations related to debt maturities occur within three to five years as our European credit facility expires in February 2023, our convertible notes mature in June 2023, our North American credit facility expires in May 2024 and our senior notes mature in September 2025.
We believe that funds generated from operations and from cash collections on finance receivables, together with existing cash, available borrowings under our revolving credit facilities, and access to the capital markets will be sufficient to finance our operations, planned capital expenditures, forward flow purchase commitments, debt maturities and additional portfolio purchases during the next 12 months. We may, however, seek to access the debt or equity capital markets as we deem appropriate, market permitting. Business acquisitions or higher than expected levels of portfolio purchasing could require additional financing from other sources.
For more information, see Note 7 to our Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report.







40

Cash Flows Analysis
The following table summarizes our cash flow activity for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 (amounts in thousands):
Three Months Ended March 31,
20212020Change
Total cash provided by (used in):
Operating activities$20,208 $46,806 $(26,598)
Investing activities166,982 (42,180)209,162 
Financing activities(192,955)72,142 (265,097)
Effect of exchange rate on cash(6,427)(16,575)10,148 
Net (decrease)/increase in cash and cash equivalents$(12,192)$60,193 $(72,385)
Operating Activities
Cash provided by operating activities mainly reflects cash collections recognized as revenue partially offset by cash paid for operating expenses, interest and income taxes. Key drivers of operating activities were adjusted for (i) non-cash items included in net income such as provisions for unrealized gains and losses, changes in expected recoveries, depreciation and amortization, deferred taxes, fair value changes in equity securities, and stock-based compensation as well as (ii) changes in the balances of operating assets and liabilities, which can vary significantly in the normal course of business due to the amount and timing of payments.
Net cash provided by operating activities decreased $26.6 million during the three months ended March 31, 2021, mainly driven by lower cash collections recognized as revenue and other various offsetting noncash items.
Investing Activities
Cash provided by investing activities mainly reflects recoveries applied to our negative allowance. Cash used in investing activities mainly reflects purchases of nonperforming loans.
Net cash provided by investing activities increased $209.2 million during the three months ended March 31, 2021 primarily driven by a $112.5 million decrease in purchases of nonperforming loans and a $91.9 million increase in recoveries applied to our negative allowance.
Financing Activities
Cash provided by financing activities is normally provided by draws on our lines of credit and proceeds from debt offerings. Cash used in financing activities is primarily driven by principal payments on our lines of credit and long-term debt.
Changes in net cash flow related to financing activities was driven primarily by a $269.7 million decrease in proceeds from our lines of credit.
Undistributed Earnings of International Subsidiaries
We intend to use predominantly all of our accumulated and future undistributed earnings of international subsidiaries to expand operations outside the U.S.; therefore, such undistributed earnings of international subsidiaries are considered to be indefinitely reinvested outside the U.S. Accordingly, no provision for income tax and withholding tax has been provided thereon. If management's intentions change and eligible undistributed earnings of international subsidiaries are repatriated, we could be subject to additional income taxes and withholding taxes. This could result in a higher effective tax rate in the period in which such a decision is made to repatriate accumulated or future undistributed international earnings. The amount of cash on hand related to international operations with indefinitely reinvested earnings was $62.2 million and $97.0 million as of March 31, 2021 and December 31, 2020, respectively. Refer to Note 12 to our Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report for further information related to our income taxes and undistributed international earnings.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined by Item 303(a)(4) of Regulation S-K promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
41

Recent Accounting Pronouncements
For a summary of recent accounting pronouncements and the anticipated effects on our Consolidated Financial Statements see Note 14 to our Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report.
Critical Accounting Policies and Estimates
Our Consolidated Financial Statements have been prepared in accordance with GAAP. Our significant accounting policies are discussed in Note 1 to our Consolidated Financial Statements included in Item 8 of our 2020 Form 10-K. Our significant accounting policies are fundamental to understanding our results of operations and financial condition because they require that we use estimates, assumptions and judgments that affect the reported amounts of revenues, expenses, assets, and liabilities.
Three of these policies are considered to be critical because they are important to the portrayal of our financial condition and results, and because they require management to make judgments and estimates that are difficult, subjective, and complex regarding matters that are inherently uncertain.
We base our estimates on historical experience, current trends and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. If these estimates differ significantly from actual results, the impact on our Consolidated Financial Statements may be material.
Management has reviewed these critical accounting policies with the Audit Committee of our Board of Directors.    
Revenue Recognition - Finance Receivables
We account for the majority of our investment in finance receivables under the guidance of ASC 326. Revenue recognition for finance receivables involves the use of estimates and the exercise of judgment on the part of management. These estimates include projections of the quantity and timing of future cash flows and economic lives of our pools of finance receivables. Significant changes in such estimates could result in increased or decreased revenue as we immediately recognize the discounted value of such changes using the constant effective interest rate of the pool.
We account for our finance receivables as follows:
We create each annual accounting pool using our projections of estimated cash flows and expected economic life. We then compute a constant effective interest rate based on the net carrying amount of the pool and reasonable projections of estimated cash flows and expectation of its economic life. As actual cash flow results are received we record the time value of the expected cash as Portfolio income and over and under performance and changes in expected future cash flows from expected cash as Changes in expected recoveries. We review each pool watching for trends, actual performance versus projections and curve shape (a graphical depiction of the timing of cash flows). We then re-forecast future cash flows by applying discounted cash flow methodologies to our ERC and recognize income over the estimated life of the pool at the constant effective interest rate of the pool.
Significant judgment is used in evaluating expected recoveries using the discounted cash flow approach and the estimated life of the pool.
Valuation of Goodwill
In accordance with ASC Topic 350, "Intangibles-Goodwill and Other" ("ASC 350"), we evaluate Goodwill for impairment annually and more frequently if indicators of potential impairment exist. Goodwill is reviewed for potential impairment at the reporting unit level.
Goodwill is evaluated for impairment either under the qualitative assessment option or using a quantitative forecast approach depending on facts and circumstances of a reporting unit, including the excess of fair value over carrying amount in the last valuation, changes in the business environment and changes of the reporting unit or its composition. If upon evaluation of the qualitative factors, we determine it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, there is no impairment loss to record and a quantitative assessment is not required. If the carrying amount exceeds the reporting unit’s fair value, then we are required to determine the reporting unit’s fair value and record as an impairment loss the amount the carrying value exceeds fair value, not to exceed the total amount of goodwill allocated to the respective reporting unit.
42

We determine the fair value of a reporting unit by applying the approaches prescribed under ASC Topic 820 "Fair Value Measurements and Disclosures": the income approach and the market approach. Depending on the availability of public data and suitable comparables, we may or may not use the market approach or we may emphasize the results from the approach differently. Under the income approach, we estimate the fair value of a reporting unit based on the present value of estimated future cash flows and a residual terminal value. Cash flow projections are based on management's estimates of revenue growth rates, operating margins, necessary working capital and capital expenditure requirements, taking into consideration industry and market conditions. The discount rate used is based on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the reporting unit's ability to execute on the projected cash flows. Under the market approach, we estimate fair value based on prices and other relevant market transactions involving comparable publicly-traded companies with operating and investment characteristics similar to the reporting unit.
Income Taxes
We are subject to income taxes throughout the U.S. and in numerous international jurisdictions. These tax laws are complex and are subject to different interpretations by the taxpayer and the relevant government taxing authorities. When determining our domestic and international income tax expense, we make judgments about the application of these inherently complex laws.
We follow the guidance of ASC Topic 740 "Income Taxes" ("ASC 740") as it relates to the provision for income taxes and uncertainty in income taxes. Accordingly, we record a tax provision for the anticipated tax consequences of the reported results of operations. The provision for income taxes is estimated using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, and for operating losses and tax credit carry-forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled.
We exercise significant judgment in estimating the potential exposure to unresolved tax matters and apply a more-likely-than-not criteria approach for recording tax benefits related to uncertain tax positions in the application of the complex tax laws. While actual results could vary, we believe we have adequate tax accruals with respect to the ultimate outcome of such unresolved tax matters. We record interest and penalties related to unresolved tax matters as a component of income tax expense when the more-likely-than-not standards are met.
In the event that all or part of the deferred tax assets are determined not to be realizable in the future, we would establish a valuation allowance and charge to earnings the impact in the period such a determination is made. If we subsequently realize deferred tax assets that were previously determined to be unrealizable, the respective valuation allowance would be reversed, resulting in a positive adjustment to earnings. The establishment or release of a valuation allowance does not have an impact on cash, nor does such an allowance preclude the use of loss carryforwards or other deferred tax assets in future periods. The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our results of operations and financial position.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our activities are subject to various financial risks, including market risk, currency and interest rate risk, credit risk, liquidity risk and cash flow risk. Our financial risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on our financial performance. We may periodically enter into derivative financial instruments, typically interest rate and currency derivatives, to reduce our exposure to fluctuations in interest rates on variable-rate debt, fluctuations in currency rates and their impact on earnings and cash flows. We do not utilize derivative financial instruments with a level of complexity or with a risk greater than the exposure to be managed nor do we enter into or hold derivatives for trading or speculative purposes. Derivative instruments involve, to varying degrees, elements of non-performance, or credit risk. We do not believe that we currently face a significant risk of loss in the event of non-performance by the counterparties associated with these instruments, as these transactions were executed with a diversified group of major financial institutions with an investment-grade credit rating. Our intention is to spread our counterparty credit risk across a number of counterparties so that exposure to a single counterparty is minimized.
Interest Rate Risk
We are subject to interest rate risk from outstanding borrowings on our variable rate credit facilities. As such, our consolidated financial results are subject to fluctuations due to changes in the market rate of interest. We assess this interest rate risk by estimating the increase or decrease in interest expense that would occur due to a change in short-term interest rates. The borrowings on our variable rate credit facilities were approximately $1.9 billion as of March 31, 2021. Based on our debt structure at March 31, 2021, assuming a 50 basis point decrease in interest rates, for example, interest expense over the following 12 months would decrease by an estimated $1.8 million. Assuming a 50 basis point increase in interest rates, interest expense over the following 12 months would increase by an estimated $3.7 million.
To reduce the exposure to changes in the market rate of interest and to be in compliance with the terms of our European credit facility, we have entered into interest rate derivative contracts for a portion of our borrowings under our floating rate financing arrangements. We apply hedge accounting to certain of our interest rate derivative contracts.  By applying hedge accounting, changes in market value are reflected as adjustments in Other Comprehensive Income. All derivatives to which we have applied hedge accounting were evaluated and remained highly effective at March 31, 2021. Terms of the interest rate derivative contracts require us to receive a variable interest rate and pay a fixed interest rate. The sensitivity calculations above consider the impact of our interest rate derivative contracts and a 75 basis point floor on revolving loans in our North American credit facility.
Currency Exchange Risk
We operate internationally and enter into transactions denominated in various foreign currencies. During the three months ended March 31, 2021, we generated $111.3 million of revenues from operations outside the U.S. and used 12 functional currencies, excluding the U.S. dollar. Weakness in one particular currency might be offset by strength in other currencies over time.
As a result of our international operations, fluctuations in foreign currencies could cause us to incur foreign currency exchange gains and losses, and could adversely affect our comprehensive income and stockholders' equity. Additionally, our reported financial results could change from period to period due solely to fluctuations between currencies.
Foreign currency gains and losses are primarily the result of the re-measurement of transactions in certain other currencies into an entity's functional currency. Foreign currency gains and losses are included as a component of other income and (expense) in our Consolidated Income Statements. From time to time we may elect to enter into foreign exchange derivative contracts to reduce these variations in our Consolidated Income Statements.
When an entity's functional currency is different than the reporting currency of its parent, foreign currency translation adjustments may occur. Foreign currency translation adjustments are included as a component of other comprehensive (loss)/income in our Consolidated Statements of Comprehensive Income and as a component of equity in our Consolidated Balance Sheets.
We have taken measures to mitigate the impact of foreign currency fluctuations. We have organized our European operations so that portfolio ownership and collections generally occur within the same entity. Our European credit facility is a multi-currency facility, allowing us to better match funding and portfolio acquisitions by currency. We actively monitor the value of our finance receivables by currency. In the event adjustments are required to our liability composition by currency we may, from time to time, execute re-balancing foreign exchange contracts to more closely align funding and portfolio acquisitions by currency.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. We maintain disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. We conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report. Based on this evaluation, the principal executive officer and principal financial officer have concluded that, as of March 31, 2021, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting. There was no change in our internal control over financial reporting that occurred during the quarter ended March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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Part II. Other Information
Item 1. Legal Proceedings
For information regarding legal proceedings as of March 31, 2021, refer to Note 13 to our Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report.
Item 1A. Risk Factors
There have been no material changes in our risk factors from those disclosed in Part I, Item 1A, of our 2020 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
Indenture dated as of August 27, 2020 among PRA Group Inc., the domestic subsidiaries of PRA Group Inc., party thereto and Regions Bank, or Trustee (Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed September 1, 2020 (File No. 000-50058)).
Description of the Registrant's Securities Registered pursuant to Section 12 of the Securities Exchange Act of 1934 (Incorporated by reference to Exhibit 4.3 of the Annual Report on Form 10-K filed February 26, 2021 (File No. 000-50058)).
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkable Document
101.LABXBRL Taxonomy Extension Label Linkable Document
101.PREXBRL Taxonomy Extension Presentation Linkable Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
46

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PRA Group, Inc.
(Registrant)
May 6, 2021By:/s/ Kevin P. Stevenson
Kevin P. Stevenson
President and Chief Executive Officer
(Principal Executive Officer)
May 6, 2021By:/s/ Peter M. Graham
Peter M. Graham
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

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