43 unchanged sentences
We implemented certain internal controls related to the adoption of Topic 326, “Financial Instruments – Credit Losses” to ensure we adequately interpreted the guidance and properly assessed the impact of the standard on our financial statements to facilitate its adoption effective January 1, 2020.
−Removed: There were no other changes in our system of internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
+Added: There were no other changes in our system of internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) that occurred during the year ended December 31, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
In the course of our ongoing preparations for management’s report on internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002, we have identified areas in need of improvement and have taken remedial actions to strengthen the affected controls as appropriate.
35 unchanged sentences
S-3 333-163876 4.7 12/21/2009
−Removed: 4.2 Third Amended and Restated Senior Secured Note Purchase Agreement (including the forms of the Notes), dated as of August 11, 2017, by and among Encore Capital Group, Inc.
+Added: 4.2 Fourth Amended and Restated Senior Secured Note Purchase Agreement (including the forms of the Notes), dated as of September 1, 2020, by and among Encore Capital Group, Inc.
and the purchasers named therein
8-K 000-26489 10.2 9/1/2020
−Removed: 4.2.1 Amendment No.1 to the Third Amended and Restated Senior Secured Note Purchase Agreement, dated August 30, 2019, by and among Encore Capital Group, Inc.
−Removed: and the noteholder parties thereto
−Removed: 8-K 000-26489 10.2 9/3/2019
−Removed: 4.2.2 Amendment No.2 to the Third Amended and Restated Senior Secured Note Purchase Agreement, dated December 13, 2019, by and among Encore Capital Group, Inc.
−Removed: and the noteholder parties thereto
−Removed: 4.3 Indenture (including the form of the Note), dated as of June 24, 2013, by and among Encore Capital Group, Inc., Midland Credit Management, Inc., as guarantor, and Union Bank, N.A., as trustee
−Removed: 8-K 000-26489 4.1 6/24/2013
−Removed: 4.3.1 Supplemental Indenture, dated November 6, 2018, to the Indenture, dated as of June 24, 2013, by and among Encore Capital Group, Inc., Midland Credit Management, Inc., as guarantor, and Union Bank, N.A., as trustee
−Removed: 10-Q 000-26489 4.5 11/7/2018
−Removed: Incorporated By Reference
−Removed: Exhibit Number Exhibit Description Form File Number Exhibit Filing Date Filed or Furnished Herewith
4.6 Indenture (including form of note), dated as of March 11, 2014, by and between Encore Capital Group, Inc., Midland Credit Management, Inc., as guarantor, and Union Bank, N.A., as trustee
2 unchanged sentences
10-Q 000-26489 4.6 11/7/2018
+Added: 4.6.2 Second Supplemental Indenture, dated October 29, 2020, to the Indenture, dated as of March 11, 2014, by and among Encore Capital Group, Inc., Midland Credit Management, Inc., as guarantor, and MUFG Union Bank, N.A., as trustee
+Added: 10-Q 000-26489 4.4 11/2/2020
+Added: Incorporated By Reference
+Added: Exhibit Number Exhibit Description Form File Number Exhibit Filing Date Filed or Furnished Herewith
4.9 Indenture (including form of note), dated October 6, 2016, between Cabot Financial (Luxembourg) S.A., Cabot Credit Management Limited, Cabot Financial Limited, the subsidiary guarantors party thereto, J.P.
1 unchanged sentence
8-K 000-26489 4.1 10/7/2016
+Added: 4.9.1 First Supplemental Indenture dated September 7, 2020 to Indenture dated October 6, 2016
+Added: 8-K 000-26489 4.3 9/24/2020
+Added: 4.9.2 Second Supplemental Indenture dated September 24, 2020 to Indenture dated October 6, 2016
+Added: 8-K 000-26489 4.5 9/24/2020
4.10 Indenture (including form of note), dated March 3, 2017, by and among Encore Capital Group, Inc., Midland Credit Management, Inc., as guarantor, and MUFG Union Bank, N.A., as trustee
8-K 000-26489 4.1 3/3/2017
+Added: 4.10.1 First Supplemental Indenture, dated October 29, 2020, to the Indenture, dated as of March 3, 2017, by and among Encore Capital Group, Inc., Midland Credit Management, Inc., as guarantor, and MUFG Union Bank, N.A., as trustee
+Added: 10-Q 000-26489 4.5 11/2/2020
4.11 Indenture, dated July 20, 2018, between Encore Capital Europe Finance Limited and MUFG Union Bank, N.A.
3 unchanged sentences
8-K 000-26489 4.2 7/20/2018
−Removed: 4.12 Indenture, dated June 14, 2019, between Cabot Financial (Luxembourg) II S.A., Cabot Credit Management Limited, Cabot Financial Limited, the subsidiary guarantors party thereto, J.P.
−Removed: Morgan Europe Limited as security agent, and Citibank, N.A.
−Removed: London Branch as trustee.
−Removed: 8-K 000-26489 4.1 6/17/2019
+Added: 4.11.2 Second Supplemental Indenture, dated October 29, 2020, to the Indenture, dated as of July 20, 2018, by and among Encore Capital Europe Finance Limited, Encore Capital Group, Inc., as guarantor, and MUFG Union Bank, N.A., as trustee
+Added: 10-Q 000-26489 4.6 11/2/2020
4.13 Indenture (including form of note), dated September 9, 2019, by and among Encore Capital Group, Inc., Midland Credit Management, Inc., as guarantor, and MUFG Union Bank, N.A., as trustee.
8-K 000-26489 4.1 9/10/2019
+Added: 4.13.1 First Supplemental Indenture, dated October 29, 2020, to the Indenture, dated as of September 9, 2019, by and among Encore Capital Group, Inc., Midland Credit Management, Inc., as guarantor, and MUFG Union Bank, N.A., as trustee
+Added: 10-Q 000-26489 4.7 11/2/2020
4.14 Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934
+Added: 10-K 000-26489 4.14 2/26/2020
+Added: 4.15 Indenture dated September 24, 2020 between Encore Capital Group, Inc., the subsidiary guarantors party thereto, Citibank, N.A., London Branch as trustee and Truist Bank as security agent
+Added: 8-K 000-26489 4.1 9/24/2020
+Added: Incorporated By Reference
+Added: Exhibit Number Exhibit Description Form File Number Exhibit Filing Date Filed or Furnished Herewith
+Added: 4.16 Indenture dated November 23, 2020 between Encore Capital Group, Inc., the subsidiary guarantors party thereto, Citibank, N.A., London Branch as trustee and Truist Bank as security agent
+Added: 8-K 000-26489 4.1 11/23/2020
+Added: 4.17 Indenture dated December 21, 2020 between Encore Capital Group, Inc., the subsidiary guarantors party thereto, Citibank, N.A., London Branch as trustee and Truist Bank as security agent
+Added: 8-K 000-26489 4.1 12/21/2020
10.1+ Form of Indemnification Agreement
9 unchanged sentences
Def 14A 000-26489 Appendix A 4/26/2013
−Removed: Incorporated By Reference
−Removed: Exhibit Number Exhibit Description Form File Number Exhibit Filing Date Filed or Furnished Herewith
10.4.1+ First Amendment to Encore Capital Group, Inc.
16 unchanged sentences
8-K 000-26489 10.1 2/26/2015
−Removed: 10.7+ Non-Employee Director Compensation Program Guidelines, effective September 1, 2018
+Added: 10.7+ Non-Employee Director Compensation Program Guidelines, effective June 17, 2020
10-Q 000-26489 10.1 8/5/2020
15 unchanged sentences
8-K 000-26489 10.5 6/20/2017
+Added: Incorporated By Reference
+Added: Exhibit Number Exhibit Description Form File Number Exhibit Filing Date Filed or Furnished Herewith
10.11.3+ Form of Restricted Stock Award Grant Notice and Award Agreement under the Encore Capital Group, Inc.
10 unchanged sentences
8-K 000-26489 10.2 3/15/2018
−Removed: Incorporated By Reference
−Removed: Exhibit Number Exhibit Description Form File Number Exhibit Filing Date Filed or Furnished Herewith
10.11.7+ Form of Performance Share Unit Award Grant Notice and Award Agreement (TSR) under the Encore Capital Group, Inc.
6 unchanged sentences
2017 Incentive Award Plan
−Removed: 10.12 Third Amended and Restated Credit Agreement, dated December 20, 2016, by and among Encore Capital Group, Inc., the several banks and other financial institutions and lenders from time to time party thereto and listed on the signature pages thereof, and SunTrust Bank, as administrative agent and collateral agent
10-K 000-26489 10.11.9 2/26/2020
−Removed: 10.12.1 Incremental Term Loan and Extension Agreement, dated March 2, 2017, by and among Encore Capital Group, Inc., Cathay Bank, Opus Bank, Umpqua Bank, SunTrust Bank, and each of the guarantors, party thereto
−Removed: 10-Q 000-26489 10.2 5/4/2017
−Removed: 10.12.2 Incremental Facility Agreement, dated March 29, 2017, by and among Encore Capital Group, Inc., Woodforest National Bank, SunTrust Bank, and each of the guarantors, party thereto
−Removed: 10-Q 000-26489 10.4 5/4/2017
−Removed: 10.12.3 Amendment No.1 to Third Amended and Restated Credit Agreement, dated June 13, 2017, by and among Encore Capital Group, Inc., the several banks and other financial institutions and lenders from time to time party thereto and listed on the signature pages thereof, and SunTrust Bank, as administrative agent and collateral agent
−Removed: 10-Q 000-26489 10.1 8/3/2017
−Removed: 10.12.4 Amendment No.
−Removed: 2 to Third Amended and Restated Credit Agreement, dated June 29, 2017, by and among Encore Capital Group, Inc., the several banks and other financial institutions and lenders from time to time party thereto and listed on the signature pages thereof, and SunTrust Bank, as administrative agent and collateral agent
−Removed: 10-Q 000-26489 10.9 8/3/2017
−Removed: 10.12.5 Letter Agreement, dated August 3, 2017, related to the Third Amended and Restated Credit Agreement dated as of December 20, 2016
−Removed: 10-Q 000-26489 10.3 11/2/2017
−Removed: 10.12.6 Incremental Facility Agreement, dated August 15, 2017, by and among Encore Capital Group, Inc., DNB Capital, LLC, SunTrust Bank, and each of the guarantors, party thereto
−Removed: 10-Q 000-26489 10.5 11/2/2017
−Removed: 10.12.7 Incremental Facility Agreement, dated September 26, 2017, by and among Encore Capital Group, Inc., Regions Bank, SunTrust Bank, and each of the guarantors, party thereto
−Removed: 10-Q 000-26489 10.6 11/2/2017
−Removed: Incorporated By Reference
−Removed: Exhibit Number Exhibit Description Form File Number Exhibit Filing Date Filed or Furnished Herewith
−Removed: 10.12.8 Incremental Facility Agreement, dated January 22, 2018, by and among Encore Capital Group, Inc., Umpqua Bank, SunTrust Bank, and each of the guarantors, party thereto
−Removed: 10-K 000-26489 10.12.8 2/21/2018
−Removed: 10.12.9 Incremental Facility Agreement, dated March 21, 2018, by and among Encore Capital Group, Inc., Banc of California, SunTrust Bank and each of the guarantors, party thereto
−Removed: 10-Q 000-26489 10.2 5/8/2018
−Removed: 10.12.10 Extension Agreement, dated May 29, 2018, by and among Encore Capital Group, Inc., Fifth Third Bank, Suntrust Bank, and each of the guarantors party thereto
−Removed: 10-Q 000-26489 10.3 8/8/2018
−Removed: 10.12.11 Extension Agreement, dated September 20, 2018, by and among Encore Capital Group, Inc., SunTrust Bank, Bank of America, N.A., DNB Capital, LLC, Fifth Third Bank, Western Alliance Bancorporation, Chang Hwa Commercial Bank, Ltd., and each of the guarantors, party thereto
−Removed: 10-Q 000-26489 10.9 11/7/2018
−Removed: 10.12.12 Incremental Facility Agreement, dated September 20, 2018, by and among Encore Capital Group, Inc., SunTrust Bank, ING Capital LLC, MUFG Union Bank, N.A., Flagstar Bank, CIBC Bank USA, Umpqua Bank, Opus Bank, Banc of California, California Bank and Trust, Western Alliance Bancorporation, and each of the guarantors, party thereto
−Removed: 10-Q 000-26489 10.10 11/7/2018
−Removed: 10.12.13 Amendment No.
−Removed: 3 to Third Amended and Restated Credit Agreement, dated August 30, 2019, by and among Encore Capital Group, Inc., the several banks and other financial institutions and lenders from time to time party thereto and listed on the signature pages thereof, and SunTrust Bank, as administrative agent and collateral agent
−Removed: 8-K 000-26489 10.1 9/3/2019
−Removed: 10.12.14 Amendment No.
−Removed: 4 to Third Amended and Restated Credit Agreement, dated December 13, 2019, by and among Encore Capital Group, Inc., the several banks and other financial institutions and lenders from time to time party thereto and listed on the signature pages thereof, and SunTrust Bank, as administrative agent and collateral agent
−Removed: 10.13 Second Amended and Restated Pledge and Security Agreement, dated November 5, 2012, by and among Encore Capital Group, Inc., certain of its subsidiaries and SunTrust Bank, as collateral agent
−Removed: 8-K 000-26489 10.2 11/7/2012
−Removed: 10.13.1 Amendment No.
−Removed: 1, dated December 20, 2016, to Second Amended and Restated Pledge and Security Agreement, dated November 5, 2012, by and among Encore Capital Group, Inc., certain of its subsidiaries and SunTrust Bank, as collateral agent
−Removed: 8-K 000-26489 10.1 12/27/2016
−Removed: Incorporated By Reference
−Removed: Exhibit Number Exhibit Description Form File Number Exhibit Filing Date Filed or Furnished Herewith
−Removed: 10.13.2 Amendment No.
−Removed: 2, dated August 11, 2017, to Second Amended and Restated Pledge and Security Agreement, dated November 5, 2012, by and among Encore Capital Group, Inc., certain of its subsidiaries and SunTrust Bank, as collateral agent
−Removed: 10-Q 000-26489 10.4 11/2/2017
−Removed: 10.14 Amended and Restated Guaranty, dated November 5, 2012, by and among certain subsidiaries of Encore Capital Group, Inc.
−Removed: and SunTrust Bank, as administrative agent
−Removed: 8-K 000-26489 10.3 11/7/2012
−Removed: 10.14.1 Amendment No.
−Removed: 1, dated February 25, 2014, to Amended and Restated Guaranty, dated November 5, 2012, by and among certain subsidiaries of Encore Capital Group, Inc.
−Removed: and SunTrust Bank, as administrative agent
−Removed: 10-K 000-26489 10.88 2/25/2014
−Removed: 10.15 Second Amended and Restated Intercreditor Agreement, dated as of August 11, 2017, by and among Encore Capital Group, Inc., certain of its subsidiaries, SunTrust Bank, as administrative agent for the lenders, the holders of the Company’s 7.75% Senior Secured Notes due 2017, 7.375% Senior Secured Notes due 2018 and 5.625% Senior Secured Notes due 2024, and SunTrust Bank, as collateral agent
−Removed: 8-K 000-26489 10.2 8/17/2017
−Removed: 10.16.4 Securities Purchase Agreement, dated May 7, 2018, by and among Encore Capital Group, Inc., JCF III Europe Holdings LP, JCF III Europe S.à r.l., Janus Holdings Luxembourg S.à r.l and the other parties named therein
−Removed: 8-K 000-26489 10.1 5/8/2018
−Removed: 10.16.5 Securities Purchase Agreement, dated May 7, 2018, by and among Encore Capital Group, Inc., Janus Holdings Luxembourg S.à r.l, certain management shareholders of Cabot Holdings S.à r.l.
−Removed: Luxembourg and the other parties named therein
−Removed: 8-K 000-26489 10.2 5/8/2018
−Removed: 10.16.6 First Amendment, dated May 10, 2018, to the Purchase Agreement, dated May 7, 2018, by and among Encore Capital Group, Inc., Janus Holdings Luxembourg S.à r.l, certain management shareholders of Cabot Holdings S.à r.l.
−Removed: Luxembourg and the other parties named therein
−Removed: 10-Q 000-26489 10.2.1 8/8/2018
−Removed: 10.17.1 Letter Agreement, dated June 18, 2013, between Barclays Bank PLC and Encore Capital Group, Inc., regarding the Capped Call Transaction
−Removed: 8-K 000-26489 10.1 6/24/2013
−Removed: 10.17.2 Letter Agreement, dated June 18, 2013, between Credit Suisse International and Encore Capital Group, Inc., regarding the Capped Call Transaction
−Removed: 8-K 000-26489 10.2 6/24/2013
−Removed: 10.17.3 Letter Agreement, dated June 18, 2013, between Morgan Stanley & Co.
−Removed: International plc and Encore Capital Group, Inc., regarding the Capped Call Transaction
−Removed: 8-K 000-26489 10.3 6/24/2013
−Removed: 10.17.4 Letter Agreement, dated June 18, 2013, between RBC Capital Markets, LLC and Encore Capital Group, Inc., regarding the Capped Call Transaction
−Removed: 8-K 000-26489 10.4 6/24/2013
−Removed: Incorporated By Reference
−Removed: Exhibit Number Exhibit Description Form File Number Exhibit Filing Date Filed or Furnished Herewith
−Removed: 10.18.1 Letter Agreement, dated July 18, 2013, between Barclays Bank PLC and Encore Capital Group, Inc., regarding the Capped Call Transaction
−Removed: 8-K 000-26489 10.1 7/23/2013
−Removed: 10.18.2 Letter Agreement, dated July 18, 2013, between Credit Suisse International and Encore Capital Group, Inc., regarding the Capped Call Transaction
−Removed: 8-K 000-26489 10.2 7/23/2013
−Removed: 10.18.3 Letter Agreement, dated July 18, 2013, between Morgan Stanley & Co.
−Removed: International plc and Encore Capital Group, Inc., regarding the Capped Call Transaction
−Removed: 8-K 000-26489 10.3 7/23/2013
−Removed: 10.18.4 Letter Agreement, dated July 18, 2013, between RBC Capital Markets, LLC and Encore Capital Group, Inc., regarding the Capped Call Transaction
−Removed: 8-K 000-26489 10.4 7/23/2013
−Removed: 10.19 Amended and Restated Senior Facilities Agreement, dated November 15, 2019, by and among Cabot Financial Limited, the several guarantors, banks and other financial institutions and lenders from time to time party thereto and J.P.
−Removed: Morgan Europe Limited as Agent and Security Agent
+Added: 10.19 Amended and Restated Senior Facilities Agreement, dated September 1, 2020, by and among Encore Capital Group, Inc., the several guarantors, banks and other financial institutions and lenders from time to time party thereto and Truist Bank as Agent and Security Agent
8-K 000-26489 10.1 9/1/2020
12 unchanged sentences
8-K 000-26489 10.5 3/11/2014
+Added: Incorporated By Reference
+Added: Exhibit Number Exhibit Description Form File Number Exhibit Filing Date Filed or Furnished Herewith
10.21.6 Letter Agreement, dated March 6, 2014, between Credit Suisse International and Encore Capital Group, Inc., regarding the Additional Capped Call Transaction
5 unchanged sentences
8-K 000-26489 10.8 3/11/2014
−Removed: Incorporated By Reference
−Removed: Exhibit Number Exhibit Description Form File Number Exhibit Filing Date Filed or Furnished Herewith
10.22 Senior Facility Agreement, dated February 18, 2020, between Cabot Securitisation UK Limited, Cabot Financial (UK) Limited, HSBC Corporate Trustee Company (UK) Limited as Security Trustee, HSBC Bank PLC as Senior Agent and Goldman Sachs International Bank as Senior Lender
20 unchanged sentences
8-K 000-26489 10.6 7/20/2018
−Removed: 10.24+ Executive Service Agreement, dated February 10, 2014, between Cabot Credit Management Limited and Kenneth John Stannard
−Removed: 10-Q 000-26489 10.1 5/8/2019
−Removed: 10.24.1+ Letter Agreement, dated July 23, 2018, between Cabot Credit Management Limited and Kenneth John Stannard
+Added: 10.26+ Executive Service Agreement, dated November 25, 2019, between Cabot UK Holdco Limited and Craig Buick
10-Q 000-26489 10.2+ 5/11/2020
−Removed: 10.25+ Transition Agreement, dated November 25, 2019, by and among Cabot Credit Management Limited, Encore Capital Group, Inc.
−Removed: and Kenneth Stannard
−Removed: 8-K 000-26489 10.1 11/26/2019
21 List of Subsidiaries
+Added: 22 List of Issuers of Guaranteed Securities
23 Consent of Independent Registered Public Accounting Firm, BDO USA, LLP, dated February 24, 2021
31.1 Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934
−Removed: 31.2 Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934
Incorporated By Reference
Exhibit Number Exhibit Description Form File Number Exhibit Filing Date Filed or Furnished Herewith
+Added: 31.2 Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934
32.1 Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
6 unchanged sentences
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document X
+Added: 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) X
+ Management contract or compensatory plan or arrangement.
19 unchanged sentences
Ashwini Gupta
−Removed: /s/ W ENDY H ANNAM
+Added: /s/ W ENDY G.
Director February 24, 2021
7 unchanged sentences
Director February 24, 2021
−Removed: /s/ F RANCIS E.
−Removed: Director February 26, 2020
−Removed: /s/ N ORMAN R.
−Removed: Director February 26, 2020
/s/ R ICHARD J.
16 unchanged sentences
Deferred Court Costs, Net
−Removed: Property and Equipment, Net
+Added: Composition of Certain Financial Statement Items
Variable Interest Entities
1 unchanged sentence
Commitments and Contingencies
−Removed: Segment Information
+Added: Segment and Geographic Information
Goodwill and Identifiable Intangible Assets
−Removed: Quarterly Information (Unaudited)
−Removed: Subsequent Event
Report of Independent Registered Public Accounting Firm
6 unchanged sentences
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
−Removed: We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 26, 2020 expressed an unqualified opinion thereon.
−Removed: Change in Accounting Principle
−Removed: As discussed in Note 1 to the consolidated financial statements, effective January 1, 2019, the Company adopted Accounting Standards Codification Topic 842, Lease s (Topic 842).
+Added: We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in I nternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 24, 2021 expressed an unqualified opinion thereon.
+Added: Changes in Accounting Principles
+Added: As discussed in Notes 1 and 4 to the consolidated financial statements, effective January 1, 2020, the Company adopted Accounting Standards Codification (“ASC”) Topic 326, Financial Instruments—Credit Losses .
+Added: As discussed in Notes 1 to the consolidated financial statements, effective January 1, 2019, the Company adopted ASC Topic 842, Leases .
Basis for Opinion
11 unchanged sentences
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:
−Removed: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.
+Added: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.
The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
−Removed: Investment in Receivable Portfolios and Revenue from Receivable Portfolios
+Added: Investment in Receivable Portfolios, Revenue from Receivable Portfolios and Changes in Expected Current and Future Recoveries
As more fully described in Notes 1 and 4 to the consolidated financial statements, the Company’s investment in receivable portfolios balance was approximately $3.3 billion at December 31, 2020.
−Removed: Investment in receivable portfolios are comprised of purchased loans with deteriorated credit quality that are grouped quarterly in the period of purchase based on common risk characteristics (“pool”).
−Removed: Revenue from receivable portfolios is recognized from each pool using the effective interest rate (“EIR”) method unless the pool is recorded on a cost recovery method.
−Removed: Management applies significant judgment to estimate cash flows and to evaluate collection performance for each quarterly pool in order to make decisions about whether to leave a pool’s EIR unchanged, to prospectively increase a pool’s EIR, or to impair a pool.
−Removed: We identified the recording of investment in receivable portfolios and revenue from receivable portfolios as a critical audit matter.
−Removed: Specifically, management is required to make significant judgments and assumptions to:
−Removed: (i) estimate cash flows, (ii) evaluate collection performance for each pool, and (iii) reassess the applicable EIR, where appropriate.
+Added: Investment in receivable portfolios are comprised of loans with deteriorated credit quality since origination upon purchase.
+Added: In accordance with the Company’s charge-off policy each loan is deemed to be uncollectible on an individual basis.
+Added: Receivable portfolio purchases are grouped based on similar risk
+Added: characteristics (“pool”) and a negative allowance is established based on future recoveries of the pool using a discounted cash flow approach.
+Added: The discount rate is an effective interest rate (or “EIR”) based on the purchase price of the portfolio and the expected future cash flows at the time of purchase and does not change over the life of the pool unless the risk characteristics of the pool change.
+Added: Revenue from receivable portfolios is recognized at an EIR through the accretion of the discount on the negative allowance, differences between actual versus expected recoveries and the present value of changes in expected future recoveries.
+Added: The Company reviews each pool for current trends, actual versus expected performance and expected timing of cash flows (curve shape).
+Added: The Company then re-forecasts the timing and amount of future recoveries.
+Added: We identified the recording of investment in receivable portfolios, revenue from receivable portfolios and changes in expected current and future recoveries as a critical audit matter.
+Added: Specifically, management is required to make significant judgments and assumptions to estimate future recoveries.
+Added: Estimated future recoveries are based on historical experience, current conditions, and reasonable and supportable forecasts.
Auditing these elements involved especially challenging auditor judgment due to the nature and extent of audit effort required to address these matters.
1 unchanged sentence
• Testing the design and operating effectiveness of controls over management’s assessment of the reasonableness of:
−Removed: (i) inputs and outputs from the Company’s proprietary statistical and behavioral models, (ii) cash collection performance of pools, and (iii) a pool’s EIR.
−Removed: • Testing the completeness and accuracy of collection data used by management to calculate investment in receivable portfolios and revenue from receivable portfolios.
−Removed: • Evaluating the reasonableness of management’s judgments related to the assessment of a pool’s EIR through evaluating the current period forecast to actual performance, recent performance trends and changes to the estimated cash flows.
−Removed: • Evaluating the reasonableness of management’s estimates of cash flows by comparing to actual cash collections.
+Added: (i) inputs and outputs from the Company’s proprietary statistical and behavioral models used to forecast collections, (ii) cash collection performance of pools, and (iii) a pool’s EIR.
+Added: • Testing the completeness and accuracy of collection data used by management to calculate investment in receivable portfolios, revenue from receivable portfolios and changes in expected current and future recoveries.
+Added: • Evaluating the Company’s process used to develop estimates of future recoveries by testing source data and evaluating the reasonableness of assumptions by comparing to historical results, including current period forecasts to actual performance, recent performance trends, curve shape and changes to the expected recoveries.
Goodwill Impairment Assessment
−Removed: As more fully described in Notes 1 and 15 to the consolidated financial statements, the Company’s goodwill balance was approximately $884.2 million at December 31, 2019, which was allocated between two reporting units.
+Added: As more fully described in Notes 1 and 14 to the consolidated financial statements, the Company’s goodwill balance was approximately $0.9 billion at December 31, 2020, which was allocated between two reporting units, MCM and Cabot, that carried goodwill.
The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value.
1 unchanged sentence
For the Cabot reporting unit, management performed a quantitative analysis which utilized a combination of the income approach and the market approach.
−Removed: We identified the goodwill impairment assessment of the Cabot reporting unit as a critical audit matter because of the significant estimates and assumptions management makes as part of the quantitative assessment to estimate the fair value of the reporting unit.
+Added: We identified the goodwill impairment assessment of the Cabot reporting unit as a critical audit matter because of the significant assumptions and judgments management makes as part of the assessment to estimate the fair value of the reporting unit.
The income approach requires significant management assumptions such as assumptions used in the cash flow forecasts, the discount rate, and the terminal value exit multiple.
4 unchanged sentences
• Testing management’s process for developing fair value estimates including testing the completeness, accuracy, and relevance of underlying data and evaluating significant management assumptions by comparing to historical results and market participant data.
−Removed: • Performing a sensitivity analysis of significant assumptions and evaluating the impact on the fair value of the reporting unit that would result from changes in the assumptions.
• Utilizing personnel with specialized knowledge and skill in valuation to assist in:
4 unchanged sentences
February 24, 2021
−Removed: Table of Co ntents
ENCORE CAPITAL GROUP, INC.
17 unchanged sentences
Convertible preferred stock, $ 0.01 par value, 5,000 shares authorized, no shares issued and outstanding
−Removed: Common stock, $ 0.01 par value, 75,000 and 50,000 shares authorized, 31,097 shares and 30,884 shares issued and outstanding as of December 31, 2019 and December 31, 2018, respectively
+Added: Common stock, $ 0.01 par value, 75,000 shares authorized, 31,345 shares and 31,097 shares issued and outstanding as of December 31, 2020 and December 31, 2019, respectively
Additional paid-in capital 230,440 222,590
14 unchanged sentences
Other assets 5,127 4,759
−Removed: Accounts payable and accrued liabilities $ — $ 4,556
Borrowings 478,131 464,092
1 unchanged sentence
See accompanying notes to consolidated financial statements
−Removed: Table of Co ntents
ENCORE CAPITAL GROUP, INC.
4 unchanged sentences
Revenue from receivable portfolios $ 1,374,717 $ 1,269,288 $ 1,167,132
+Added: Changes in expected current and future recoveries 7,246 — —
Servicing revenue 115,118 126,527 148,044
13 unchanged sentences
Income from operations 533,562 446,345 405,300
−Removed: Other (expense) income
+Added: Other expense
Interest expense ( 209,356 ) ( 217,771 ) ( 237,355 )
−Removed: Other (expense) income ( 18,343 ) ( 8,764 ) 10,847
+Added: Loss on extinguishment of debt ( 40,951 ) ( 8,989 ) ( 2,693 )
+Added: Other expense ( 357 ) ( 18,343 ) ( 8,764 )
Total other expense ( 250,664 ) ( 245,103 ) ( 248,812 )
−Removed: Income from continuing operations before income taxes 201,242 156,488 131,226
+Added: Income before income taxes 282,898 201,242 156,488
Provision for income taxes ( 70,374 ) ( 32,333 ) ( 46,752 )
−Removed: Income from continuing operations 168,909 109,736 79,177
−Removed: Loss from discontinued operations, net of tax — — ( 199 )
Net income 212,524 168,909 109,736
2 unchanged sentences
stockholders $ 211,848 $ 167,869 $ 115,886
−Removed: Amounts attributable to Encore Capital Group, Inc.:
−Removed: Income from continuing operations $ 167,869 $ 115,886 $ 83,427
−Removed: Loss from discontinued operations, net of tax — — ( 199 )
−Removed: Net income $ 167,869 $ 115,886 $ 83,228
Earnings per share attributable to Encore Capital Group, Inc.:
−Removed: Basic earnings (loss) per share from:
−Removed: Continuing operations $ 5.38 $ 4.09 $ 3.21
−Removed: Discontinued operations — — ( 0.01 )
−Removed: Net basic earnings per share $ 5.38 $ 4.09 $ 3.20
−Removed: Diluted earnings (loss) per share from:
−Removed: Continuing operations $ 5.33 $ 4.06 $ 3.16
−Removed: Discontinued operations — — ( 0.01 )
−Removed: Net diluted earnings per share $ 5.33 $ 4.06 $ 3.15
+Added: Basic $ 6.74 $ 5.38 $ 4.09
+Added: Diluted $ 6.68 $ 5.33 $ 4.06
Weighted average shares outstanding:
2 unchanged sentences
See accompanying notes to consolidated financial statements
−Removed: Table of Co ntents
ENCORE CAPITAL GROUP, INC.
4 unchanged sentences
Net income $ 212,524 $ 168,909 $ 109,736
−Removed: Other comprehensive income, net of tax:
−Removed: Change in unrealized gains/losses on derivative instruments:
−Removed: Unrealized (loss) gain on derivative instruments ( 5,029 ) ( 7,658 ) 1,242
+Added: Other comprehensive income (loss), net of tax:
+Added: Change in unrealized gain (loss) on derivative instruments:
+Added: Unrealized gain (loss) on derivative instruments 234 ( 5,029 ) ( 7,658 )
Income tax effect ( 66 ) 761 1,743
−Removed: Unrealized (loss) gain on derivative instruments, net of tax ( 4,268 ) ( 5,915 ) 1,042
+Added: Unrealized gain (loss) on derivative instruments, net of tax 168 ( 4,268 ) ( 5,915 )
Change in foreign currency translation:
5 unchanged sentences
Comprehensive (income) loss attributable to noncontrolling interest:
−Removed: Net (income) loss ( 1,040 ) 6,150 4,250
+Added: Net (income) loss attributable to noncontrolling interest ( 676 ) ( 1,040 ) 6,150
Unrealized (income) loss on foreign currency translation ( 7 ) ( 494 ) 5,548
3 unchanged sentences
See accompanying notes to consolidated financial statements
−Removed: Table of Co ntents
ENCORE CAPITAL GROUP, INC.
7 unchanged sentences
Interest Total
−Removed: Balance at December 31, 2016 25,593 $ 256 $ 103,392 $ 560,567 $ ( 104,911 ) $ ( 7,539 ) $ 551,765
−Removed: — — — 83,228 — 655 83,883
−Removed: Other comprehensive income (loss), net of tax — — — — 27,555 ( 707 ) 26,848
−Removed: Change in fair value of redeemable noncontrolling interest
−Removed: — — ( 81,074 ) ( 27,222 ) — — ( 108,296 )
−Removed: Purchase of noncontrolling interest
−Removed: — — 806 — — ( 2,338 ) ( 1,532 )
−Removed: Exercise of stock options and issuance of share-based awards, net of shares withheld for employee taxes
−Removed: 208 2 ( 2,117 ) — — — ( 2,115 )
−Removed: Stock-based compensation
−Removed: — — 10,399 — — — 10,399
−Removed: Issuance of convertible senior notes
−Removed: — — 12,341 — — — 12,341
−Removed: Settlement and repurchase of convertible senior notes
−Removed: 622 6 ( 7,881 ) — — — ( 7,875 )
−Removed: Reclassification of redeemable equity component of convertible senior notes
−Removed: — — 2,995 — — — 2,995
−Removed: Reclassification of certain income tax effects of items within accumulated other comprehensive income to retained earnings
−Removed: — — — ( 259 ) — — ( 259 )
−Removed: Convertible note hedge transactions
−Removed: ( 622 ) ( 6 ) 3,525 — — — 3,519
−Removed: — — 260 — — — 260
−Removed: Balance at December 31, 2017 25,801 258 42,646 616,314 ( 77,356 ) ( 9,929 ) 571,933
+Added: Balance as of December 31, 2017 25,801 $ 258 $ 42,646 $ 616,314 $ ( 77,356 ) $ ( 9,929 ) $ 571,933
Net income (loss) — — — 115,886 — ( 1,359 ) 114,527
9 unchanged sentences
Other — — 1,687 — 3,663 2,421 7,771
−Removed: Balance at December 31, 2018 30,884 309 208,498 720,189 ( 110,987 ) 1,679 819,688
+Added: Balance as of December 31, 2018 30,884 309 208,498 720,189 ( 110,987 ) 1,679 819,688
Net income — — — 167,869 — 1,040 168,909
5 unchanged sentences
Other — — ( 116 ) — 3,814 — 3,698
−Removed: Balance at December 31, 2019 31,097 $ 311 $ 222,590 $ 888,058 $ ( 88,766 ) $ 3,213 $ 1,025,406
+Added: Balance as of December 31, 2019 31,097 311 222,590 888,058 ( 88,766 ) 3,213 1,025,406
+Added: Cumulative adjustment — — — ( 44,238 ) — — ( 44,238 )
+Added: Net income — — — 211,848 — 676 212,524
+Added: Other comprehensive income, net of tax — — — — 17,321 7 17,328
+Added: Purchase of noncontrolling interest — — ( 2,394 ) — — ( 1,428 ) ( 3,822 )
+Added: Issuance of share-based awards, net of shares withheld for employee taxes 248 2 ( 6,316 ) — — — ( 6,314 )
+Added: Stock-based compensation — — 16,560 — — — 16,560
+Added: Other — — — — 2,632 — 2,632
+Added: Balance as of December 31, 2020 31,345 $ 313 $ 230,440 $ 1,055,668 $ ( 68,813 ) $ 2,468 $ 1,220,076
See accompanying notes to consolidated financial statements
−Removed: Table of Co ntents
ENCORE CAPITAL GROUP, INC.
6 unchanged sentences
Adjustments to reconcile net income to net cash provided by operating activities:
−Removed: Loss from discontinued operations, net of income taxes — — 199
Depreciation and amortization 42,780 41,029 41,228
−Removed: Goodwill impairment 10,718 — —
−Removed: Interest expense related to financing 3,523 11,710 —
+Added: Expense related to financing 51,117 3,523 11,710
Other non-cash interest expense, net 23,639 30,299 38,549
Stock-based compensation expense 16,560 12,557 12,980
−Removed: Loss (gain) on derivative instruments, net 5,009 10,789 ( 3,915 )
Deferred income taxes 11,898 22,339 16,814
+Added: Goodwill impairment — 10,718 —
+Added: Changes in expected current and future recoveries ( 7,246 ) — —
Provision for (reversal of) allowances on receivable portfolios, net — 8,108 ( 41,473 )
1 unchanged sentence
Changes in operating assets and liabilities
−Removed: Deferred court costs and other assets 25,379 ( 35,626 ) ( 4,101 )
+Added: Deferred court costs — ( 3,646 ) ( 17,701 )
+Added: Other assets 8,980 29,025 ( 17,925 )
Prepaid income tax and income taxes payable ( 27,693 ) ( 25,678 ) 24,284
2 unchanged sentences
Investing activities:
−Removed: Cash paid for acquisitions, net of cash acquired — — ( 96,390 )
Purchases of receivable portfolios, net of put-backs ( 644,048 ) ( 1,035,130 ) ( 1,131,095 )
3 unchanged sentences
Other, net 24,343 6,822 ( 8,634 )
−Removed: Net cash used in investing activities ( 202,333 ) ( 397,516 ) ( 452,131 )
+Added: Net cash provided by (used in) investing activities 82,826 ( 202,333 ) ( 397,516 )
Financing activities:
6 unchanged sentences
Repayment of convertible senior notes ( 89,355 ) ( 84,600 ) —
−Removed: Proceeds from other debt 18,334 27,694 33,197
−Removed: Repayment of other debt ( 25,531 ) ( 42,456 ) ( 8,910 )
Payment for the purchase of PECs and noncontrolling interest — — ( 234,101 )
1 unchanged sentence
Net cash (used in) provided by financing activities ( 403,200 ) ( 19,770 ) 166,377
−Removed: Net increase (decrease) in cash and cash equivalents 22,630 ( 44,348 ) 49,904
+Added: Net (decrease) increase in cash and cash equivalents ( 7,510 ) 22,630 ( 44,348 )
Effect of exchange rate changes on cash and cash equivalents 4,359 12,287 ( 10,373 )
Cash and cash equivalents, beginning of period 192,335 157,418 212,139
−Removed: Cash and cash equivalents of continuing operations, end of period $ 192,335 $ 157,418 $ 212,139
+Added: Cash and cash equivalents, end of period $ 189,184 $ 192,335 $ 157,418
Supplemental disclosures of cash flow information:
3 unchanged sentences
Stock consideration for the Cabot Transaction $ — $ — $ 180,559
−Removed: Conversion of convertible senior notes — — 28,277
+Added: Investment in receivable portfolios transferred to real estate owned 2,214 5,058 4,701
Property and equipment acquired through finance leases 3,276 5,299 3,283
See accompanying notes to consolidated financial statements
−Removed: Table of Co ntents
ENCORE CAPITAL GROUP, INC.
9 unchanged sentences
and its domestic affiliates (collectively, “MCM”), the Company is a market leader in portfolio purchasing and recovery in the United States.
−Removed: Through Cabot Credit Management plc (“CCM”) and its subsidiaries and European affiliates (collectively, “Cabot”) the Company is one of the largest credit management services providers in Europe and a market leader in the United Kingdom and Ireland.
+Added: Through Cabot Credit Management Limited (“CCM”) and its subsidiaries and European affiliates (collectively, “Cabot”) the Company is one of the largest credit management services providers in Europe and a market leader in the United Kingdom and Ireland.
These are the Company’s primary operations.
−Removed: The Company also has investments and operations in Latin America and Asia-Pacific, which the Company refers to as “LAAP.” In August 2019, the Company completed the sale (the “Baycorp Transaction”) of its wholly-owned subsidiary Encore Australia Holdings I PTY LTD (together with its subsidiaries “Baycorp”), which represented the Company’s investments and operations in Australia and New Zealand and was a component of LAAP.
+Added: The Company also has investments and operations in Latin America and Asia-Pacific, which the Company refers to as “LAAP.” In August 2019, the Company completed the sale of Baycorp, which represented the Company’s investments and operations in Australia and New Zealand.
+Added: On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a global pandemic, which continues to spread throughout the United States and around the world.
+Added: The COVID-19 outbreak and resulting containment measures implemented by governments around the world, as well as increased business uncertainty, have impacted the Company.
+Added: The circumstances around the COVID-19 pandemic are rapidly evolving and will continue to impact the Company’s business and its estimation of expected recoveries in future periods.
+Added: The Company will continue to closely monitor the COVID-19 situation and update its assumptions accordingly.
Basis of Consolidation
16 unchanged sentences
Certain immaterial reclassifications have been made to the prior years’ consolidated financial statements to conform to current year presentation.
+Added: The Company presented certain refinancing charges such as make-whole provisions, call premiums, and write-offs of unamortized debt issuance costs and debt discount as interest expense in prior periods, and have reclassed such costs as loss on extinguishment of debt as a single line item in the Company’s consolidated statements of operations rather than presenting them as part of interest expense.
+Added: These reclassifications have no effect on net income, total assets, accumulated earnings or cash flow statements as previously reported.
Change in Accounting Principle
−Removed: As discussed in “Note 12:
−Removed: Leases” to the consolidated financial statements, effective January 1, 2019, the Company adopted Accounting Standard Codification 842 - Leases (“Topic 842”) using the modified retrospective method.
−Removed: The Company adopted ASU 2017-04, Intangibles - Goodwill and Other (Topic 350) in 2019.
−Removed: The amendments in this update simplify the test for goodwill impairment by eliminating Step 2 from the impairment test, which required the entity to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination.
−Removed: Table of Co ntents
+Added: On January 1, 2020, the Company adopted the new accounting standard for Financial Instruments - Credit Losses (“CECL”).
+Added: CECL introduces a new impairment approach for credit loss recognition based on current expected lifetime losses rather than incurred losses.
+Added: CECL applies to all financial assets carried at amortized costs, including the Company’s investment in receivable portfolios, which are defined as purchased credit deteriorated (“PCD”) financial assets under CECL.
+Added: The adoption of CECL represents a significant change from the previous U.S.
+Added: GAAP guidance relating to purchased credit impaired assets and resulted in changes to the Company’s accounting for its investment in receivable portfolios and the related income from the receivable portfolios.
+Added: As part of the adoption of CECL, the Company changed its accounting methodology for its court costs spent in its legal collection channel effective January 1, 2020.
+Added: Previously, the Company capitalized its upfront court costs spent in its consolidated financial statements (“Deferred Court Costs”) and provided a reserve for those costs that it believed would ultimately be uncollectible.
+Added: Effective January 1, 2020, the Company expenses all of its court costs as incurred.
+Added: All expected cash flows, including all the expected collections from the legal channel, are included in the measurement of the negative allowance, or investment in receivable portfolios, at a discounted value.
+Added: Upon transition, an adjustment was made to retained earnings to reflect the net change from an undiscounted to discounted value prior to writing-off uncollectible receivables and establishing a balance for discounted value of future recoveries of amounts expected to be collected.
+Added: The Company has not adjusted prior period comparative information and will continue to disclose prior period financial information in accordance with the previous accounting guidance.
+Added: The following table summarizes the cumulative effects of adopting the CECL guidance on the Company’s consolidated statements of financial condition as of January 1, 2020 ( in thousands ):
+Added: Balance as of December 31, 2019 Adjustment Opening Balance as of January 1, 2020
+Added: Investment in receivable portfolios, net $ 3,283,984 $ 44,166 $ 3,328,150
+Added: Deferred court costs, net 100,172 ( 100,172 ) —
+Added: Other liabilities (for deferred tax liabilities) 147,436 ( 11,768 ) 135,668
+Added: Accumulated earnings 888,058 ( 44,238 ) 843,820
+Added: In March 2020, the FASB issued ASU No.
+Added: 2020-04, Reference Rate Reform (Topic 848):
+Added: Facilitation of the Effects of Reference Rate Reform on Financial Reporting.
+Added: The ASU provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate (e.g., LIBOR) reform if certain criteria are met, for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.
+Added: Additionally, in January 2021, the FASB issued ASU 2021-01, which clarifies the scope of Topic 848 and allows entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates.
+Added: These ASUs are effective as of March 12, 2020 through December 31, 2022 and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022.
+Added: The Company is currently evaluating its contracts and the optional expedients provided by the new standards.
+Added: The ASUs are currently not expected to have a material impact on the Company’s consolidated financial statements.
+Added: Effective January 1, 2019, the Company adopted Accounting Standard Codification 842 - Leases using the modified retrospective method.
+Added: Refer to “Note 11:
+Added: Leases” for details of the Company’s leases.
Recent Accounting Pronouncements
−Removed: Other than the adoption of the standards discussed in the “Change in Accounting Principle” section above, there have been no new accounting pronouncements made effective during the year ended December 31, 2019 that have significance, or potential significance, to the Company’s consolidated financial statements.
Recent Accounting Pronouncements Not Yet Effective
−Removed: In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No.
−Removed: 2016-13, Financial Instruments - Credit Losses (Topic 326):
−Removed: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13” or “CECL”).
−Removed: ASU 2016-13 introduces a new impairment approach for credit loss recognition based on current expected lifetime losses rather than incurred losses.
−Removed: ASU 2016-13 applies to all financial assets carried at amortized costs, including the Company’s investment in receivable portfolios, which are defined as purchased credit deteriorated (“PCD”) financial assets under CECL.
−Removed: For PCD financial assets, the unit of account is at individual loan level.
−Removed: Since each loan is deeply delinquent and deemed uncollectible at the individual loan level, the Company will apply its charge-off policy and fully write-off the amortized costs ( i.e., face value net of noncredit discount) of the individual receivables immediately after purchasing the portfolio.
−Removed: The Company will then record a negative allowance that represents the present value of expected all future recoveries on the aggregated portfolio level using a discounted approach.
−Removed: Revenue will be recognized over the life of the portfolio at an effective interest rate established at the time of purchase.
−Removed: Subsequent over and under-performance and changes in expected cash flows are recognized in the statements of operations as adjustments to the provision for credit losses.
−Removed: ASU 2016-13, including the effect of ongoing developments and amendments to the guidance, represents a significant change from existing U.S.
−Removed: GAAP and will result in changes to the Company’s accounting for its investment in receivable portfolios.
−Removed: ASU 2016-13 is effective for reporting periods beginning after December 15, 2019.
−Removed: The Company will adopt ASU 2016-13 as of January 1, 2020 using a modified-retrospective approach, by recording a cumulative-effect adjustment to opening retained earnings.
−Removed: Implementation efforts have been substantially completed.
−Removed: As part of the adoption of CECL, the Company will change its current method of accounting for its court costs spent in its legal collection channel effective January 1, 2020.
−Removed: As of December 31, 2019, the Company capitalizes its upfront court costs spent in its consolidated financial statements (“Deferred Court Costs”) and provides a reserve for those costs that it believes will ultimately be uncollectible.
−Removed: For financial statements for reporting periods subsequent to January 1, 2020, the Company will expense all of its court costs as incurred and will include expected recoveries on these upfront court costs in the measurement of the investment in receivable portfolios at a discounted value.
−Removed: Upon transition, an adjustment will be made to retained earnings to reflect the net change from an undiscounted to discounted value prior to writing-off uncollectible receivables and establishing a balance for discounted value of future recoveries of amounts expected to be collected.
−Removed: The adoption of this new accounting policy will result in the write-off of existing Deferred Court Costs, an increase to investment in receivable portfolios, and a decrease to opening retained earnings estimated to be between $ 40 and $ 50 million.
−Removed: The Company expects that, subsequent to the adoption of CECL, revenue from receivable portfolios will be favorably impacted by including expected court costs recoveries in its estimated remaining collections, while expensing all court costs as incurred will result in higher operating expenses in 2020 as compared to prior years.
−Removed: In April 2019, the FASB issued ASU No.
−Removed: 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”).
−Removed: The amendments in ASU 2019-04 clarify certain aspects of accounting for credit losses, hedging activities, and financial instruments.
−Removed: For clarifications around credit losses, the effective date will be the same as the effective date of ASU 2016-13.
−Removed: For entities that have adopted ASU No.
−Removed: 2017-12, Derivatives and Hedging (Topic 815):
−Removed: Targeted Improvements to Accounting for Hedging Activities, ASU 2019-04 is effective the first annual reporting period beginning after the date of issuance of ASU 2019-04 and may be early adopted.
−Removed: The amendments in ASU 2019-04 that are related to financial instruments are effective for fiscal years beginning after December 15, 2019, and interim periods within those years, with early adoption permitted.
−Removed: The Company's adoption of ASU 2019-04 is not expected to have a material impact on its consolidated financial statements.
+Added: In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
+Added: 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”):
+Added: Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”).
+Added: The ASU simplifies the accounting for convertible instruments by removing certain models in Subtopic 470-20 and revises the guidance in Subtopic 815-40 to simplify the accounting for contracts in an entity’s own equity.
+Added: also amends the guidance to improve the consistency of earnings per share calculations, which requires the if-converted method be used for convertible instruments.
+Added: ASU 2020-06 is effective for reporting periods beginning after December 15, 2021 with early adoption permitted for reporting periods beginning after December 15, 2020.
+Added: The amendment is to be adopted through either a modified retrospective or fully retrospective method of transition.
+Added: Under ASU 2020-06, the Company’s convertible and exchangeable notes will no longer be bifurcated to a debt component and an equity component, instead, they will be carried as a single liability.
+Added: The interest expense recognized on the convertible and exchangeable notes will be based on coupon rates, rather than higher effective interest rates.
+Added: As a result, the Company will recognize lower interest expense.
+Added: The Company’s convertible and exchangeable notes require net share settlement.
+Added: Additionally, the if-converted method will not substantially change the dilutive effect for convertible instruments that require net share settlement, only in-the-money shares will be included in the dilutive effect.
+Added: The Company will early adopt ASU 2020-06 as of January 1, 2021 using a modified-retrospective approach, by recording a decrease to opening accumulated earnings of approximately $ 16.1 million, which represents the debt discount of all outstanding convertible and exchangeable notes as of December 31, 2020, adjusted for income tax effect.
+Added: Implementation efforts have been substantially complete.
With the exception of the updated standards discussed above, there have been no new accounting pronouncements not yet effective as of December 31, 2020 that have significance, or potential significance, to the Company’s consolidated financial statements.
1 unchanged sentence
The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
+Added: The inputs into the judgments and estimates consider the economic implications of the COVID-19 pandemic on the Company’s critical and significant accounting estimates.
Actual results could materially differ from those estimates.
Cash and Cash Equivalents
−Removed: Table of Co ntents
Cash and cash equivalents consist of highly liquid investments with maturities of three months or less at the date of purchase.
5 unchanged sentences
A corresponding balance is included in accounts payable and accrued liabilities.
−Removed: The balance of cash held for clients was $ 25.0 million and $ 21.8 million at December 31, 2019 and 2018, respectively.
+Added: The balance of cash held for clients was $ 20.3 million and $ 25.0 million as of December 31, 2020 and 2019, respectively.
Investment in Receivable Portfolios
−Removed: Discrete receivable portfolio purchases during the same fiscal quarter are aggregated into pools based on common risk characteristics.
−Removed: Common risk characteristics include risk ratings ( e.g., FICO or similar scores), financial asset type, collateral type, size, interest rate, date of origination, term, and geographic location.
+Added: Current Accounting Policy
+Added: As a result of the adoption of CECL, the Company revised its accounting policy for investment in receivable portfolios effective January 1, 2020:
+Added: The Company purchases portfolios of loans that have experienced significant deterioration of credit quality since origination from banks and other financial institutions.
+Added: These financial assets are defined as purchased credit deteriorated (or “PCD”) assets under CECL.
+Added: Under the PCD accounting model, the purchased assets are recognized at their face value with an offsetting allowance and noncredit discount allocated to the individual receivables as the unit of account is at the individual loan level.
+Added: Since each loan is deeply delinquent and deemed uncollectible at the individual loan level, the Company applies its charge-off policy and fully writes-off the amortized costs (i.e., face value net of noncredit discount) of the individual receivables immediately after purchasing the portfolio.
+Added: The Company then records a negative allowance that represents the present value of all expected future recoveries for pools of receivables that share similar risk characteristics using a discounted cash flow approach, which ultimately equals the amount paid for a portfolio purchase and presented as “Investment in receivable portfolios, net” in the Company’s consolidated statements of financial condition.
+Added: The discount rate is an effective interest rate (or “purchase EIR”) based on the purchase price of the portfolio and the expected future cash flows at the time of purchase.
+Added: The amount of the negative allowance (i.e., investment in receivable portfolios) will not exceed the total amortized cost basis of the loans written-off.
+Added: Receivable portfolio purchases are aggregated into pools based on similar risk characteristics.
+Added: Examples of risk characteristics include financial asset type, collateral type, size, interest rate, date of origination, term, and geographic location.
The Company’s static pools are typically grouped into credit card, purchased consumer bankruptcy, and mortgage portfolios.
−Removed: The Company further groups these static pools by geographic region or location.
−Removed: Portfolios acquired in business combinations are also grouped into these pools.
−Removed: During any fiscal quarter in which the Company has an acquisition of an entity that has portfolio, the entire historical portfolio of the acquired company is aggregated into the pool groups for that quarter, based on common characteristics, resulting in pools for that quarter that may consist of several different vintages of portfolio.
−Removed: Once a static pool is established, the portfolios are permanently assigned to the pool.
−Removed: The discount ( i.e.
−Removed: , the difference between the cost of each static pool and the related aggregate contractual receivable balance) is not recorded because the Company expects to collect a relatively small percentage of each static pool’s contractual receivable balance.
−Removed: As a result, receivable portfolios are recorded at cost at the time of acquisition.
−Removed: The purchase cost of the portfolios includes certain fees paid to third parties incurred in connection with the direct acquisition of the receivable portfolios.
−Removed: The Company accounts for its investment in receivable portfolios using either the interest method or the cost recovery method.
−Removed: The interest method applies an internal rate of return (“IRR”) to the cost basis of the pool, which remains unchanged throughout the life of the pool, unless there is an increase in subsequent expected cash flows.
−Removed: Subsequent increases in expected cash flows are recognized prospectively through an upward adjustment of the pool’s IRR over its remaining life.
−Removed: Subsequent decreases in expected cash flows do not change the IRR, but are recognized as an allowance to the cost basis of the pool, and are reflected in the consolidated statements of operations as an adjustment to revenue, with a corresponding valuation allowance, offsetting the investment in receivable portfolios in the consolidated statements of financial condition.
−Removed: With gross collections being discounted at monthly IRRs, when collections are lower in the near term, even if substantially higher collections are expected later in the collection curve, an allowance charge could result.
−Removed: The Company accounts for each static pool as a unit for the economic life of the pool (similar to one loan) for recognition of revenue from receivable portfolios, for collections applied to the cost basis of receivable portfolios and for provision for loss or allowance.
−Removed: Revenue from receivable portfolios is accrued based on each pool’s IRR applied to each pool’s adjusted cost basis.
−Removed: The cost basis of each pool is increased by revenue earned and portfolio allowance reversals and decreased by gross collections and portfolio allowances.
−Removed: Once the net book value of a static pool has been fully recovered, it becomes zero basis portfolio (“ZBA”) and all subsequent collections are recognized as ZBA revenue.
−Removed: If the amount and timing of future cash collections on a pool of receivables are not reasonably estimable, the Company accounts for such portfolios on the cost recovery method as Cost Recovery Portfolios.
−Removed: The accounts in these portfolios have different risk characteristics than those included in other portfolios acquired during the same quarter, or the necessary information was not available to estimate future cash flows and, accordingly, they were not aggregated with other portfolios.
−Removed: Under the cost recovery method of accounting, no revenue is recognized until the carrying value of a Cost Recovery Portfolio has been fully recovered.
+Added: The Company further groups these static pools by geographic location.
+Added: Once a pool is established, the portfolios will remain in the designated pool unless the underlying risk characteristics change, which is not expected due to the delinquent nature of the individual loans.
+Added: The purchase EIR of a pool will not change over the life of the pool even if expected future cash flows change.
+Added: Revenue is recognized for each static pool over the economic life of the pool.
+Added: The Company makes significant assumptions in determining the economic life of a pool, including the reasonable and supportable economic forecast period based on asset type and geography, which considers the availability of forward-looking scenarios and their respective time horizons.
+Added: In general, the Company forecasts recoveries over one or two years prior to reverting to historical averages at an estimate-level over the remaining life using various methodologies depending on the asset type and geography.
+Added: The speed at which forecasts revert varies based on the spread between the forecast period and historical data.
+Added: In addition, estimated recoveries include a qualitative component, which generally reflects management’s assessment of macroeconomic environment and business initiatives.
+Added: The Company continues to evaluate the reasonable economic life of a pool and reversion method annually.
+Added: Revenue primarily includes two components:
+Added: (1) accretion of the discount on the negative allowance due to the passage of time, which is included in “Revenue from receivable portfolios” and (2) changes in expected cash flows, which includes (a) the current period variances between actual cash collected and expected cash recoveries and (b) the present value change of expected future recoveries, and is presented in our consolidated statements of operations as “Changes in expected current and future recoveries.”
+Added: The Company measures expected future recoveries based on historical experience, current conditions, and reasonable and supportable forecasts.
+Added: Factors that may change the expected future recoveries may include both internal as well as external factors.
+Added: Internal factors include operational performance, such as capacity and the productivity of our collection staff.
+Added: External factors that may have an impact on our collections include macroeconomic conditions, new laws or regulations, and new interpretations of existing laws or regulations.
+Added: The Company elected not to maintain its previously formed pool groups with amortized costs at transition.
+Added: Certain pools already fully recovered their cost basis and became zero basis portfolios (“ZBA”) prior to the transition.
+Added: The Company did not establish a negative allowance from ZBA pools as the Company elected the Transition Resource Group for Credit Losses’ practical expedient to retain the integrity of its legacy pools.
+Added: All subsequent collections to the ZBA pools are recognized as ZBA revenue, which is included in revenue from receivable portfolios in the Company’s consolidated statements of operations.
+Added: Accounting Policy Prior to January 1, 2020
+Added: Discrete receivable portfolio purchases during the same fiscal quarter were aggregated into pools based on common risk characteristics.
+Added: Once a static pool was established, the portfolios were permanently assigned to the pool.
+Added: Receivable portfolios were recorded at cost at the time of acquisition.
+Added: The purchase cost of the portfolios included certain fees paid to third parties incurred in connection with the direct acquisition of the receivable portfolios.
+Added: Revenues were calculated using either the interest method or the cost recovery method.
+Added: The interest method applies an internal rate of return (“IRR”) to the cost basis of the pool, which remained unchanged throughout the life of the pool, unless there was an increase in subsequent expected cash flows.
+Added: Subsequent increases in expected cash flows were recognized prospectively through an upward adjustment of the pool’s IRR over its remaining life.
+Added: Subsequent decreases in expected cash flows did not change the IRR, but were recognized as an allowance to the cost basis of the pool, and were reflected in the consolidated statements of operations as an adjustment to revenue, with a corresponding valuation allowance, offsetting the investment in receivable portfolios in the consolidated statements of financial condition.
+Added: With gross collections being discounted at monthly IRRs, when collections were lower in the near term, even if substantially higher collections were expected later in the collection curve, an allowance charge could result.
+Added: The Company accounted for each static pool as a unit for the economic life of the pool (similar to one loan) for recognition of revenue from receivable portfolios, for collections applied to the cost basis of receivable portfolios and for provision for loss or allowance.
+Added: Revenue from receivable portfolios was accrued based on each pool’s IRR applied to each pool’s adjusted cost basis.
+Added: The cost basis of each pool was increased by revenue earned and portfolio allowance reversals and decreased by gross collections and portfolio allowances.
+Added: Once the net book value of a static pool has been fully recovered, it became ZBA and all subsequent collections were recognized as ZBA revenue.
+Added: If the amount and timing of future cash collections on a pool of receivables were not reasonably estimable, the Company accounted for such portfolios on the cost recovery method as Cost Recovery Portfolios.
+Added: The accounts in these portfolios had different risk characteristics than those included in other portfolios acquired during the same quarter, or the necessary information was not available to estimate future cash flows and, accordingly, they were not aggregated with other portfolios.
+Added: Under the cost recovery method of accounting, no revenue was recognized until the carrying value of a Cost Recovery Portfolio has been fully recovered.
Investment in Receivable Portfolios, Net” for further discussion of investment in receivable portfolios.
−Removed: Effective January 1, 2020, the Company’s investment in receivable portfolios is accounted for under CECL.
Transfers of Financial Assets
3 unchanged sentences
Assets obtained and liabilities incurred in connection with transfers reported as sales are initially recognized in the statements of financial condition at fair value.
−Removed: Table of Co ntents
Transfers of financial assets that do not qualify for sale accounting are reported as collateralized borrowings.
5 unchanged sentences
The Company recognizes servicing revenue when it satisfies the performance obligation over time by providing debt solution and credit management services.
+Added: The Company typically invoices for its services monthly with payment terms of 30 days.
Goodwill and Other Intangible Assets
−Removed: Goodwill represents the excess of purchase price over the value assigned to the tangible and identifiable intangible assets, liabilities assumed, and noncontrolling interest of businesses acquired.
+Added: Goodwill represents the excess of purchase price over the value assigned to tangible and identifiable intangible assets, liabilities assumed, and noncontrolling interest of businesses acquired.
Acquired intangible assets other than goodwill are amortized over their useful lives unless the lives are determined to be indefinite.
−Removed: Goodwill and other indefinite-lived intangible assets are tested at the reporting unit level annually for impairment and in interim periods if certain events occur indicating the fair value of a reporting unit may be below its carrying value.
+Added: Goodwill is tested at the reporting unit level annually for impairment and in interim periods if certain events occur indicating the fair value of a reporting unit may be below its carrying value.
See “Note 14:
10 unchanged sentences
Expenditures for major renewals that extend the useful lives of fixed assets are capitalized and depreciated over the useful lives of such assets.
+Added: The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
+Added: The Company measures recoverability by comparing the carrying amount to the future undiscounted cash flows that the asset is expected to generate.
+Added: If the asset is not recoverable, its carrying amount would be adjusted down to its fair value.
Deferred Court Costs
2 unchanged sentences
In order to pursue legal collections, the Company is required to pay certain upfront costs to the applicable courts that are recoverable from the consumer.
−Removed: The Company capitalizes Deferred Court Costs in its consolidated financial statements and provides a reserve for those costs that it believes will ultimately be uncollectible.
−Removed: The Company determines the reserve based on an estimated court cost recovery rate established based on its analysis of historical court costs recovery data.
−Removed: The Company estimates deferral periods for Deferred Court Costs based on jurisdiction and nature of litigation and writes off any Deferred Court Costs not recovered within the respective deferral period.
−Removed: Collections received from debtors are first applied against related court costs with the balance applied to the debtors’ account balance.
+Added: Effective January 1, 2020, the Company expenses all of its court costs as incurred and no longer capitalizes such costs as Deferred Court Costs.
+Added: All expected cash flows, including all the expected collections from the legal channel, are included in the measurement of the negative allowance, or investment in receivable portfolios, at a discounted value.
+Added: Prior to January 1, 2020, the Company capitalized Deferred Court Costs in its consolidated financial statements and provided a reserve for those costs that it estimated to be uncollectible.
+Added: The Company determined the reserve based on an estimated court cost recovery rate established based on its analysis of historical court costs recovery data.
+Added: The Company estimated deferral periods for Deferred Court Costs based on jurisdiction and nature of litigation and wrote off any Deferred Court Costs not recovered within the respective deferral period.
+Added: Collections received from debtors were first applied against related court costs with the balance applied to the debtors’ account balance.
Deferred Court Costs, Net” for further details.
−Removed: Effective January 1, 2020, in connection with the adoption of CECL, the Company expenses all upfront court costs in its statements of operations and includes all future projected recoveries of these upfront court costs in the measurement of the investment in receivable portfolios, at a discounted value.
−Removed: The Company uses the liability method of accounting for income taxes in accordance with the authoritative guidance for Income Taxes.
+Added: The Company uses the asset and liability method of accounting for income taxes.
When the Company prepares its consolidated financial statements, it estimates income taxes based on the various jurisdictions and countries where it conducts business.
2 unchanged sentences
The Company then assesses the likelihood that deferred tax assets will be realized.
−Removed: Valuation allowances are established, when it is more likely than
−Removed: Table of Co ntents
−Removed: not the deferred tax assets will not be realized.
+Added: Valuation allowances are established, when it is more likely than not the deferred tax assets will not be realized.
When the Company establishes a valuation allowance or increases this allowance in an accounting period, it records a corresponding tax expense in the consolidated statements of operations.
5 unchanged sentences
The Company determines stock-based compensation expense for all share-based payment awards based on the measurement date fair value.
+Added: The Company uses the Black-Scholes option-pricing model to determine the fair-value of stock option grants.
The Company has certain share awards that include market conditions that affect vesting, the fair value of these shares is estimated using a lattice model.
3 unchanged sentences
Stock-based compensation expenses are included in “Salaries and Employee Benefits” in the Company’s consolidated statements of operations.
−Removed: See “Note 10:
Stock-Based Compensation” for further discussion.
6 unchanged sentences
If the hedged cash flows are still reasonably possible to occur, the hedged cash flows will continue to be recorded in accumulated other comprehensive income or loss until the hedged cash flows are no longer probable of occurring.
+Added: The Company classifies the cash flows from a derivative instrument that is accounted for as a cash flow hedge (and that does not contain an other-than-insignificant financing element at inception) in the same category as the cash flows from the items being hedged.
Derivatives and Hedging Instruments” for further discussion.
+Added: Concentration of Supply Risk
+Added: A significant percentage of the Company’s portfolio purchases for any given fiscal quarter or year may be concentrated with a few large sellers, some of which may also involve forward flow arrangements.
+Added: A significant decrease in the volume of portfolio available from any of the Company’s principal sellers would force the Company to seek alternative sources of charged-off receivables.
+Added: The Company may be unable to find alternative sources from which to purchase charged-off receivables, and even if it could successfully replace these purchases, the search could take time and the receivables could be of lower quality, cost more, or both, any of which could adversely affect the Company’s business, financial condition and operating results.
Earnings Per Share
2 unchanged sentences
Dilutive potential common shares include outstanding stock options, restricted stock, and the dilutive effect of the convertible and exchangeable senior notes, if applicable.
−Removed: A reconciliation of shares used in calculating earnings per basic and diluted shares follows (in thousands, except per share amounts) :
−Removed: Table of Co ntents
+Added: A reconciliation of shares used in calculating earnings per basic and diluted shares follows for the periods presented (in thousands, except per share amounts) :
Year Ended December 31,
2020 2019 2018
−Removed: Amounts attributable to Encore Capital Group, Inc.:
−Removed: Income from continuing operations $ 167,869 $ 115,886 $ 83,427
−Removed: Loss from discontinued operations, net of tax — — ( 199 )
−Removed: Net income $ 167,869 $ 115,886 $ 83,228
+Added: Net income attributable to Encore Capital Group, Inc.
+Added: $ 211,848 $ 167,869 $ 115,886
Total weighted-average basic shares outstanding 31,427 31,210 28,313
Dilutive effect of stock-based awards 283 264 259
−Removed: Dilutive effect of convertible and exchangeable senior notes — — 178
Total weighted-average dilutive shares outstanding 31,710 31,474 28,572
−Removed: Basic earnings (loss) per share from:
−Removed: Continuing operations $ 5.38 $ 4.09 $ 3.21
−Removed: Discontinued operations — — ( 0.01 )
−Removed: Net basic earnings per share $ 5.38 $ 4.09 $ 3.20
−Removed: Diluted earnings (loss) per share from:
−Removed: Continuing operations $ 5.33 $ 4.06 $ 3.16
−Removed: Discontinued operations — — ( 0.01 )
−Removed: Net diluted earnings per share $ 5.33 $ 4.06 $ 3.15
−Removed: Anti-dilutive employee stock options outstanding were approximately 64,000 , 66,000 and 107,000 for the years ended December 31, 2019, 2018, and 2017, respectively.
−Removed: The Company has the following convertible and exchangeable senior notes outstanding:
−Removed: $ 89.4 million convertible senior notes due 2020 at a conversion price equivalent to approximately $ 45.72 per share of the Company’s common stock (the “2020 Convertible Notes”), $ 161.0 million convertible senior notes due 2021 at a conversion price equivalent to approximately $ 59.39 per share of the Company’s common stock (the “2021 Convertible Notes”), $ 150.0 million convertible senior notes due 2022 at a conversion price equivalent to approximately $ 45.57 per share of the Company’s common stock (the “2022 Convertible Notes”), $ 172.5 million exchangeable senior notes due 2023 at a conversion price equivalent to approximately $ 44.62 per share of the Company’s common stock (the “Exchangeable Notes”), and $ 100.0 million convertible senior notes due 2025 at a conversion price equivalent to approximately $ 40.00 per share of the Company's common stock (the “2025 Convertible Notes”).
−Removed: In the event of conversion for the 2021 Convertible Notes, 2022 Convertible Notes, Exchangeable Notes and 2025 Convertible Notes, the Company has the option to pay cash, issue shares of common stock or any combination thereof for the aggregate amount due upon conversion.
−Removed: The Company will settle the principal amount of the 2020 Convertible Notes in cash upon conversion.
−Removed: The Company’s intent is to settle the principal amount of the 2021, 2022, 2025 Convertible Notes and Exchangeable Notes in cash upon conversion.
−Removed: As a result, upon conversion of all the convertible and exchangeable senior notes, only the amounts payable in excess of the principal amounts are considered in diluted earnings per share under the treasury stock method.
−Removed: Diluted earnings per share during the year ended December 31, 2017 included the effect of the common shares issuable upon conversion of certain of the convertible senior notes because the average stock price exceeded the conversion price of these notes.
−Removed: However, as described in the “Encore Convertible Notes and Exchangeable Notes” section of “Note 8:
−Removed: Borrowings” the Company entered into certain hedge transactions that have the effect of increasing the effective conversion price of the 2020 Convertible Notes to $ 61.55 , the 2021 Convertible Notes to $ 83.14 and the Exchangeable Notes to $ 62.48 .
+Added: Basic earnings per share $ 6.74 $ 5.38 $ 4.09
+Added: Diluted earnings per share $ 6.68 $ 5.33 $ 4.06
+Added: Anti-dilutive employee stock options outstanding were approximately 51,000 , 64,000 and 66,000 during the years ended December 31, 2020, 2019, and 2018, respectively.
Fair Value Measurements
−Removed: F air value is defined as the price that would be received upon sale of an asset or the price paid to transfer a liability, in an orderly transaction between market participants at the measurement date ( i.e., the “exit price”).
+Added: Fair value is defined as the price that would be received upon sale of an asset or the price paid to transfer a liability, in an orderly transaction between market participants at the measurement date ( i.e., the “exit price”).
The Company uses a fair value hierarchy that prioritizes the inputs used in valuation techniques to measure fair value into three broad levels.
1 unchanged sentence
Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
−Removed: Table of Co ntents
Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.
5 unchanged sentences
Level 1 Level 2 Level 3 Total
−Removed: Foreign currency exchange contracts $ — $ 1,473 $ — $ 1,473
+Added: Cross-currency swap agreements $ — $ 11,578 $ — $ 11,578
Interest rate cap contracts — 659 — 659
3 unchanged sentences
Level 1 Level 2 Level 3 Total
−Removed: Interest rate cap contracts $ — $ 2,023 $ — $ 2,023
Foreign currency exchange contracts $ — $ 1,473 $ — $ 1,473
+Added: Interest rate cap contracts — 2,460 — 2,460
Interest rate swap agreements — ( 9,116 ) — ( 9,116 )
9 unchanged sentences
The earn-out payments are subsequently remeasured to fair value at each reporting date, based on actual and forecasted operating performance.
−Removed: Table of Co ntents
The following table provides a roll-forward of the fair value of contingent consideration for the years ended December 31, 2020, 2019 and 2018 (in thousands) :
−Removed: Balance at December 31, 2016 $ 2,531
−Removed: Issuance of contingent consideration in connection with acquisition 10,808
+Added: Balance as of December 31, 2017 $ 10,612
+Added: Issuance of contingent consideration 1,728
Change in fair value of contingent consideration ( 5,664 )
−Removed: Time value amortization 381
Payment of contingent consideration ( 271 )
Effect of foreign currency translation ( 207 )
−Removed: Balance at December 31, 2017 10,612
−Removed: Issuance of contingent consideration in connection with acquisition 1,728
+Added: Balance as of December 31, 2018 6,198
Change in fair value of contingent consideration ( 2,300 )
1 unchanged sentence
Effect of foreign currency translation ( 146 )
−Removed: Balance at December 31, 2018 6,198
−Removed: Change in fair value of contingent consideration ( 2,300 )
+Added: Balance as of December 31, 2019 66
+Added: Issuance of contingent consideration 2,848
Payment of contingent consideration ( 88 )
Effect of foreign currency translation 131
−Removed: Balance at December 31, 2019 $ 66
+Added: Balance as of December 31, 2020 $ 2,957
Redeemable Noncontrolling Interest:
1 unchanged sentence
In connection with various business transactions, the Company redeemed or deconsolidated all of its redeemable noncontrolling interest during the year ended December 31, 2018 and no longer carried any redeemable noncontrolling interest as of December 31, 2018.
−Removed: The components of the change in the redeemable noncontrolling interest for the years ended December 31, 2019, 2018 and 2017 are presented in the following table (in thousands) :
−Removed: Balance at December 31, 2016 $ 45,755
−Removed: Addition to redeemable noncontrolling interest 277
−Removed: Net loss attributable to redeemable noncontrolling interest ( 4,905 )
−Removed: Adjustment of the redeemable noncontrolling interest to fair value 108,296
−Removed: Effect of foreign currency translation attributable to redeemable noncontrolling interest 2,555
−Removed: Balance at December 31, 2017 151,978
+Added: The components of the change in the redeemable noncontrolling interest for the years ended December 31, 2018 are presented in the following table (in thousands) :
+Added: Balance as of December 31, 2017 $ 151,978
Redemption of redeemable noncontrolling interest ( 138,835 )
3 unchanged sentences
Effect of foreign currency translation attributable to redeemable noncontrolling interest ( 6,468 )
−Removed: Balance at December 31, 2018 —
−Removed: Balance at December 31, 2019 $ —
+Added: Balance as of December 31, 2018 $ —
Non-Recurring Fair Value Measurement:
1 unchanged sentence
These assets include real estate-owned assets classified as held for sale at the lower of their carrying value or fair value less cost to sell.
−Removed: The fair value of the assets held for sale and estimated selling expenses were determined at the time of initial recognition and in each reporting period using Level 3
−Removed: Table of Co ntents
−Removed: measurements.
+Added: The fair value of the assets held for sale and estimated selling expenses were determined at the time of initial recognition and in each reporting period using Level 3 measurements.
The fair value estimate of the assets held for sale was approximately $ 42.2 million and $ 46.7 million as of December 31, 2020 and December 31, 2019, respectively.
2 unchanged sentences
The total of the fair value calculations presented does not represent, and should not be construed to represent, the underlying value of the Company.
−Removed: The carrying amounts in the following table are recorded in the consolidated statements of financial condition at December 31, 2019 and December 31, 2018 (in thousands) :
+Added: The carrying amounts in the following table are recorded in the consolidated statements of financial condition as of December 31, 2020 and December 31, 2019 (in thousands) :
December 31, 2020 December 31, 2019
4 unchanged sentences
Financial Liabilities
−Removed: Encore convertible notes and exchangeable notes (1)
+Added: Convertible notes and exchangeable notes (1)
564,136 622,081 642,547 693,708
−Removed: Cabot senior secured notes (2)
+Added: Senior secured notes (2)
1,642,058 1,684,729 1,127,435 1,170,945
3 unchanged sentences
Investment in Receivable Portfolios:
−Removed: The fair value of investment in receivable portfolios is measured using Level 3 inputs by discounting the estimated future cash flows generated by its proprietary forecasting models.
+Added: The fair value of investment in receivable portfolios is measured using Level 3 inputs by discounting the estimated future cash flows generated by the Company’s proprietary forecasting models.
The key inputs include the estimated future gross cash flow, average cost to collect, and discount rate.
−Removed: The Company estimates the average cost to collect and discount rates based on its estimate of what a market participant might use in valuing these portfolios.
The determination of such inputs requires significant judgment, including assessing the assumed market participant’s cost structure, its determination of whether to include fixed costs in its valuation, its collection strategies, and determining the appropriate weighted average cost of capital.
The Company evaluates the use of these key inputs on an ongoing basis and refines the data as it continues to obtain better information from market participants in the debt recovery and purchasing business.
−Removed: A 100 basis point increase in the cost to collect and discount rate used would result in a decrease in the fair value of U.S.
−Removed: and European portfolios by approximately $ 65.6 million and $ 77.3 million, respectively, as of December 31, 2019.
−Removed: This fair value calculation does not represent, and should not be construed to represent, the underlying value of the Company or the amount which could be realized if its investment in receivable portfolios were sold.
Deferred Court Costs:
−Removed: The Company capitalizes deferred court costs and provides a reserve for those costs that it believes will ultimately be uncollectible.
−Removed: The carrying value of net deferred court costs was $ 100.2 million and $ 95.9 million as of December 31, 2019 and 2018, respectively, and approximated fair value.
−Removed: The majority of the Company’s borrowings are carried at historical amounts, adjusted for additional borrowings less principal repayments, which approximate fair value.
−Removed: These borrowings include Encore’s senior secured notes and borrowings under its revolving credit and term loan facilities and Cabot’s borrowings under its revolving credit facility.
−Removed: The carrying value of the Company’s revolving credit and term loan facilities approximates fair value due to the short-term nature of the interest rate periods.
−Removed: The fair value of the Company’s senior secured notes was estimated using widely accepted valuation techniques, including discounted cash flow analyses using available market information on discount and borrowing rates with similar terms, maturities, and credit ratings.
+Added: Effective January 1, 2020, the Company no longer carries Deferred Court Costs as a result of its change in accounting policy.
+Added: The fair value estimate for Deferred Court Costs as of December 31, 2019 involved Level 3 inputs as there was little observable market data available and management was required to use significant judgment in its estimates.
+Added: The Company’s convertible notes, exchangeable notes and senior secured notes are carried at historical cost, adjusted for the applicable debt discount.
+Added: The fair value estimate for the convertible and exchangeable notes incorporates quoted market prices using Level 2 inputs.
+Added: The fair value of the senior secured notes is estimated using widely accepted valuation techniques, including discounted cash flow analyses using available market information on discount and borrowing rates with similar terms, maturities, and credit ratings.
Accordingly, the Company used Level 2 inputs for these debt instrument fair value estimates.
−Removed: The Company’s borrowings also include finance lease liabilities for which the carrying value approximates fair value.
−Removed: Encore’s convertible notes and exchangeable notes and Cabot’s senior secured notes are carried at historical cost, adjusted for the debt discount.
−Removed: The fair value estimate for these convertible and exchangeable notes incorporates quoted market prices using Level 2 inputs.
−Removed: Table of Co ntents
+Added: The carrying value of the Company’s senior secured revolving credit facility agreement approximates fair value due to the short-term nature of the interest rate period.
+Added: The Company’s borrowings also include private placement notes, securitisation senior facility and finance lease liabilities for which the carrying value approximates respective fair value.
Derivatives and Hedging Instruments
8 unchanged sentences
Interest rate cap contracts Other assets $ 659 Other assets $ 2,460
−Removed: Foreign currency exchange contracts Other assets 443 Other liabilities ( 237 )
+Added: Foreign currency exchange contracts Other assets — Other assets 443
Interest rate swap agreements Other liabilities ( 5,232 ) Other liabilities ( 9,116 )
+Added: Cross-currency swap agreements Other assets 11,578 Other assets —
Derivatives not designated as hedging instruments:
4 unchanged sentences
The Company adjusts the level and use of derivatives as soon as practicable after learning that an exposure has changed and reviews all exposures and derivative positions on an ongoing basis.
−Removed: Certain of the foreign currency forward contracts are designated as cash flow hedging instruments and qualify for hedge accounting treatment.
−Removed: Gains and losses arising from such contracts are recorded as a component of accumulated other comprehensive income (“OCI”) as gains and losses on derivative instruments, net of income taxes.
−Removed: The hedging gains and losses in OCI are subsequently reclassified into earnings in the same period in which the underlying transactions affect the Company’s earnings.
−Removed: If all or a portion of the forecasted transaction is cancelled, the accumulated gains or losses in OCI would be reclassified into earnings.
−Removed: As of December 31, 2019, the total notional amount of the foreign currency forward contracts that are designated as cash flow hedging instruments was $ 13.8 million.
−Removed: All of these outstanding contracts qualified for hedge accounting treatment.
−Removed: The Company estimates that approximately $ 0.4 million of net derivative gain included in OCI will be reclassified into earnings within the next 12 months.
−Removed: No gain or loss was reclassified from OCI into earnings as a result of forecasted transactions that failed to occur during the years ended December 31, 2019, 2018, or 2017.
+Added: The Company held certain foreign currency forward contracts designated as cash flow hedging instruments that matured in June 2020.
+Added: As of December 31, 2020, the Company had no outstanding forward contracts that were designated as cash flow hedging instruments.
+Added: No gains or losses were reclassified from OCI into earnings as a result of forecasted transactions that failed to occur during the years ended December 31, 2020, 2019, or 2018.
The Company may periodically enter into interest rate swap agreements to reduce its exposure to fluctuations in interest rates on variable interest rate debt and their impact on earnings and cash flows.
1 unchanged sentence
The Company designates its interest rate swap instruments as cash flow hedges.
−Removed: As of December 31, 2019, there were four interest rate swap agreements outstanding with a total notional amount of $ 331.7 million.
−Removed: As of December 31, 2019, the Company also held three interest rate cap contracts with a notional amount of approximately $ 913.0 million that are used to manage its risk related to interest rate fluctuations on the Company’s variable interest rate bearing debt.
−Removed: Two of the interest rate cap contracts mature in 2021 (the “2018 Caps”) and one matures in 2024 (the “2019 Cap”).
−Removed: The 2018 Caps have a notional amount of £ 350.0 million (approximately $ 464.1 million) and the 2019 Cap has a notional amount of € 400.0 million (approximately $ 448.9 million).
−Removed: The 2018 Caps are structured as a series of European call options (“Caplets”) such that if exercised, the Company will receive a payment equal to 3-months GBP-LIBOR on a notional amount equal to the hedged notional amount net of a fixed strike price.
−Removed: The 2019 Cap is also structured as a series of Caplets such that if exercised, the Company will receive a payment equal to 3-months EURIBOR on a notional amount equal to the hedged notional amount net of a fixed strike price.
+Added: Previously, the Company held four interest rate swap agreements that hedged the risk of USD-LIBOR interest rate fluctuations for the Encore revolving credit facility and term loan facility.
+Added: As part of the financing transactions completed in September 2020, the Company settled two of the interest rate swap agreements.
+Added: As of December 31, 2020, there were two interest rate swap agreements outstanding with a total notional amount of $ 196.4 million.
+Added: The Company expects to reclassify approximately $ 8.7 million of net derivative loss from OCI into earnings relating to interest rate swaps within the next 12 months.
+Added: In connection with the financing transactions discussed above, the Company entered into cross-currency swap agreements, which are used to manage foreign currency exchange risk by converting fixed-rate Euro-denominated borrowings including periodic interest payments and the payment of principal at maturity to fixed-rate USD debt and are accounted for as cash flow hedges.
+Added: As of December 31, 2020, there were four cross-currency swap agreements outstanding with a total notional amount of € 350.0 million (approximately $ 426.8 million based on an exchange rate of $1.00 to €0.82, the exchange rate as of
+Added: December 31, 2020).
+Added: The Company expects to reclassify approximately $ 3.8 million of net derivative loss from OCI into earnings relating to cross-currency swaps within the next 12 months.
+Added: Previously, the Company held two interest rate cap contracts (the “2018 Caps”) that hedged the risk of GBP-LIBOR interest rate fluctuations for the Cabot Securitisation Senior Facility interest payments.
+Added: In February 2020, the Company settled the 2018 Caps and ceased the hedge relationship, which resulted in the reclassification of the associated other comprehensive loss balance to interest expense for approximately $ 2.5 million during the first quarter of 2020.
+Added: As of December 31, 2020, the Company held two interest rate cap contracts with a notional amount of approximately $ 965.8 million that are used to manage its risk related to interest rate fluctuations on the Company’s variable interest rate bearing debt.
+Added: The interest rate cap hedging the fluctuations in three-month EURIBOR floating rate debt (“2019 Cap”) has a notional amount of € 400.0 million (approximately $ 487.7 million based on an exchange rate of $1.00 to €0.82, the exchange rate as of December 31, 2020) and matures in 2024.
+Added: The interest rate cap hedging the fluctuations in sterling overnight index average (“SONIA”) bearing debt (“2020 Cap”) has a notional amount of £ 350.0 million (approximately $ 478.1 million based on an exchange rate of $1.00 to £0.73, the exchange rate as of December 31, 2020) and matures in 2023.
+Added: The 2019 Cap is structured as a series of European call options (“Caplets”) such that if exercised, the Company will receive a payment equal to 3-months EURIBOR on a notional amount equal to the hedged notional amount net of a fixed strike price.
+Added: The 2020 Cap is also structured as a series of Caplets such that if exercised, the Company will receive a payment equal to SONIA on a notional amount equal to the hedged notional amount net of a fixed strike price.
Each interest rate reset date, the Company will elect to exercise the Caplet or let it expire.
−Removed: The potential cash flows from each Caplet are expected to offset any variability in the cash flows of the interest payments to the extent GBP-LIBOR or EURIBOR exceeds the strike price of the Caplets.
−Removed: The Company expects the hedge relationship to be highly effective and designates the 2018 Caps and 2019 Cap as cash flow hedge instruments.
−Removed: Table of Co ntents
−Removed: The following table summarizes the effects of derivatives in cash flow hedging relationships designated as hedging instruments in the Company’s consolidated financial statements for the years ended December 31, 2019 and 2018 (in thousands):
+Added: The potential cash flows from each Caplet are expected to offset any variability in the cash flows of the interest payments to the extent EURIBOR or SONIA exceeds the strike price of the Caplets.
+Added: The Company expects the hedge relationships to be highly effective and designates the 2019 Cap and 2020 Cap as cash flow hedge instruments.
+Added: The Company expects to reclassify approximately $ 0.5 million of net derivative loss from OCI into earnings relating to interest rate caps within the next 12 months.
+Added: The following table summarizes the effects of derivatives in cash flow hedging relationships designated as hedging instruments in the Company’s consolidated financial statements during the periods presented (in thousands):
+Added: Derivatives Designated as Hedging Instruments Gain (Loss)
Recognized in OCI Location of Gain (Loss) Reclassified from OCI into Income Gain (Loss)
from OCI into
+Added: Year Ended December 31, Year Ended December 31,
2020 2019 2020 2019
3 unchanged sentences
Interest rate cap contracts ( 3,001 ) ( 1,752 ) Interest expense ( 2,846 ) 146
+Added: Cross-currency swap agreements 10,503 — Interest expense / Other expense 10,121 —
Derivatives Not Designated as Hedging Instruments
3 unchanged sentences
The gains or losses on these derivative contracts are recognized in other income or expense based on the changes in fair value.
−Removed: In May 2018, in anticipation of the completion of the Cabot Transaction, Encore entered into a foreign exchange forward contract with a notional amount of £ 176.0 million, which was approximately the amount of cash consideration for the Cabot Transaction.
+Added: As of December 31, 2020, the Company had no outstanding currency exchange forward contracts that were not designated as cash flow hedging instruments.
+Added: In May 2018, in anticipation of the completion of the purchase of all of the outstanding equity of CCM not owned by Encore (the “Cabot Transaction”), Encore entered into a foreign exchange forward contract with a notional amount of £ 176.0 million, which was approximately the amount of cash consideration for the Cabot Transaction.
The forward contract settled in August 2018 at a total loss of $ 9.3 million.
1 unchanged sentence
dollars for the Cabot Transaction.
−Removed: The following table summarizes the effects of derivatives not designated as hedging instruments on the Company’s consolidated statements of operations for the years ended December 31, 2019, 2018 and 2017 (in thousands) :
−Removed: Derivatives Not Designated as Hedging Instruments Location of Derivative Gain (Loss) Recognized in Income Amount of Derivative Gain (Loss) Recognized in Income
+Added: The following table summarizes the effects of derivatives not designated as hedging instruments on the Company’s consolidated statements of operations during the periods presented (in thousands) :
+Added: Derivatives Not Designated as Hedging Instruments Location of Gain (Loss) Recognized in Income on Derivative Amount of Gain (Loss) Recognized in Income
+Added: Year ended December 31,
2020 2019 2018
−Removed: Foreign currency exchange contracts Other (expense) income $ ( 2,959 ) $ ( 9,221 ) $ 1,755
+Added: Foreign currency exchange contracts Other expense $ 3,564 $ ( 2,959 ) $ ( 9,221 )
Interest rate cap contracts Interest expense — — ( 1,568 )
−Removed: Interest rate swap agreements Interest expense — — 110
Investment in Receivable Portfolios, Net
−Removed: The following tables summarize the changes in the balance of the investment in receivable portfolios during the following periods ( in thousands, except percentages ):
−Removed: Table of Co ntents
+Added: As discussed in “Note 1:
+Added: Ownership, Description of Business, and Summary of Significant Accounting Policies,” effective January 1, 2020, the Company accounts for its investment in receivable portfolios as PCD assets under CECL and changed its accounting policy for reimbursable court costs.
+Added: As a result, the Company wrote-off the previous Deferred Court Costs balance that represented an undiscounted value of recoverable historic spend as a result of a loss-rate methodology, and established a discounted value of expected future recoveries of these reimbursable court costs, which is included in the beginning balance of the investment in receivable portfolios.
+Added: The table below illustrates the Company’s transition approach for its investment in receivable portfolios as of January 1, 2020 ( in thousands ):
+Added: Investment in receivable portfolios prior to transition $ 3,283,984
+Added: Initial transitioned deferred court costs 44,166
+Added: Allowance for credit losses 79,028,043
+Added: Amortized cost 82,356,193
+Added: Noncredit discount 132,533,142
+Added: Face value 214,889,335
+Added: Write-off of amortized cost ( 82,356,193 )
+Added: Write-off of noncredit discount ( 132,533,142 )
+Added: Negative allowance 3,328,150
+Added: Initial negative allowance from transition $ 3,328,150
+Added: The table below provides the detail on the establishment of negative allowance for expected recoveries of portfolios purchased during the periods presented ( in thousands ):
+Added: December 31, 2020
+Added: Purchase price $ 659,872
+Added: Allowance for credit losses 1,703,420
+Added: Amortized cost 2,363,292
+Added: Noncredit discount 3,464,670
+Added: Face value 5,827,962
+Added: Write-off of amortized cost ( 2,363,292 )
+Added: Write-off of noncredit discount ( 3,464,670 )
+Added: Negative allowance 659,872
+Added: Negative allowance for expected recoveries - current period purchases $ 659,872
+Added: The following tables summarize the changes in the balance of the investment in receivable portfolios during the periods presented ( in thousands ):
Year Ended December 31,
−Removed: Accrual Basis
−Removed: Portfolios Cost Recovery
−Removed: Portfolios Zero Basis
−Removed: Portfolios Total
−Removed: Balance, beginning of period $ 3,129,502 $ 8,391 $ — $ 3,137,893
−Removed: Purchases of receivable portfolios 1,046,696 — — 1,046,696
−Removed: Transfer of portfolios (1)
2020 2019 2018
−Removed: Deconsolidation of receivable portfolios (2)
−Removed: ( 51,935 ) — — ( 51,935 )
−Removed: Disposals or transfers to held for sale ( 6,178 ) ( 5,317 ) — ( 11,495 )
−Removed: Sale of receivable portfolios (3)
−Removed: (98,636) — — (98,636)
−Removed: Collections on receivable portfolios (4)
−Removed: ( 1,930,539 ) ( 4,201 ) ( 92,188 ) ( 2,026,928 )
−Removed: Put-backs and Recalls (5)
−Removed: ( 11,566 ) — ( 25 ) ( 11,591 )
−Removed: Foreign currency adjustments 37,224 1,596 ( 20 ) 38,800
−Removed: Revenue recognized 1,185,681 — 83,607 1,269,288
−Removed: Portfolio (allowance) reversals, net ( 16,734 ) — 8,626 ( 8,108 )
−Removed: Balance, end of period $ 3,204,535 $ 79,449 $ — $ 3,283,984
−Removed: Revenue as a percentage of collections (6)
−Removed: 61.4 % — 90.7 % 62.6 %
−Removed: Year Ended December 31, 2018
−Removed: Accrual Basis
−Removed: Portfolios Cost Recovery
−Removed: Portfolios Zero Basis
−Removed: Portfolios Total
Balance, beginning of period $ 3,328,150 $ 3,137,893 $ 2,890,613
Purchases of receivable portfolios 659,872 1,046,696 1,131,898
−Removed: Disposals or transfers to held for sale ( 10,852 ) ( 1,604 ) — ( 12,456 )
−Removed: Collections on receivable portfolios (4)
+Added: Deconsolidation of receivable portfolios (1)
( 2,822 ) ( 51,935 ) —
Put-backs and Recalls ( 15,824 ) ( 11,591 ) ( 14,429 )
+Added: Disposals and transfers to real estate owned ( 9,459 ) ( 11,495 ) ( 12,456 )
+Added: Sale of receivable portfolios (2)
— ( 98,636 ) —
−Removed: Foreign currency adjustments ( 98,298 ) ( 420 ) — ( 98,718 )
−Removed: Revenue recognized 1,041,947 — 125,185 1,167,132
+Added: Cash collections ( 2,111,848 ) ( 2,026,928 ) ( 1,967,620 )
+Added: Revenue from receivable portfolios 1,374,717 1,269,288 1,167,132
+Added: Changes in expected current period recoveries 228,075 — —
+Added: Changes in expected future period recoveries ( 220,829 ) — —
Portfolio (allowance) reversals, net — ( 8,108 ) 41,473
−Removed: Reclassification from prior period — 798 ( 798 ) —
−Removed: Balance, end of period $ 3,129,502 $ 8,391 $ — $ 3,137,893
−Removed: Revenue as a percentage of collections (6)
−Removed: 56.9 % — 93.9 % 59.3 %
−Removed: Year Ended December 31, 2017
−Removed: Accrual Basis
−Removed: Portfolios Cost Recovery
−Removed: Portfolios Zero Basis
−Removed: Portfolios Total
−Removed: Balance, beginning of period $ 2,368,366 $ 14,443 $ — $ 2,382,809
−Removed: Purchases of receivable portfolios 1,057,066 1,169 — 1,058,235
−Removed: Disposals or transfers to held for sale ( 12,695 ) ( 493 ) — ( 13,188 )
−Removed: Collections on receivable portfolios (4)
−Removed: ( 1,613,351 ) ( 3,511 ) ( 150,782 ) ( 1,767,644 )
−Removed: Put-backs and Recalls (5)
−Removed: ( 2,577 ) — ( 294 ) ( 2,871 )
Foreign currency adjustments 61,886 38,800 ( 98,718 )
−Removed: Revenue recognized 909,239 — 144,134 1,053,373
−Removed: Portfolio allowance reversals, net 34,294 — 6,942 41,236
Balance, end of period $ 3,291,918 $ 3,283,984 $ 3,137,893
−Removed: Revenue as a percentage of collections (6)
________________________
−Removed: ________________________
−Removed: (1) Represents all portfolios in Mexico, which were transferred from accrual basis portfolios to cost recovery portfolios as the timing of future collections were determined to not be currently reasonably estimable, due to the changing political and economic conditions in Mexico.
−Removed: Table of Co ntents
−Removed: (2) Deconsolidation of receivable portfolios as a result of the Baycorp Transaction.
−Removed: (3) Represents the sale of certain portfolios in the Company’s European operations under the co-investment framework.
−Removed: (4) Does not include amounts collected on behalf of others.
−Removed: (5) Put-backs (“Put-Backs”) and recalls (“Recalls”) represent ineligible accounts that are returned by us or recalled by the seller pursuant to specific guidelines as set forth in the respective purchase agreements.
−Removed: (6) Revenue as a percentage of collections excludes the effects of net portfolio allowances or net portfolio allowance reversals.
−Removed: Accretable yield represents the amount of revenue the Company expects to generate over the remaining life of its existing investment in receivable portfolios based on estimated future cash flows.
−Removed: Total accretable yield is the difference between future estimated collections and the current carrying value of a portfolio.
−Removed: All estimated cash flows on portfolios where the cost basis has been fully recovered are classified as zero basis cash flows.
−Removed: The following table summarizes the Company’s accretable yield and an estimate of zero basis future cash flows at the beginning and end of the period presented (in thousands) :
−Removed: Cash Flows Total
−Removed: Balance at December 31, 2017 $ 3,695,069 $ 369,632 $ 4,064,701
−Removed: Revenue from receivable portfolios ( 1,041,947 ) ( 125,185 ) ( 1,167,132 )
−Removed: Allowance reversals on receivable portfolios, net ( 32,429 ) ( 9,044 ) ( 41,473 )
−Removed: Net additions on existing portfolios
−Removed: 144,726 18,114 162,840
−Removed: Additions for current purchases, net
−Removed: 1,155,451 — 1,155,451
−Removed: Effect of foreign currency translation
−Removed: ( 147,699 ) ( 482 ) ( 148,181 )
−Removed: Balance at December 31, 2018 3,773,171 253,035 4,026,206
+Added: (1) Deconsolidation of receivable portfolios as a result of the Company’s divestiture of its investment in Brazil for the year ended December 31, 2020 and as a result of the sale of Baycorp for the year ended December 31, 2019.
+Added: (2) Represents the sale of certain portfolios in the Company’s European operations under its co-investment framework.
+Added: Changes in expected current period recoveries represent over and under-performance in the reporting period.
+Added: Collections during the year ended December 31, 2020 significantly outperformed the projected cash flows by approximately $ 228.1 million.
+Added: The Company believes the collection over-performance was largely driven by the reduced near-term expected recoveries as a result of adjustments made to the projected cash flow forecast during the first quarter of 2020 associated with the COVID-19 pandemic.
+Added: The over-performance was also a result of sustained improvements in portfolio collections driven by liquidation improvement initiatives.
+Added: While the Company now has additional information with respect to the impact on collections of the COVID-19 pandemic, the future outlook remains uncertain, and will continue to evolve depending on future developments, including the duration and spread of the pandemic and related actions taken by governments.
+Added: When reassessing the future forecasts of expected lifetime recoveries during the year ended December 31, 2020, management considered historical and current collection performance, uncertainty in economic forecasts in the geographies in which we operate, and believes that the operational disruption as a result of the COVID-19 pandemic has, for the near term, been resolved through a combination of social distancing in the workplace and working remotely.
+Added: However, the macroeconomic driven consumer distress is still present and will likely continue to impact the Company’s collections performance in the near future.
+Added: As a result, the Company has updated its forecast, resulting in a reduction of total estimated remaining collections which in turn, when discounted to present value, resulted in a provision for credit loss adjustment of approximately $ 220.8 million during the year ended December 31, 2020.
+Added: The circumstances around this pandemic are evolving rapidly and will continue to impact the Company’s business and its estimation of expected recoveries in future periods.
+Added: The Company will continue to closely monitor the COVID-19 situation and update its assumptions accordingly.
+Added: Accretable yield represented the amount of revenue on purchased receivable portfolios the Company expected to recognize over the remaining life of its existing portfolios.
+Added: The following table summarizes the change in accretable yield under the previous accounting guidance during the period presented ( in thousands ):
+Added: Balance as of December 31, 2018 $ 4,026,206
Revenue from receivable portfolios ( 1,269,288 )
−Removed: Allowance (allowance reversals) on receivable portfolios, net 16,734 ( 8,626 ) 8,108
−Removed: Additions (reductions) on existing portfolios, net
−Removed: 549,253 ( 24,289 ) 524,964
+Added: Allowance on receivable portfolios, net 8,108
+Added: Additions on existing portfolios, net 524,964
Additions for current purchases, net
−Removed: 1,081,774 — 1,081,774
Effect of foreign currency translation
−Removed: 77,340 ( 33 ) 77,307
−Removed: Balance at December 31, 2019 $ 4,312,591 $ 136,480 $ 4,449,071
−Removed: During the year ended December 31, 2019, the Company purchased receivable portfolios with a face value of $ 11.6 billion for $ 1.0 billion, or a purchase cost of 8.6 % of face value.
−Removed: The estimated future collections at acquisition for all portfolios purchased during the year amounted to $ 2.1 billion.
−Removed: During the year ended December 31, 2018, the Company purchased receivable portfolios with a face value of $ 8.5 billion for $ 1.1 billion, or a purchase cost of 13.3 % of face value.
−Removed: The estimated future collections at acquisition for all portfolios purchased during the year amounted to $ 2.3 billion.
−Removed: After the net book value of a portfolio has been fully recovered, all collections are recorded as ZBA revenue.
−Removed: During the years ended December 31, 2019, 2018, and 2017, ZBA revenue was approximately $ 83.6 million, $ 125.2 million, and $ 144.1 million, respectively.
−Removed: The following table summarizes the change in the valuation allowance for investment in receivable portfolios during the periods presented ( in thousands ):
−Removed: Table of Co ntents
−Removed: Balance at December 31, 2017 $ 102,576
+Added: Balance as of December 31, 2019 $ 4,449,071
+Added: The following table summarizes the change in the valuation allowance for investment in receivable portfolios as accounted for under the previous accounting guidance during the period presented ( in thousands ):
+Added: Valuation Allowance
+Added: Balance as of December 31, 2017 $ 102,576
Provision for portfolio allowances 14,421
1 unchanged sentence
Effect of foreign currency translation ( 472 )
−Removed: Balance at December 31, 2018 60,631
+Added: Balance as of December 31, 2018 60,631
Provision for portfolio allowances 36,806
Reversal of prior allowances ( 28,698 )
−Removed: Baycorp Transaction ( 1,036 )
+Added: Sale of Baycorp ( 1,036 )
Effect of foreign currency translation 1,776
−Removed: Balance at December 31, 2019 $ 69,479
+Added: Balance as of December 31, 2019 $ 69,479
Deferred Court Costs, Net
−Removed: Deferred Court Costs for the deferral period consist of the following as of the dates presented ( in thousands ):
−Removed: 2019 December 31,
+Added: As discussed in “Note 1:
+Added: Ownership, Description of Business, and Summary of Significant Accounting Policies,” effective January 1, 2020 and as part of the adoption of CECL, the Company changed its method of accounting for court costs spent in its legal collection channel.
+Added: The Company now expenses all of its court costs as incurred and includes all expected recoveries, including the recoveries from the legal channel, in the measurement of the investment in receivable portfolios at a discounted value.
+Added: As a result, the Company no longer carries deferred court costs.
+Added: Net deferred court costs under the previous accounting method consisted of the following as of the date presented ( in thousands ):
Court costs advanced $ 891,207
1 unchanged sentence
Court costs reserve ( 421,992 )
−Removed: Deferred court costs $ 100,172 $ 95,918
−Removed: A roll forward of the Company’s court cost reserve is as follows ( in thousands ):
−Removed: 2019 December 31,
−Removed: 2018 December 31,
−Removed: Balance at beginning of period $ ( 396,460 ) $ ( 364,015 ) $ ( 327,926 )
+Added: Deferred court costs, net $ 100,172
+Added: A roll-forward of the Company’s court cost reserve as accounted for under the previous accounting method is as follows for the periods presented ( in thousands ):
+Added: Year Ended December 31,
+Added: Balance as of beginning of period $ ( 396,460 ) $ ( 364,015 )
Provision for court costs ( 82,987 ) ( 90,026 )
1 unchanged sentence
Effect of foreign currency translation ( 3,163 ) 4,198
−Removed: Balance at end of period $ ( 421,992 ) $ ( 396,460 ) $ ( 364,015 )
+Added: Balance as of end of period $ ( 421,992 ) $ ( 396,460 )
+Added: Composition of Certain Financial Statement Items
Property and Equipment, Net
9 unchanged sentences
$ 127,297 $ 120,051
−Removed: Depreciation and amortization expense from continuing operations was $ 33.3 million, $ 29.5 million, and $ 31.1 million for the years ended December 31, 2019, 2018, and 2017, respectively.
−Removed: Other assets consist of the following ( in thousands ):
+Added: Depreciation and amortization expense related to property and equipment was $ 34.8 million, $ 33.3 million, and $ 29.5 million during the years ended December 31, 2020, 2019, and 2018, respectively.
+Added: Other assets consist of the following as of the dates presented ( in thousands ):
2020 December 31,
1 unchanged sentence
Identifiable intangible assets, net 45,012 51,371
−Removed: Assets held for sale 46,717 26,664
−Removed: Service fee receivables 27,705 28,035
+Added: Real estate owned 42,173 46,717
+Added: Income tax deposit 35,853 5,822
Deferred tax assets 33,202 24,134
Prepaid expenses 26,717 22,272
+Added: Service fee receivables 26,539 27,705
Other financial receivables 12,238 17,308
2 unchanged sentences
The Company is in compliance in all material respects with all covenants under its financing arrangements as of December 31, 2020.
−Removed: The components of the Company’s consolidated borrowings were as follows (in thousands) :
+Added: The components of the Company’s consolidated borrowings were as follows as of the dates presented (in thousands) :
2020 December 31,
+Added: Global senior secured revolving credit facility $ 481,007 $ —
Encore revolving credit facility — 492,000
Encore term loan facility — 171,677
−Removed: Encore senior secured notes 308,750 325,000
−Removed: Encore convertible notes and exchangeable notes 672,855 656,000
−Removed: debt discount ( 30,308 ) ( 36,361 )
−Removed: Cabot senior secured notes 1,129,039 1,111,399
−Removed: debt discount ( 1,604 ) ( 1,477 )
+Added: Encore private placement notes 146,550 308,750
+Added: Senior secured notes 1,651,619 1,129,039
+Added: Convertible notes and exchangeable notes 583,500 672,855
Cabot senior revolving credit facility — 285,749
3 unchanged sentences
3,373,493 3,586,434
−Removed: debt issuance costs, net of amortization ( 41,325 ) ( 47,309 )
+Added: debt discount and issuance costs, net of amortization ( 91,859 ) ( 73,237 )
Total $ 3,281,634 $ 3,513,197
+Added: In September 2020 the Company entered into various transactions, agreements and amendments related to its borrowings including (collectively, the “Financing Transactions”):
+Added: • an amended multi-currency revolving credit facility that formerly supported only Cabot that now supports the operations of all operating units;
+Added: • an issuance of € 350.0 million (approximately $ 410.8 million) in 4.875 % senior secured notes due 2025;
+Added: • an amendment to the terms of the existing Senior Secured Notes (defined below).
+Added: Following the Financing Transactions, Encore is the parent of the restricted group for the Global Senior Facility, the Senior Secured Notes and the Private Placement Notes, each of which is now guaranteed by the same group of material Encore subsidiaries and secured by the same collateral, which represents substantially all of the assets of those subsidiaries.
+Added: In connection with the Financing Transactions, Encore repaid and terminated the Encore Senior Secured Credit Facilities (defined below) and prepaid a portion of its Encore Private Placement Notes (defined below).
+Added: The total fees paid to the lenders and third-party costs incurred relating to the Financing Transactions were approximately $ 49.7 million, a portion of which were capitalized as debt issuance costs.
+Added: Additionally, certain of the unamortized debt issuance costs prior to the Financing Transaction were written-off.
+Added: The Company recorded a pre-tax expense of approximately $ 24.6 million (approximately $ 18.9 million net of tax) relating to the Financing Transactions, $ 15.0 million of which was included in loss on extinguishment of debt, $ 2.7 million was included in interest expense, and $ 6.9 million was included in general and administrative expense in the Company’s consolidated statements of operations during the year ended December 31, 2020.
+Added: Global Senior Secured Revolving Credit Facility
+Added: The Company has entered into a multi-currency senior secured revolving credit facility agreement (as amended and restated, the “Global Senior Facility”).
+Added: In previous periods, the Company referred to this facility as the Cabot Credit Facility.
+Added: As of December 31, 2020, the Global Senior Facility provided for a total committed facility of $ 1,050.0 million that matures in September 2024 and included the following key provisions:
+Added: • Interest at LIBOR (or EURIBOR for any loan drawn in euro) plus 2.50 % per annum, with a LIBOR (or EURIBOR) floor of 0.75 %;
+Added: • A restrictive covenant that limits the LTV Ratio (defined in the Global Senior Facility) to 0.75 in the event that the Global Senior Facility is more than 20 % utilized;
+Added: • A restrictive covenant that limits the SSRCF Ratio (defined in the Global Senior Facility) to 0.275 ;
+Added: • A restrictive covenant that requires the Company to maintain a Fixed Charge Coverage Ratio (as defined in the Global Senior Facility) of at least 2.0 ;
+Added: • Additional restrictions and covenants which limit, among other things, the payment of dividends and the incurrence of additional indebtedness and liens;
+Added: • Standard events of default which, upon occurrence, may permit the lenders to terminate the Global Senior Facility and declare all amounts outstanding to be immediately due and payable.
+Added: The Global Senior Facility is secured by substantially all of the assets of the Company and the guarantors.
+Added: Pursuant to the terms of an intercreditor agreement entered into with respect to the relative positions of (1) the Global Senior Facility, any super priority hedging liabilities and the Encore Private Placement Notes (collectively, “Super Senior Liabilities”) and (2) the Senior Secured Notes, Super Senior Liabilities that are secured by assets that also secure the Senior Secured Notes will receive priority with respect to any proceeds received upon any enforcement action over any such assets.
+Added: As of December 31, 2020, the outstanding borrowings under the Global Senior Facility were $ 481.0 million.
+Added: Since the completion of the Financing Transactions, the weighted average interest rate of the Global Senior Facility was 3.25 %.
+Added: The weighted average interest rate of the previous Cabot Credit Facility was 3.30 % and 3.52 % for the years ended December 31, 2020 and December 31, 2019, respectively.
+Added: The weighted average interest rate of the previous Encore Revolving Credit Facility was 3.90 % and 5.27 % for the years ended December 31, 2020 and December 31, 2019, respectively.
+Added: Available capacity under the Global Senior Facility was $ 569.0 million as of December 31, 2020.
Encore Revolving Credit Facility and Term Loan Facility
−Removed: The Company has a revolving credit facility (the “Revolving Credit Facility”) and term loan facility (the “Term Loan Facility,” and together with the Revolving Credit Facility, the “Senior Secured Credit Facilities”) pursuant to a Third Amended and Restated Credit Agreement dated December 20, 2016 (as amended, the “Restated Credit Agreement”).
−Removed: Provisions of the Restated Credit Agreement as of December 31, 2019 include, but are not limited to:
−Removed: • Revolving Credit Facility commitments of $ 884.2 million that expire in December 2021 with interest at a floating rate equal to, at the Company’s option, either:
−Removed: (a) reserve adjusted London Interbank Offered Rate (“LIBOR”), plus a spread that ranges from 250 to 300 basis points depending on the cash flow leverage ratio of Encore and its restricted subsidiaries as defined in the Restated Credit Agreement;
−Removed: or (b) alternate base rate, plus a spread that ranges from 150 to 200 basis points, depending on the cash flow leverage ratio of Encore and its restricted subsidiaries.
−Removed: “Alternate base rate,” as defined in the Restated Credit Agreement, means the highest of (i) the per annum rate which the administrative agent publicly announces from time to time as its prime lending rate, (ii) the
−Removed: federal funds effective rate from time to time, plus 0.5 % per annum, (iii) reserved adjusted LIBOR determined on a daily basis for a one month interest period, plus 1.0 % per annum and (iv) zero;
−Removed: • A $ 194.6 million term loan maturing in December 2021, with interest at a floating rate equal to, at the Company’s option, either:
−Removed: (1) reserve adjusted LIBOR, plus a spread that ranges from 250 to 300 basis points, depending on the cash flow leverage ratio of Encore and its restricted subsidiaries;
−Removed: or (2) alternate base rate, plus a spread that ranges from 150 to 200 basis points, depending on the cash flow leverage ratio of Encore and its restricted subsidiaries.
−Removed: Principal amortizes $ 15.3 million in each of 2019 and 2020 with the remaining principal due in 2021;
−Removed: • A borrowing base under the Revolving Credit Facility equal to 35 % of all eligible non-bankruptcy estimated remaining collections plus 55 % of eligible estimated remaining collections for consumer receivables subject to bankruptcy;
−Removed: • A maximum cash flow leverage ratio permitted of 3.00 :1.00;
−Removed: • A maximum cash flow first-lien leverage ratio of 2.00 :1.00;
−Removed: • A minimum interest coverage ratio of 1.75 :1.00;
−Removed: • The allowance of indebtedness in the form of senior secured notes not to exceed $ 350.0 million;
−Removed: • The allowance of additional unsecured or subordinated indebtedness not to exceed $ 1.1 billion, including junior lien indebtedness not to exceed $ 400.0 million;
−Removed: • Restrictions and covenants, which limit the payment of dividends and the incurrence of additional indebtedness and liens, among other limitations;
−Removed: • Repurchases of up to $ 150.0 million of Encore’s common stock after July 9, 2015, subject to compliance with certain covenants and available borrowing capacity;
−Removed: • A change of control definition, that excludes acquisitions of stock by Red Mountain Capital Partners LLC, JCF FPK I, LP and their respective affiliates of up to 50 % of the outstanding shares of Encore’s voting stock;
−Removed: • Events of default which, upon occurrence, may permit the lenders to terminate the facility and declare all amounts outstanding to be immediately due and payable;
−Removed: • A pre-approved acquisition limit of $ 225.0 million per fiscal year;
−Removed: • A basket to allow for investments not to exceed the greater of (1) 200 % of the consolidated net worth of Encore and its restricted subsidiaries;
−Removed: and (2) an unlimited amount such that after giving effect to the making of any investment, the cash flow leverage ratio is less than 1.25 :1:00;
−Removed: • A basket to allow for investments in persons organized under the laws of Canada in the amount of $ 50.0 million;
−Removed: • Collateralization by all assets of the Company, other than the assets of certain foreign subsidiaries and all unrestricted subsidiaries as defined in the Restated Credit Agreement.
−Removed: At December 31, 2019, the outstanding balance under the Revolving Credit Facility was $ 492.0 million, which bore a weighted average interest rate of 5.27 % and 5.01 % for the years ended December 31, 2019 and 2018, respectively.
−Removed: Available capacity under the Revolving Credit Facility, after taking into account borrowing base and applicable debt covenants, was $ 272.3 million as of December 31, 2019.
−Removed: At December 31, 2019, the outstanding balance under the Term Loan Facility was $ 171.7 million.
−Removed: Encore Senior Secured Notes
−Removed: In August 2017, Encore entered into $ 325.0 million in senior secured notes with a group of insurance companies (the “Senior Secured Notes”).
−Removed: The Senior Secured Notes bear an annual interest rate of 5.625 %, mature in 2024 and beginning in November 2019, require quarterly principal payments of $ 16.3 million.
−Removed: As of December 31, 2019, $ 308.8 million of the Senior Secured Notes remained outstanding.
−Removed: The Senior Secured Notes are guaranteed in full by certain of Encore’s subsidiaries.
−Removed: The Senior Secured Notes are pari passu with, and are collateralized by the same collateral as the Senior Secured Credit Facilities.
−Removed: The Senior Secured Notes may be accelerated and become automatically and immediately due and payable upon certain events of default, including certain events related to insolvency, bankruptcy, or liquidation.
−Removed: Additionally, any series of the Senior Secured Notes may be
−Removed: accelerated at the election of the holder or holders of a majority in principal amount of such series of Senior Secured Notes upon certain events of default by Encore, including the breach of affirmative covenants regarding guarantors, collateral, minimum revolving credit facility commitment or the breach of any negative covenant.
−Removed: Encore may prepay the Senior Secured Notes at any time for any reason.
−Removed: If Encore prepays the Senior Secured Notes, payment will be at the higher of par or the present value of the remaining scheduled payments of principal and interest on the portion being prepaid.
−Removed: The discount rate used to determine the present value is 50 basis points over the then current Treasury Rate corresponding to the remaining average life of the Senior Secured Notes.
−Removed: The covenants and material terms in the purchase agreement for the Senior Secured Notes are substantially similar to those in the Restated Credit Agreement.
−Removed: The holders of the Senior Secured Notes and the administrative agent for the lenders of the Restated Credit Agreement have an intercreditor agreement related to their pro rata rights to the collateral, actionable default, powers and duties and remedies, among other topics.
−Removed: Encore Convertible Notes and Exchangeable Notes
−Removed: The following table provides a summary of the principal balance, maturity date and interest rate for the outstanding convertible and exchangeable senior notes ( $ in thousands ):
+Added: The Company had a revolving credit facility (the “Revolving Credit Facility”) and term loan facility (the “Term Loan Facility,” and together with the Revolving Credit Facility, the “Encore Senior Secured Credit Facilities”) pursuant to a Third Amended and Restated Credit Agreement dated December 20, 2016 (as amended, the “Restated Credit Agreement”) that was previously used to support the Company’s domestic operations.
+Added: In connection with the Financing Transactions on September 24, 2020, the Company repaid the Encore Senior Secured Credit Facilities and terminated the Restated Credit Agreement.
+Added: Encore Private Placement Notes
+Added: In August 2017, Encore entered into $ 325.0 million in senior secured notes with a group of insurance companies (the “Encore Private Placement Notes”).
+Added: In September 2020, as part of the Financing Transactions, the Company prepaid approximately $ 103.7 million of the Encore Private Placement Notes and made a $ 10.4 million make-whole payment to the holders of notes that were prepaid.
+Added: The make-whole payment was included in loss on extinguishment of debt in the Company’s consolidated statements of operations during the year ended December 31, 2020.
+Added: As of December 31, 2020, $ 146.6 million of the Encore Private Placement Notes remained outstanding.
+Added: The Encore Private Placement Notes bear an annual interest rate of 5.625 %, mature in August 2024 and require quarterly principal payments of $ 9.8 million.
+Added: The covenants and material terms for the Encore Private Placement Notes are substantially similar to those for the Global Senior Facility.
+Added: Senior Secured Notes
+Added: The following table provides a summary of the Senior Secured Notes ( $ in thousands ):
December 31, 2020 December 31, 2019 Maturity Date Interest Rate
−Removed: 2020 Convertible Notes $ 89,355 $ 172,500 Jul 1, 2020 3.000 %
+Added: Cabot 2023 Notes $ 309,034 $ 680,118 Oct 1, 2023 7.500 %
+Added: Cabot 2024 Floating Rate Notes — 448,921 Jun 1, 2024 EURIBOR + 6.375 %
+Added: Encore 2025 Notes 426,752 — Oct 15, 2025 4.875 %
+Added: Encore 2026 Notes 409,827 — Feb 15, 2026 5.375 %
+Added: Encore 2028 Floating Rate Notes 506,006 — Jan 15, 2028 EURIBOR + 4.250 %
+Added: $ 1,651,619 $ 1,129,039
+Added: In September 2020, as part of the Financing Transactions, Encore issued € 350.0 million (approximately $ 426.8 million based on an exchange rate of $1.00 to €0.82, the exchange rate as of December 31, 2020) in aggregate principal amount of 4.875 % Senior Secured Notes due 2025 at an issue price of 98.889 % (the “Encore 2025 Notes”).
+Added: Interest on the Encore 2025 Notes is payable semi-annually, in arrears, on April 15 and October 15 of each year, commencing on April 15, 2021.
+Added: In November 2020, Encore issued £ 300.0 million (approximately $ 409.8 million based on an exchange rate of $1.00 to £0.73, the exchange rate as of December 31, 2020) in aggregate principal amount of 5.375 % Senior Secured Notes due 2026 at an issue price of 100.000 % (the “Encore 2026 Notes”).
+Added: Interest on the Encore 2026 Notes is payable semi-annually, in arrears, on February 15 and August 15 of each year, commencing on February 15, 2021.
+Added: The Company used the proceeds from this
+Added: offering to redeem £ 286.7 million (approximately $ 391.7 million based on an exchange rate of $1.00 to £0.73, the exchange rate as of December 31, 2020) of the outstanding £ 512.9 million (approximately $ 700.7 million based on an exchange rate of $1.00 to £0.73, the exchange rate as of December 31, 2020) aggregate principal amount of 7.500 % Senior Secured Notes due 2023 (the “Cabot 2023 Notes”) at a redemption price of 101.875 %, and pay certain transaction fees and expenses incurred in connection with this offering.
+Added: The Company recognized a loss on extinguishment of debt of approximately $ 12.8 million (approximately $ 10.3 million net of tax) associated with this transaction during the year ended December 31, 2020.
+Added: As of December 31, 2020, £ 226.2 million (approximately $ 309.0 million based on an exchange rate of $1.00 to £0.73, the exchange rate as of December 31, 2020) of the Cabot 2023 Notes were outstanding, interest is payable semi-annually, in arrears, on April 1 and October 1 of each year.
+Added: In December 2020, Encore issued € 415.0 million (approximately $ 506.0 million based on an exchange rate of $1.00 to €0.82, the exchange rate as of December 31, 2020) in aggregate principal amount of senior secured floating rate notes due 2028 at an issue price of 99.000 % (the “Encore 2028 Floating Rate Notes” and together with the Cabot 2023 Notes, Encore 2025 Notes and Encore 2026 Notes, the “Senior Secured Notes”).
+Added: The Encore 2028 Floating Rate Notes bear interest at a rate equal to the sum of (i) three-month EURIBOR (subject to a 0 % floor) plus (ii) 4.250 % per annum, reset quarterly.
+Added: Interest is payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year, commencing on April 15, 2021.
+Added: The Company used the proceeds from this offering to redeem the outstanding € 400.0 million (approximately $ 487.7 million based on an exchange rate of $1.00 to €0.82, the exchange rate as of December 31, 2020) aggregate principal amount Senior Secured Floating Rate Notes due 2024 (the “Cabot 2024 Floating Rate Notes”) in full and pay certain transaction fees and expenses incurred in connection with this offering.
+Added: The Company recognized a loss on extinguishment of debt of approximately $ 13.1 million (approximately $ 10.6 million net of tax) associated with this transaction during the year ended December 31, 2020.
+Added: The Cabot 2024 Floating Rate Notes bore interest at a rate equal to the sum of (i) three-month EURIBOR (subject to a 0 % floor) plus (ii) 6.375 %, reset quarterly.
+Added: The Senior Secured Notes are secured by the same collateral as the Global Senior Facility and the Encore Private Placement Notes.
+Added: The guarantees provided in respect of the Senior Secured Notes are pari passu with each such guarantee given in respect of the Global Senior Facility and Encore Private Placement Notes.
+Added: Subject to the intercreditor agreement described above under “Global Senior Secured Revolving Credit Facility,” Super Senior Liabilities that are secured by assets that also secure the Senior Secured Notes will receive priority with respect to any proceeds received upon any enforcement action over any such assets.
+Added: Convertible Notes and Exchangeable Notes
+Added: The following table provides a summary of the principal balance, maturity date and interest rate for the outstanding convertible and exchangeable senior notes (the “Convertible Notes” or “Exchangeable Notes,” as applicable) ( $ in thousands ):
+Added: December 31, 2020 December 31, 2019 Maturity Date Interest Rate
+Added: 2020 Convertible Notes (1)
+Added: $ — $ 89,355 Jul 1, 2020 3.000 %
2021 Convertible Notes 161,000 161,000 Mar 15, 2021 2.875 %
3 unchanged sentences
$ 583,500 $ 672,855
−Removed: In June and July 2013, Encore issued $ 172.5 million aggregate principal amount of 3.000 % convertible senior notes that mature on July 1, 2020 in private placement transactions (the “2020 Convertible Notes”).
−Removed: In March 2014, Encore issued $ 161.0 million aggregate principal amount of 2.875 % convertible senior notes that mature on March 15, 2021 in private placement transactions (the “2021 Convertible Notes”).
−Removed: In March 2017, Encore issued $ 150.0 million aggregate principal amount of 3.250 % convertible senior notes that mature on March 15, 2022 in private placement transactions (the “2022 Convertible Notes”).
−Removed: In September 2019, Encore issued $ 100.0 million aggregate principal amount of 3.250 % convertible senior notes that mature on October 1, 2025 in private placement transactions (the “2025 Convertible Notes” and together with the 2020 Convertible Notes the 2021 Convertible Notes, and the 2022 Convertible Notes, the “Convertible Notes”).
−Removed: The interest on the Convertible Notes is payable semi-annually.
−Removed: The Company used a portion of the net proceeds from the issuance of the 2025 Convertible Notes to repurchase, in separate privately negotiated transactions, approximately $ 83.1 million aggregate principal amount of its 2020 Convertible Notes for approximately $ 85.0 million, including accrued and unpaid interest.
−Removed: Additionally, the Company received proceeds of $ 1.8 million from the unwind of the capped call options associated with the repurchased portion of the 2020 Convertible Notes.
−Removed: Based on the fair value allocated to the debt and equity components of the 2020 Convertible Notes at the time of repurchase, the Company recognized a pre-tax loss on the repurchase of approximately $ 1.7 million, which was recorded to other expense in the consolidated statements of operations during the year ended December 31, 2019.
−Removed: In addition, the Company recognized approximately $ 0.4 million of interest expense to record the write-off of unamortized debt issuance costs associated with the repurchase of the 2020 Convertible Notes in the consolidated statements of operations during the year ended December 31, 2019.
−Removed: Since the capped call options were determined to be equity instruments, the partial unwind of the capped call options was recorded as an increase in additional paid-in capital in the consolidated statements of financial condition as of December 31, 2019.
−Removed: In July 2018, Encore Finance (defined below), a 100 % owned finance subsidiary of Encore, issued $ 172.5 million aggregate principal amount of exchangeable senior notes due 2023 (the “Exchangeable Notes”) which are fully and unconditionally guaranteed by Encore.
−Removed: The Exchangeable Notes mature on September 1, 2023 and bear interest at a rate of 4.500 % per year, payable semi-annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2019.
−Removed: Unless otherwise indicated in connection with a particular offering of debt securities, Encore will fully and unconditionally guarantee any debt securities issued by Encore Capital Europe Finance Limited (“Encore Finance”), a 100 % owned finance subsidiary of Encore.
−Removed: Amounts related to Encore Finance are included in the consolidated financial statements of Encore subsequent to April 30, 2018, the date of the incorporation of Encore Finance.
−Removed: Prior to the close of business on the business day immediately preceding their respective conversion or exchange date (listed below), holders may convert or exchange their Convertible Notes or Exchangeable Notes under certain circumstances set
−Removed: forth in the applicable indentures.
−Removed: On or after their respective conversion or exchange dates until the close of business on the scheduled trading day immediately preceding their respective maturity date, holders may convert or exchange their notes at any time.
+Added: _______________________
+Added: (1) The 2020 Convertible Notes matured on July 1, 2020 and the Company repaid the outstanding principal in cash.
+Added: The Exchangeable Notes were issued by Encore Capital Europe Finance Limited (“Encore Finance”), a 100% owned finance subsidiary of Encore, and are fully and unconditionally guaranteed by Encore.
+Added: Unless otherwise indicated in connection with a particular offering of debt securities, Encore will fully and unconditionally guarantee any debt securities issued by Encore Finance.
+Added: Amounts related to Encore Finance are included in the consolidated financial statements of Encore subsequent to April 30, 2018, the date of incorporation of Encore Finance.
+Added: Prior to the close of business on the business day immediately preceding their respective free conversion or exchange date (listed below), holders may convert or exchange their Convertible Notes or Exchangeable Notes under certain circumstances set forth in the applicable indentures.
+Added: On or after their respective free conversion or exchange dates until the close of business on the second scheduled trading day immediately preceding their respective maturity date, holders may convert or exchange their notes at any time.
Certain key terms related to the convertible and exchangeable features as of December 31, 2020 are listed below:
−Removed: 2020 Convertible Notes 2021 Convertible Notes 2022 Convertible Notes 2023 Exchangeable Notes 2025 Convertible Notes
+Added: 2021 Convertible Notes 2022 Convertible Notes 2023 Exchangeable Notes 2025 Convertible Notes
Initial conversion or exchange price $ 59.39 $ 45.57 $ 44.62 $ 40.00
Closing stock price at date of issuance $ 47.51 $ 35.05 $ 36.45 $ 32.00
−Removed: Closing stock price date Jun 24, 2013 Mar 5, 2014 Feb 27, 2017 Jul 20, 2018 Sep 4, 2019
+Added: Closing stock price date Mar 5, 2014 Feb 27, 2017 Jul 20, 2018 Sep 4, 2019
Conversion or exchange rate (shares per $1,000 principal amount) 16.8386 21.9467 22.4090 25.0000
−Removed: Conversion or exchange date Jan 1, 2020 Sep 15, 2020 Sep 15, 2021 Mar 1, 2023 Jul 1, 2025
−Removed: In the event of conversion or exchange, holders of the Company’s Convertible Notes or Exchangeable 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.
−Removed: The Company’s current intent is to settle conversions and exchanges through combination settlement ( i.e., convertible or exchangeable into cash up to the aggregate principal amount, 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 and subject to certain restrictions contained in each of the indentures governing the Convertible Notes and Exchangeable Notes, for the remainder).
−Removed: As a result, and in accordance with authoritative guidance related to derivatives and hedging and earnings per share, only the conversion or exchange spread is included in the diluted earnings per share calculation, if dilutive.
−Removed: Under such method, the settlement of the conversion or exchange spread has a dilutive effect when, during any quarter, the average share price of the Company’s common stock exceeds the initial conversion or exchange prices listed in the above table.
−Removed: The Company separately accounts for the liability and equity components in a manner that will reflect the entity’s nonconvertible or nonexchangeable debt borrowing rate when interest cost is recognized in subsequent periods.
−Removed: Additionally, debt issuance costs are allocated in proportion to the allocation of the liability and equity components and accounted for as debt issuance costs and equity issuance costs, respectively.
−Removed: As discussed above, upon exchange of the Exchangeable Notes, the Company will pay or deliver, as the case may be, 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.
+Added: Conversion or exchange date Sep 15, 2020 Sep 15, 2021 Mar 1, 2023 Jul 1, 2025
+Added: Prior to October 29, 2020, in the event of conversion or exchange, holders of the Company’s Convertible Notes or Exchangeable Notes would 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.
+Added: The Company’s intent was to settle conversions and exchanges through combination settlement with a minimum specified dollar amount of $1,000 per $1,000 principal amount of notes (i.e., convertible or exchangeable into cash up to the aggregate principal amount, 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 and subject to certain restrictions contained in each of the indentures governing the Convertible Notes and Exchangeable Notes, for the remainder).
+Added: As a result, only the conversion or exchange spread was included in the diluted earnings per share calculation, if dilutive.
+Added: Under such method, the settlement of the conversion or exchange spread had a dilutive effect when, during any quarter, the average share price of the Company’s common stock exceeds the initial conversion or exchange prices listed in the above table.
+Added: On October 29, 2020, the Company entered into supplemental indentures for the Convertible Notes and Exchangeable Notes so that in the event of conversion or exchange, the notes are convertible or exchangeable into cash up to the aggregate principal amount of the notes and the excess conversion premium, if any, may be settled in cash or shares of the Company’s common stock at the Company’s election and subject to certain restrictions contained in each of the indentures governing the Convertible Notes and Exchangeable Notes.
+Added: Only the conversion or exchange spread is included in the diluted earnings per share calculation, if dilutive.
+Added: There was no dilutive effect relating to our convertible or exchangeable notes during the years ended December 31, 2020, 2019, or 2018.
The debt and equity components, the issuance costs related to the equity component, the stated interest rate, and the effective interest rate for each of the Convertible Notes and Exchangeable Notes at the time of the original offering are listed below (in thousands, except percentages) :
−Removed: 2020 Convertible Notes (1)
2021 Convertible Notes 2022 Convertible Notes 2023 Exchangeable Notes 2025 Convertible Notes
4 unchanged sentences
Effective interest rate 4.700 % 5.200 % 6.500 % 5.000 %
−Removed: ________________________
−Removed: (1) The Company used a portion of the net proceeds from the issuance of the 2025 Convertible Notes to repurchase approximately $ 83.1 million aggregate principal amount of its 2020 Convertible Notes.
−Removed: As a result, the remaining principal amount of the 2020 Convertible Notes was $ 89.4 million as of December 31, 2019.
The balances of the liability and equity components of all the Convertible Notes and Exchangeable Notes outstanding were as follows (in thousands) :
5 unchanged sentences
The debt discount is being amortized into interest expense over the remaining life of the Convertible Notes and Exchangeable Notes using the effective interest rates.
−Removed: Interest expense related to the Convertible Notes and Exchangeable Notes was as follows (in thousands) :
+Added: Interest expense related to the Convertible Notes and Exchangeable Notes was as follows during the periods presented (in thousands) :
Year ended December 31,
+Added: 2020 2019 2018
Interest expense—stated coupon rate $ 21,857 $ 23,845 $ 17,518
2 unchanged sentences
Hedge Transactions
−Removed: In order to reduce the risk related to the potential dilution and/or the potential cash payments the Company may be required to make in the event that the market price of the Company’s common stock becomes greater than the conversion or exchange prices of the Convertible Notes and the Exchangeable Notes, the Company maintains a hedge program that increases the effective conversion or exchange price for the 2020 Convertible Notes, the 2021 Convertible Notes and the Exchangeable Notes.
+Added: In order to reduce the risk related to the potential dilution and/or the potential cash payments the Company may be required to make in the event that the market price of the Company’s common stock becomes greater than the conversion or exchange prices of the Convertible Notes and the Exchangeable Notes, the Company maintains a hedge program that increases the effective conversion or exchange price for the 2021 Convertible Notes and the Exchangeable Notes.
+Added: All of the hedge instruments related to the Convertible Notes and the Exchangeable Notes have been determined to be indexed to the Company’s own stock and meet the criteria for equity classification.
+Added: The Company recorded the cost of the hedge instruments as a reduction in additional paid-in capital, and does not recognize subsequent changes in fair value of these financial instruments in its consolidated financial statements.
The Company did not hedge the 2022 Convertible Notes or the 2025 Convertible Notes.
−Removed: As discussed above, the Company unwound the capped call options associated with the portion of the 2020 Convertible Notes repurchased by the Company in September 2019.
The details of the hedge program are listed below (in thousands, except conversion or exchange price) :
−Removed: 2020 Convertible Notes 2021 Convertible Notes 2023 Exchangeable Notes
+Added: 2021 Convertible Notes 2023 Exchangeable Notes
Cost of the hedge transaction(s) $ 19,545 $ 17,785
1 unchanged sentence
Effective conversion or exchange price $ 83.14 $ 62.48
−Removed: Cabot Senior Secured Notes
−Removed: The following table provides a summary of the Cabot senior secured notes ( $ in thousands ):
−Removed: December 31, 2019 December 31, 2018 Maturity Date Interest Rate
−Removed: Floating rate senior secured notes due 2024 $ 448,921 $ — Jun 1, 2024 EURIBOR +6.375%
−Removed: Floating rate senior secured notes due 2021 — 356,067 Nov 15, 2021 EURIBOR +5.875%
−Removed: Senior secured notes due 2023 680,118 653,355 Oct 1, 2023 7.500 %
−Removed: Senior secured notes due 2021 — 101,977 Apr 1, 2021 6.500 %
−Removed: $ 1,129,039 $ 1,111,399
−Removed: In June 2019, Cabot Financial (Luxembourg) II S.A.
−Removed: (“Cabot Financial II”), an indirect subsidiary of Encore, issued € 400.0 million (approximately $ 452.0 million) in aggregate principal amount of Senior Secured Floating Rate Notes due 2024 (the “Cabot 2024 Floating Rate Notes”).
−Removed: The Cabot 2024 Floating Rate Notes mature in June 2024 and bear interest at a rate equal to the sum of (i) three-month EURIBOR (subject to a 0% floor) plus (ii) 6.375 %, reset quarterly.
−Removed: Interest is payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year.
−Removed: The weighted average interest rate was 6.375% for the year ended December 31, 2019.
−Removed: The proceeds from the issuance of the Cabot 2024 Floating Rate Notes, together with cash on hand, were used to (1) fully redeem existing € 310.0 million (approximately $ 350.3 million) floating rate notes due in November 2021 and pay premium and accrued interest thereon, (2) fully redeem existing £ 80.0 million (approximately $ 101.6 million) senior secured notes due in April 2021 and pay accrued interest thereon, and (3) pay commissions, fees and other expenses.
−Removed: The transaction was treated as a debt extinguishment and related fees of approximately $ 9.0 million were recorded as interest expense in the Company’s consolidated statements of operations during the year ended December 31, 2019.
−Removed: The weighted average interest rate was 5.875% for the years ended December 31, 2019 and 2018.
−Removed: The Cabot 2024 Floating Rate Notes are fully and unconditionally guaranteed on a senior secured basis by the following indirect subsidiaries of the Company:
−Removed: CCM, Cabot Financial Limited and all material subsidiaries of Cabot Financial Limited (other than Cabot Financial II, Marlin Intermediate Holdings plc, Cabot Securitisation UK Limited and Cabot Securitisation (UK) II Limited).
−Removed: The Cabot 2024 Floating Rate Notes are secured by a first-ranking security interest in all the outstanding shares of Cabot Financial II and the guarantors (other than CCM and Marlin Midway Limited) and substantially all the assets of Cabot Financial II and the guarantors (other than CCM).
−Removed: Cabot Financial (Luxembourg) S.A.
−Removed: (“Cabot Financial”) has issued £ 512.9 million (approximately $ 651.3 million) in aggregate principal amount of 7.500 % Senior Secured Notes due 2023 (the “Cabot 2023 Notes”).
−Removed: The Cabot 2023 Notes mature in October 2023.
−Removed: Interest on the Cabot 2023 Notes is payable semi-annually, in arrears, on April 1 and October 1 of each year.
−Removed: The Cabot 2023 Notes are fully and unconditionally guaranteed on a senior secured basis by the following indirect subsidiaries of the Company:
−Removed: CCM, Cabot Financial Limited, and all material subsidiaries of Cabot Financial Limited (other than Cabot Financial, Marlin Intermediate Holdings plc, Cabot Securitisation UK Limited and Cabot Securitisation (UK) II Limited).
−Removed: The Cabot 2023 Notes are secured by a first ranking security interest in all the outstanding shares of Cabot Financial and the guarantors (other than CCM and Marlin Midway Limited) and substantially all the assets of Cabot Financial and the guarantors (other than CCM).
−Removed: Subject to the Intercreditor Agreement described below under “Cabot Senior Revolving Credit Facility,” the guarantees provided in respect of the Cabot 2023 Notes are pari passu with each such guarantee given in respect of the Cabot 2024 Floating Rate Notes and the Cabot Credit Facility described below.
−Removed: Interest expense related to the Cabot senior secured notes was as follows (in thousands) :
−Removed: Year ended December 31,
−Removed: Interest expense—stated coupon rate $ 76,897 $ 84,772
−Removed: Interest expense—amortization of debt discount 532 343
−Removed: Interest expense—Cabot senior secured notes $ 77,429 $ 85,115
−Removed: Cabot Senior Revolving Credit Facility
−Removed: Cabot Financial (UK) Limited (“Cabot Financial UK”) has an amended and restated senior secured revolving credit facility agreement (as amended and restated, the “Cabot Credit Facility”).
−Removed: At December 31, 2019, the Cabot Credit Facility provided for a total committed facility of £ 375.0 million that expires in September 2023 and included the following key provisions:
−Removed: • Interest at LIBOR (or EURIBOR for any loan drawn in euro) plus 3.00 % per annum;
−Removed: • A restrictive covenant that limits the loan to value ratio to 0.75 in the event that the Cabot Credit Facility is more than 20% utilized;
−Removed: • A restrictive covenant that limits the super senior loan (i.e.
−Removed: the Cabot Credit Facility and any super priority hedging liabilities) to value ratio to 0.275 ;
−Removed: • Additional restrictions and covenants which limit, among other things, the payment of dividends and the incurrence of additional indebtedness and liens;
−Removed: • Events of default which, upon occurrence, may permit the lenders to terminate the Cabot Credit Facility and declare all amounts outstanding to be immediately due and payable.
−Removed: The Cabot Credit Facility is unconditionally guaranteed by the following indirect subsidiaries of the Company:
−Removed: CCM, Cabot Financial Limited, and all material subsidiaries of Cabot Financial Limited.
−Removed: The Cabot Credit Facility is secured by first ranking security interests in all the outstanding shares of Cabot Financial UK and the guarantors (other than CCM) and substantially all the assets of Cabot Financial UK and the guarantors (other than CCM).
−Removed: Pursuant to the terms of intercreditor agreements entered into with respect to the relative positions of the Cabot 2023 Notes, the Cabot 2024 Floating Rate Notes, and the Cabot Credit Facility, any liabilities in respect of obligations under the Cabot Credit Facility that are secured by assets that also secure the Cabot 2023 Notes, the Cabot 2024 Floating Rate Notes will receive priority with respect to any proceeds received upon any enforcement action over any such assets.
−Removed: At December 31, 2019, the outstanding borrowings under the Cabot Credit Facility were £ 215.5 million (approximately $ 285.7 million).
−Removed: The weighted average interest rate was 3.52 % and 3.73 % for the years ended December 31, 2019 and 2018, respectively.
−Removed: Available capacity under the Cabot Credit Facility, after taking into account borrowing base and applicable debt covenants, was £ 159.5 million (approximately $ 211.5 million) as of December 31, 2019.
Cabot Securitisation Senior Facility
−Removed: Cabot’s wholly owned subsidiary Cabot Securitisation UK Ltd (“Cabot Securitisation”) entered into a senior facility agreement (the “Senior Facility Agreement”) for a committed amount of £ 300.0 million, of which £ 300.0 million was drawn as of December 31, 2019.
−Removed: The Senior Facility Agreement matures in September 2023.
−Removed: The obligations of Cabot Securitisation under the Senior Facility Agreement are secured by first ranking security interests over all of Cabot Securitisation’s property, assets and rights (including receivables purchased from Cabot Financial UK from time to time), the book value of which was £ 342.2 million (approximately $ 453.8 million) as of December 31, 2019.
−Removed: Funds drawn under the Senior Facility Agreement will bear interest at a rate per annum equal to LIBOR plus a margin of 2.85 %.
−Removed: In November 2018, Cabot’s wholly owned subsidiary Cabot Securitisation UK II Ltd (“Cabot Securitisation II”) entered into a new non-recourse asset backed senior facility of £ 50.0 million, of which £ 50.0 million was drawn as of December 31, 2019.
−Removed: The senior facility matures in September 2023.
−Removed: The facility is secured by first ranking security interests over all of Cabot Securitisation II’s property, assets and rights (including receivables purchased from Cabot Financial UK from time to time), the book value of which was £ 54.1 million (approximately $ 71.7 million) as of December 31, 2019.
−Removed: Funds drawn under this facility will bear interest at a rate per annum equal to LIBOR plus a margin of 4.075 %.
−Removed: At December 31, 2019, the outstanding borrowings under the Cabot Securitisation Senior Facility were £ 350.0 million (approximately $ 464.1 million).
−Removed: The weighted average interest rate was 3.74 % and 3.46 % for the year ended December 31, 2019 and 2018.
+Added: Cabot Securitisation UK Ltd (“Cabot Securitisation”), an indirect subsidiary of Encore, has a senior facility for a committed amount of £ 350.0 million (as amended, the “Cabot Securitisation Senior Facility”).
+Added: The Cabot Securitisation Senior Facility matures in March 2025.
+Added: Funds drawn under the Cabot Securitisation Senior Facility bear interest at a rate per annum equal to SONIA plus a margin of 3.06 % plus, for periods after March 15, 2023, a step-up margin ranging from zero to 1.00 %.
+Added: As of December 31, 2020, the outstanding borrowings under the Cabot Securitisation Senior Facility were £ 350.0 million (approximately $ 478.1 million based on an exchange rate of $1.00 to £0.73, the exchange rate as of December 31, 2020).
+Added: The obligations of Cabot Securitisation under the Cabot Securitisation Senior Facility are secured by first ranking security interests over all of Cabot Securitisation’s property, assets and rights (including receivables purchased from Cabot Financial UK from time to time), the book value of which was approximately £ 397.7 million (approximately $ 543.3 million based on an exchange rate of $1.00 to £0.73, the exchange rate as of December 31, 2020) as of December 31, 2020.
+Added: The weighted average interest rate was 3.23 % and 3.74 % for the years ended December 31, 2020 and 2019, respectively.
Cabot Securitisation and Cabot Securitisation II are securitized financing vehicles and are VIEs for consolidation purposes.
17 unchanged sentences
The Company consolidates VIEs when it is the primary beneficiary.
−Removed: The Company evaluates its relationships with its VIEs on an ongoing basis to ensure that it continues to be the primary beneficiary.
−Removed: A reconsideration event is significant if it changes the design of the entity or the entity’s equity investment at risk.
−Removed: Prior to the purchase of all of the outstanding equity of CCM not owned by the Company, CCM’s indirect holding Company Janus Holdings S.a r.l.
−Removed: (“Janus Holdings”) was a VIE.
−Removed: Upon completion of the Cabot Transaction on July 24, 2018 and the subsequent change in organizational structure, Janus Holdings no longer qualified as a VIE and CCM is consolidated via the voting interest model.
As of December 31, 2020, the Company’s VIEs include certain securitized financing vehicles and other immaterial special purpose entities that were created to purchase receivable portfolios in certain geographies.
1 unchanged sentence
The Company has the power to direct the activities of the VIEs which includes but is not limited to the ability to exercise discretion in the servicing of the financial assets.
+Added: The Company evaluates its relationships with its VIEs on an ongoing basis to ensure that it continues to be the primary beneficiary.
Most assets recognized as a result of consolidating these VIEs do not represent additional assets that could be used to satisfy claims against the Company’s general assets.
7 unchanged sentences
Subject to certain adjustments, the Company may grant awards for an aggregate of 5,713,571 shares of the Company’s common stock under the 2017 Plan.
−Removed: The aggregate number
−Removed: of shares available for issuance under the 2017 Plan will be reduced by 2.12 shares for each share delivered in settlement of any full value award and by one share for each share delivered in settlement of any stock option or stock appreciation right.
+Added: The aggregate number of shares available for issuance under the 2017 Plan will be reduced by 2.12 shares for each share delivered in settlement of any full value award and by one share for each share delivered in settlement of any stock option or stock appreciation right.
If an award under the 2017 Plan or the 2013 Plan expires, lapses or is terminated, exchanged for cash, surrendered, repurchased, canceled without having been fully exercised or forfeited, the unused shares covered by such award will again become or again be available for award grants under the 2017 Plan.
1 unchanged sentence
The 2017 Plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock, restricted stock units, dividend equivalent rights, stock appreciation rights, cash awards, performance-based awards and any other types of awards not inconsistent with the 2017 Plan.
−Removed: In accordance with authoritative guidance for stock-based compensation, compensation expense is recognized only for those shares expected to vest, based on the Company’s historical experience and future expectations.
−Removed: The Company has elected a policy of estimating expected forfeitures.
Total stock-based compensation expense during the years ended December 31, 2020, 2019, and 2018 was $ 16.6 million, $ 12.6 million, and $ 13.0 million, respectively.
The actual tax benefit from stock-based compensation arrangements totaled $ 2.5 million, $ 1.2 million, and $ 1.3 million for the years ended December 31, 2020, 2019, and 2018, respectively.
−Removed: Cash received from option exercise under all share-based payment arrangements for the years ended December 31, 2019, 2018 and 2017, was $ 0.3 million, $ 0.7 million and $ 0.5 million, respectively.
The Company’s stock-based compensation arrangements are described below:
3 unchanged sentences
Other than the Performance Options discussed below, no options have been awarded under the 2013 Plan or 2017 Plan.
−Removed: The Company uses the Black-Scholes option-pricing model to determine the fair-value of stock-based awards.
−Removed: All options are amortized ratably over the requisite service periods of the awards, which are generally the vesting periods.
There were no options granted during the years ended December 31, 2020, 2019, or 2018.
4 unchanged sentences
(in thousands)
−Removed: Outstanding at December 31, 2018 55,766 $ 15.21
−Removed: Exercised ( 46,600 ) 13.84
−Removed: Outstanding at December 31, 2019 9,166 $ 22.17 2.26 $ 121
+Added: Outstanding as of December 31, 2019 9,166 $ 22.17
+Added: Outstanding as of December 31, 2020 9,166 $ 22.17 1.26 $ 154
Exercisable as of December 31, 2020 9,166 $ 22.17 1.26 $ 154
−Removed: The total intrinsic value of options exercised during the years ended December 31, 2019, 2018 and 2017 was $ 1.0 million, $ 0.4 million and $ 0.8 million, respectively.
+Added: The total intrinsic value of options exercised during the years ended December 31, 2019 and 2018 was $ 1.0 million and $ 0.4 million, respectively.
+Added: Cash received from option exercise under all share-based payment arrangements during the years ended December 31, 2019 and 2018, was $ 0.3 million and $ 0.7 million, respectively.
+Added: There were no options exercised during the year ended December 31, 2020.
Performance Stock Options
5 unchanged sentences
(in thousands)
−Removed: Outstanding at December 31, 2018 216,582 $ 31.54
−Removed: Exercised ( 10,952 ) 30.95
−Removed: Cancelled/forfeited ( 13,872 ) 30.95
−Removed: Expired ( 27,745 ) 30.95
−Removed: Outstanding at December 31, 2019 164,013 $ 31.73 4.21 $ 665
−Removed: Vested and expected to vest as of December 31, 2019 163,024 $ 31.73 4.21 $ 660
+Added: Outstanding as of December 31, 2019 164,013 $ 31.73
+Added: Outstanding as of December 31, 2020 164,013 $ 31.73 3.21 $ 1,206
+Added: Vested as of December 31, 2020 150,697 $ 30.95 3.19 $ 1,206
Exercisable as of December 31, 2020 150,697 $ 30.95 3.19 $ 1,206
−Removed: As of December 31, 2019, there was $ 0.1 million of total unrecognized compensation cost related to non-vested performance stock options which is expected to be recognized over a period of approximately 0.2 years.
−Removed: The weighted average grant date fair value for performance stock options granted during the year ended December 31, 2017 was $31.32.
−Removed: No performance stock options were granted during the years ended December 31, 2019 or 2018.
+Added: As of December 31, 2020, all related compensation expense has been fully recognized.
+Added: No performance stock options were granted during the years ended December 31, 2020, 2019, and 2018.
Non-Vested Shares
1 unchanged sentence
The fair value of non-vested shares with a service condition and/or a performance condition that affect vesting is equal to the closing sale price of the Company’s common stock on the grant date.
−Removed: Compensation cost is recognized only for the awards that ultimately vest.
+Added: Compensation expense is recognized only for the awards that ultimately vest.
The Company has certain share awards that include market conditions that affect vesting.
+Added: These shares vest based on the Company’s three-year relative total stockholder return compared to the other companies in the S&P SmallCap 600 Financial Sector Index as of the date of grant.
The fair value of these shares is estimated using a lattice model.
−Removed: Compensation cost is not adjusted if the market condition is not met, as long as the requisite service is provided.
−Removed: For the majority of non-vested shares, shares are issued on the vesting dates net of the number of shares needed to satisfy minimal statutory tax withholding requirements.
+Added: For the majority of non-vested shares,
+Added: shares are issued on the vesting dates net of the number of shares needed to satisfy minimal statutory tax withholding requirements.
The tax obligations are then paid by the Company on behalf of the employees.
−Removed: A summary of the status of the Company’s stock awards as of December 31, 2019, and changes during the year then ended, is presented below:
+Added: A summary of the Company’s stock award activities as of December 31, 2020, and changes during the year then ended, is presented below:
Weighted Average
−Removed: Non-vested at December 31, 2018 859,932 $ 34.43
+Added: Non-vested as of December 31, 2019 922,530 $ 33.11
Awarded 443,101 $ 38.51
1 unchanged sentence
Cancelled ( 33,629 ) $ 39.68
−Removed: Non-vested at December 31, 2019 922,530 $ 33.11
+Added: Non-vested as of December 31, 2020 942,518 $ 35.29
________________________
12 unchanged sentences
Total income before provision for income taxes $ 282,898 $ 201,242 $ 156,488
−Removed: The income tax provision on earnings from continuing operations consisted of the following (in thousands) :
+Added: The provision for income tax on earnings from continuing operations consisted of the following (in thousands) :
Year Ended December 31,
18 unchanged sentences
( 0.5 ) % ( 2.2 ) % ( 11.7 ) %
−Removed: Transaction costs (2)
−Removed: 0.0 % 1.0 % 5.0 %
−Removed: Permanent items (3)
−Removed: 0.0 % 1.1 % 10.2 %
Change in valuation allowance (2)
2 unchanged sentences
— % ( 2.4 ) % — %
+Added: Tax effect of CFPB settlement fees (4)
+Added: 1.1 % — % — %
Other ( 0.8 ) % — % 2.8 %
1 unchanged sentence
________________________
−Removed: (1) Relates primarily to the lower tax rates on the income or loss attributable to international operations.
−Removed: (2) In 2018, relates primarily to transaction costs incurred in connection with the Cabot Transaction.
−Removed: In 2017, relates primarily to certain withdrawn IPO costs disallowed for U.K.
−Removed: tax purposes.
−Removed: (3) Represents a provision for nondeductible items, including nondeductible interest in a foreign subsidiary and certain foreign income taxable in the U.S.
−Removed: under Internal Revenue Code Section 951 (Subpart F) in 2017.
−Removed: (4) Net decrease in valuation allowance during 2019 is attributable to disposition of certain foreign subsidiaries with cumulative operating losses for tax purposes.
−Removed: In 2017 and 2018, valuation allowance net increase recorded as a result of certain foreign subsidiaries’ cumulative operating losses for tax purposes.
−Removed: (5) In 2019, includes tax benefit resulting from tax accounting method change.
+Added: (1) Relates primarily to lower tax rates on income or loss attributable to international operations.
+Added: (2) In 2018, valuation allowance net increase recorded as a result of certain foreign subsidiaries' cumulative operating losses for tax purposes.
+Added: (3) In 2019, relates to tax benefit resulting from tax accounting method change.
+Added: (4) Non-deductible expense for tax purposes.
+Added: Refer to “Note 12:
+Added: Commitments and Contingencies” for details of the CFPB settlement.
The Company’s subsidiary in Costa Rica is operating under a 100 % tax holiday through December 31, 2026.
1 unchanged sentence
The Company has not provided for applicable income or withholding taxes on the undistributed earnings from continuing operations for certain of its subsidiaries operating outside of the United States.
−Removed: Undistributed net income of these subsidiaries as of December 31, 2019, was approximately $ 151.3 million.
+Added: Undistributed net income of these subsidiaries as of December 31, 2020, were approximately $ 71.3 million.
Such undistributed earnings are considered permanently reinvested.
−Removed: The Company does not provide for deferred taxes on translation adjustments on unremitted earnings under the indefinite reversal exemption.
−Removed: Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable due to the complexities of a hypothetical calculation.
−Removed: Subsidiaries operating outside of the United States, for which the Company does not consider under the indefinite reversal exemption, have no material undistributed earnings or outside basis differences, and therefore, no U.S.
−Removed: taxes have been provided.
+Added: The Company does not provide deferred taxes on translation adjustments of unremitted earnings under the indefinite reinvestment exemption.
+Added: Determination of the amount of unrecognized deferred tax liability related to these earnings is not practical due to the complexities of a hypothetical calculation.
+Added: Subsidiaries operating outside of the United States for which the Company does not consider under the indefinite reinvestment exemption have no material undistributed earnings or outside basis differences.
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the carrying amounts for income tax purposes.
3 unchanged sentences
Net operating losses $ 43,307 $ 36,236
−Removed: Financing obligation 18,023 —
+Added: Operating lease liabilities 12,583 18,023
Accrued expenses 12,862 10,050
1 unchanged sentence
Stock-based compensation 2,787 2,882
−Removed: State taxes 1 174
−Removed: Differences in income recognition related to receivable portfolios — 13,857
−Removed: Prepaid expenses — 2,949
Other 5,596 1,822
3 unchanged sentences
Deferred tax liabilities:
−Removed: Deferred court costs ( 23,682 ) ( 23,484 )
+Added: Deferred court cost — ( 23,682 )
+Added: Difference in basis of receivable portfolio ( 20,806 ) ( 57 )
Right-of-use asset ( 8,525 ) ( 14,422 )
3 unchanged sentences
Total deferred tax liabilities ( 45,669 ) ( 47,028 )
−Removed: Net deferred tax (liability) asset (1)
+Added: Net deferred tax liability (1)
$ ( 5,730 ) $ ( 10,243 )
1 unchanged sentence
(1) The Company operates in multiple jurisdictions.
−Removed: In accordance with authoritative guidance relating to income taxes, deferred tax assets and liabilities are netted for each tax-paying component of the Company within a particular tax jurisdiction and presented as a single amount in the statement of financial condition.
+Added: Deferred tax assets and liabilities are netted for each tax-paying component of the Company within a particular tax jurisdiction and presented as a single amount in the statement of financial condition.
As of December 31, 2020, certain of the Company’s foreign subsidiaries have net operating loss carry forwards of approximately $ 155.3 million, which will begin to expire in 2024.
−Removed: Certain of the Company's domestic subsidiaries have state net operating losses of approximately $ 2.2 million, which will generally begin to expire in 2020.
−Removed: Valuation allowances are recognized on deferred tax assets if the Company believes that it is more likely than not that some or all of the deferred tax assets will not be realized.
−Removed: As of December 31, 2019, valuation allowances decreased to $ 36.4 million, as compared to $ 46.5 million as of December 31, 2018.
−Removed: The decrease was primarily related to the disposition of certain foreign entities with cumulative operating losses for tax purposes during the year ended December 31, 2019.
+Added: Certain of the Company’s domestic subsidiaries have state net operating losses which the Company expects to fully utilize upon filing the 2020 income tax returns.
+Added: Valuation allowances are recorded against deferred tax assets, including certain net operating losses recorded as deferred tax assets, if the Company believes that it is more likely than not that some or all of the deferred tax assets will not be realized.
+Added: As of December 31, 2020, valuation allowances increased to $ 38.5 million, as compared to $ 36.4 million as of December 31, 2019.
+Added: The increase was primarily related to current period losses at certain foreign entities with cumulative operating losses during the period ended December 31, 2020.
A reconciliation of the beginning and ending amounts of unrecognized tax benefit is as follows (in thousands) :
−Removed: Balance at December 31, 2016 $ 18,945
−Removed: Increases related to current year tax positions 5,902
−Removed: Decreases related to current year tax positions ( 4,599 )
−Removed: Decreases related to settlements with taxing authorities ( 228 )
−Removed: Balance at December 31, 2017 20,020
+Added: Balance as of December 31, 2017 $ 20,020
Increases related to prior year tax positions 256
2 unchanged sentences
Decreases related to settlements with taxing authorities ( 461 )
−Removed: Balance at December 31, 2018 18,552
+Added: Balance as of December 31, 2018 18,552
Decreases related to prior year tax positions ( 10,673 )
2 unchanged sentences
Decreases related to settlements with taxing authorities ( 1,920 )
−Removed: Balance at December 31, 2019 $ 7,908
−Removed: The Company had gross unrecognized tax benefits, inclusive of penalties and interest, of $ 8.2 million, $ 19.9 million and $ 22.2 million at December 31, 2019, 2018, and 2017 respectively.
−Removed: At December 31, 2019, 2018 and 2017, there was $ 7.6 million, $ 13.0 million and $ 9.9 million, respectively, of unrecognized tax benefit that if recognized, would result in a net tax benefit.
−Removed: During the year ended December 31, 2019, the decrease in the Company’s gross unrecognized tax benefit was primarily related to decreases in prior year tax positions resulting from exam resolutions.
+Added: Balance as of December 31, 2019 7,908
+Added: Decrease related to prior year tax positions ( 608 )
+Added: Increases related to prior year tax positions 6
+Added: Increases related to current year tax positions 574
+Added: Decrease related to expiration of statute of limitations ( 827 )
+Added: Decreases related to settlements with taxing authorities ( 272 )
+Added: Balance as of December 31, 2020 $ 6,781
+Added: The Company had gross unrecognized tax benefits, inclusive of penalties and interest, of $ 6.9 million, $ 8.2 million and $ 19.9 million as of December 31, 2020, 2019, and 2018 respectively.
+Added: As of December 31, 2020, 2019 and 2018, there was $ 6.5 million, $ 7.6 million and $ 13.0 million, respectively, of unrecognized tax benefit that if recognized, would result in a net tax benefit.
+Added: During the year ended December 31, 2020, the decrease in the Company’s gross unrecognized tax benefit was primarily related to the expiration of state statute of limitations.
+Added: During the year ended December 31, 2019, the decrease in the Company's gross unrecognized tax benefit was primarily related to decreases in prior year tax positions from exam resolutions.
During the year ended December 31, 2018, the decrease in the Company’s gross unrecognized tax benefit was primarily related to expiration of state statute of limitations.
−Removed: During the year ended December 31, 2017, the increase in the Company’s gross unrecognized tax benefit was primarily related to prepaid services to be performed within three and a half months of December 31, 2017.
The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations.
1 unchanged sentence
The Company recognizes interest and penalties related to unrecognized tax benefits as a component of tax expense.
−Removed: The Company recognized a benefit of approximately $ 2.7 million, and expense of $ 0.6 million and $ 0.8 million in interest and penalties during the years ended December 31, 2019, 2018 and 2017, respectively.
+Added: The Company recognized expense of $ 0.2 million, benefit of $ 2.7 million and expense of $ 0.6 million in interest and penalties during the years ended December 31, 2020, 2019 and 2018, respectively.
Interest and penalties accrued as of December 31, 2020 and 2019 were $ 0.2 million and $ 0.3 million, respectively.
1 unchanged sentence
income tax returns in jurisdictions with varying statutes of limitations.
−Removed: The Internal Revenue Service has completed examinations of the Company’s U.S.
−Removed: federal income tax returns for tax years 2012 through 2017, and the Company is no longer subject to federal tax examinations for years prior to 2018.
−Removed: state tax returns, the Company is generally not subject to tax examinations for years prior to 2012.
+Added: The Company is no longer subject to federal tax examinations for years prior to 2018.
+Added: state tax returns, the Company is generally not subject to tax examinations prior to 2013.
The Company is subject to the examination of its income tax returns by various taxing authorities, and the timing of the resolution of income tax examinations cannot be predicted with certainty.
1 unchanged sentence
If any issues addressed in the Company’s tax examinations are resolved in a manner not consistent with management's expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.
−Removed: Effective January 1, 2019, the Company adopted Topic 842 using the modified retrospective method.
−Removed: As such, the Company recognized operating lease right-of-use (“ROU”) assets and operating lease liabilities in the consolidated statements of financial condition.
−Removed: Prior period financial statements were not adjusted under the new standard and therefore, those amounts are not presented below.
−Removed: The Company elected not to apply the recognition requirements to short-term leases, not to separate non-lease components from lease components, and elected the transition provisions available for existing contracts, which allowed the Company to carryforward its historical assessments of (1) whether contracts are or contain a lease, (2) lease classification, and (3) initial direct costs.
−Removed: ROU assets represent the Company’s right to use an underlying asset during the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease.
+Added: The majority of the Company’s leases are for corporate offices, various facilities, and information technology equipment.
+Added: The Company elected not to apply the recognition requirements to short-term leases and not to separate non-lease components from lease components.
+Added: The Company recognizes operating lease right-of-use (“ROU”) assets and operating lease liabilities in the consolidated statements of financial condition.
+Added: ROU assets represent the Company’s right to use an underlying asset during the lease term
+Added: and lease liabilities represent the Company's obligation to make lease payments arising from the lease.
ROU assets and lease liabilities are recognized at commencement date based on the net present value of fixed lease payments over the lease term.
3 unchanged sentences
The incremental borrowing rate is the rate of interest that the Company would expect to pay to borrow over a similar term, and on a collateralized basis, an amount equal to the lease payments in a similar economic environment.
−Removed: The majority of the Company’s leases are for corporate offices, various facilities and information technology equipment.
−Removed: The components of lease expense for the year ended December 31, 2019 were as follows (in thousands) :
−Removed: December 31, 2019
+Added: The components of lease expense were as follows during the periods presented (in thousands) :
+Added: Year Ended December 31,
Operating lease costs (1)
+Added: $ 16,331 $ 19,450
Finance lease costs
−Removed: Amortization of right-of-use assets 1,825
+Added: Amortization of ROU assets 3,149 1,825
Interest on lease liabilities 420 563
2 unchanged sentences
(1) Operating lease expenses are included in general and administrative expenses in the Company’s consolidated statements of operations.
−Removed: Costs include short-term and variable lease components which were not material for the period.
−Removed: The following table provides supplemental consolidated statement of financial condition information related to leases as of December 31, 2019 (in thousands) :
−Removed: Classification December 31, 2019
−Removed: Operating lease right-of-use assets Other assets $ 75,254
−Removed: Finance lease right-of-use assets Property and equipment, net 9,133
−Removed: Total lease right-of-use assets $ 84,387
+Added: Costs include short-term and variable lease components which were not material for the periods presented.
+Added: The following table provides supplemental consolidated statement of financial condition information related to leases as of the dates presented (in thousands) :
+Added: Classification December 31, 2020 December 31, 2019
+Added: Operating lease ROU assets Other assets $ 72,164 $ 75,254
+Added: Finance lease ROU assets Property and equipment, net 12,410 9,133
+Added: Total lease ROU assets $ 84,574 $ 84,387
Operating lease liabilities Other liabilities $ 90,659 $ 93,847
2 unchanged sentences
Supplemental lease information is summarized below (in thousands, except rate and lease term) :
−Removed: December 31, 2019
−Removed: Right-of-use assets obtained in exchange for new operating lease obligations $ 123,477
−Removed: Right-of-use assets obtained in exchange for new finance lease obligations 5,299
+Added: Year Ended December 31,
+Added: ROU assets obtained in exchange for new operating lease obligations (1)
+Added: $ 8,990 $ 123,477
+Added: ROU assets obtained in exchange for new finance lease obligations 3,276 5,299
Cash paid for amounts included in the measurement of lease liabilities
2 unchanged sentences
Finance leases - financing cash flows 3,114 1,898
−Removed: December 31, 2019
−Removed: Weighted-average remaining lease term
−Removed: Operating leases 8.1 years
−Removed: Finance leases 3.1 years
+Added: ________________________
+Added: (1) During the year ended December 31, 2019, the amount includes $ 89.1 million for operating leases existing as of January 1, 2019.
+Added: December 31, 2020 December 31, 2019
+Added: Weighted-average remaining lease term ( in years )
+Added: Operating leases 7.1 8.1
+Added: Finance leases 2.5 3.1
Weighted-average discount rate
3 unchanged sentences
(1) Upon adoption of the new lease standard, discount rates used for existing operating leases were established at January 1, 2019.
−Removed: Minimum future payments on noncancelable leases as of December 31, 2019 are summarized as follows (in thousands) :
+Added: Maturities of lease liabilities under non-cancelable leases as of December 31, 2020 are summarized as follows (in thousands) :
Finance Leases Operating Leases Total
7 unchanged sentences
imputed interest ( 504 ) ( 22,826 ) ( 23,330 )
−Removed: Lease obligations $ 8,121 $ 93,847 $ 101,968
−Removed: As previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and under the previous lease accounting standard, minimum future payments on noncancelable leases as of December 31, 2018 are summarized as follows (in thousands) :
−Removed: Leases Operating
−Removed: 2019 $ 2,507 $ 16,538 $ 19,045
−Removed: 2020 1,983 13,850 15,833
−Removed: 2021 1,844 13,044 14,888
−Removed: 2022 1,630 11,737 13,367
−Removed: 2023 204 9,741 9,945
−Removed: Thereafter — 37,997 37,997
−Removed: Total minimal leases payments 8,168 $ 102,907 $ 111,075
−Removed: interest ( 605 )
−Removed: Present value of minimal lease payments $ 7,563
+Added: Total lease liabilities $ 8,288 $ 90,659 $ 98,947
Commitments and Contingencies
3 unchanged sentences
The violations of law investigated or alleged in these actions often include claims that the Company lacks specified licenses to conduct its business, attempts to collect debts on which the statute of limitations has run, has made inaccurate or unsupported assertions of fact in support of its collection actions and/or has acted improperly in connection with its efforts to contact consumers.
−Removed: Such litigation and regulatory actions could involve potential compensatory or punitive damage claims, fines, sanctions, injunctive relief, or changes in
−Removed: business practices.
+Added: Such litigation and regulatory actions could involve potential compensatory or punitive damage claims, fines, sanctions, injunctive relief, or changes in business practices.
Many continue on for some length of time and involve substantial investigation, litigation, negotiation, and other expense and effort before a result is achieved, and during the process the Company often cannot determine the substance or timing of any eventual outcome.
+Added: In September 2015, the Company entered into a consent order (the “2015 Consent Order”) with the Consumer Financial Protection Bureau (the “CFPB”) in which the Company settled allegations arising from its practices between 2011 and 2015.
+Added: On September 8, 2020, a suit captioned Bureau of Consumer Financial Protection v.
+Added: Encore Capital Group, Inc.
+Added: was filed in the United States District Court for the Southern District of California.
+Added: In the suit, the CFPB alleged that the Company did not perfectly adhere to certain operational provisions of the 2015 Consent Order, leading to alleged violations of federal consumer financial law.
+Added: On October 15, 2020, the parties entered into a stipulated judgment (“Stipulated Judgment”) to resolve the lawsuit.
+Added: The Stipulated Judgment includes obligations on the Company to, among other things:
+Added: (1) continue to follow a narrow subset of the operational requirements contained in the 2015 Consent Order, all of which have long been part of the Company’s routine practices;
+Added: (2) pay a $ 15.0 million civil monetary penalty;
+Added: and (3) provide redress of approximately $ 9,000 to 14 affected consumers, which is in addition to approximately $ 70,000 of redress that the Company had previously voluntarily provided.
+Added: Under the Stipulated Judgment, the Company neither admits nor denies the allegations in the CFPB’s suit.
+Added: In connection with the Stipulated Judgment the CFPB has formally terminated the 2015 Consent Order.
+Added: As a result of the Stipulated Judgment the Company recorded an after-tax charge of $ 15.0 million, which is included in the general and administration expenses in its consolidated statements of operations for the year ended December 31, 2020 .
+Added: Additionally, we are subject to ancillary state Attorney General investigations related to similar debt collection practices.
+Added: In 2018, we entered into settlement agreements with the Attorneys General of 42 U.S.
+Added: states and the District of Columbia in connection with our debt collection and litigation practices.
+Added: The Company has discussed with additional state attorneys general potential resolution of these investigations, which could include penalties, restitution, and/or the adoption of new operational requirements.
+Added: If the Company is unable to resolve its differences with the state attorneys general, it is possible that they may file claims against the Company.
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.
5 unchanged sentences
Purchase Commitments
−Removed: In the normal course of business, the Company enters into forward flow purchase agreements and other purchase commitment agreements.
−Removed: As of December 31, 2019, the Company had entered into agreements to purchase receivable portfolios with a face value of approximately $ 2.4 billion for a purchase price of approximately $ 298.9 million.
−Removed: Most purchase commitments do not extend past one year.
+Added: In the normal course of business, the Company enters into forward flow purchase agreements.
+Added: A forward flow purchase agreement is a commitment to purchase receivables over a duration that is typically three to twelve months, but can be longer, generally with a specifically defined volume range, frequency, and pricing.
+Added: Typically, these forward flow contracts have provisions that allow for early termination or price re-negotiation should the underlying quality of the portfolio deteriorate over time or if any particular month’s delivery is materially different than the original portfolio used to price the forward flow contract.
+Added: Certain of these forward flow purchase agreements may also have termination clauses, whereby the agreements can be canceled by either party upon providing a certain specified amount of notice.
+Added: As of December 31, 2020, the Company had entered into forward flow purchase agreements for the purchase of nonperforming loans with an estimated minimum aggregate purchase price of approximately $ 157.4 million.
+Added: We expect actual purchases under these forward flow purchase agreements to be significantly greater than the estimated minimum aggregate purchase price.
+Added: Employee Savings and Retirement Plan
+Added: The Company has a 401(k) Savings Plan that qualifies as deferred salary arrangements under Section 401(k) of the Internal Revenue Code.
+Added: Under the 401(k) Plan, matching contributions are based upon the amount of the employees’ contributions subject to certain limitations.
+Added: The Company recognized expense of approximately $ 2.9 million, $ 2.8 million, and $ 2.5 million for the years ended December 31, 2020, 2019, and 2018, respectively.
Encore’s Certificate of Incorporation and indemnification agreements between the Company and its officers and directors provide that the Company will indemnify and hold harmless its officers and directors for certain events or occurrences arising as a result of the officer or director serving in such capacity.
2 unchanged sentences
The Company believes the estimated fair value of these indemnification agreements is minimal and, as of December 31, 2020, has no liabilities recorded for these agreements.
−Removed: Segment Information
+Added: Segment and Geographic Information
The Company conducts business through several operating segments.
4 unchanged sentences
2020 2019 2018
−Removed: Total revenues, adjusted by net allowances (1) :
+Added: Total revenues (1) :
United States $ 992,916 $ 817,693 $ 709,493
4 unchanged sentences
________________________
−Removed: (1) Revenues are attributed to countries based on consumer location.
+Added: (1) Total revenues for periods in 2019 and 2018 are adjusted by net allowances.
+Added: Total revenues are attributed to countries based on consumer location.
(2) Based on the financial information that is used to produce the general-purpose financial statements, providing further geographic information is impracticable.
19 unchanged sentences
The Company may proceed directly to the quantitative test without performing the qualitative test.
−Removed: For the goodwill impairment tests performed as of October 1, 2019, the Company performed qualitative analysis for the MCM reporting unit and proceeded directly to the quantitative test for its Cabot reporting unit.
+Added: For the goodwill impairment tests performed as of October 1, 2020, the Company updated its consideration of the current and expected future economic and market conditions surrounding the COVID-19 pandemic and its impact on each of the reporting units.
+Added: The Company performed qualitative analysis for the MCM reporting unit and proceeded directly to the quantitative test for its Cabot reporting unit.
If goodwill is quantitatively assessed for impairment and a reporting unit’s carrying value exceeds its fair value, the difference is recorded as an impairment.
7 unchanged sentences
The Company uses a guideline company method under the market approach to estimate the fair value of equity and the market value of invested capital (“MVIC”).
−Removed: The guideline company approach relies on estimated remaining collections data or the earnings before interest, tax, depreciation and amortization (“EBITDA”) for each of the selected guideline companies, which enables a direct comparison between the reporting unit and the selected peer group.
+Added: The guideline company approach relies on estimated remaining collections data or the earnings before interest, tax, depreciation and amortization
+Added: (“EBITDA”) for each of the selected guideline companies, which enables a direct comparison between the reporting unit and the selected peer group.
The Company believes that the current methodology used in determining the fair value at its reporting units represent its best estimates.
2 unchanged sentences
On August 15, 2019, the Company completed the sale of Baycorp.
−Removed: The Company concluded that the fair value of Baycorp immediately prior to the Baycorp Transaction was less than its recorded book value and, as a result, the entire goodwill balance carried at the Baycorp reporting unit of $10.7 million was impaired.
+Added: The Company concluded that the fair value of Baycorp immediately prior to the sale was less than its recorded book value and, as a result, the entire goodwill balance carried at the Baycorp reporting unit of $ 10.7 million was impaired.
The goodwill impairment is included in operating expenses in the Company’s consolidated statements of operations during the year ended December 31, 2019.
1 unchanged sentence
Further adverse changes in the Company’s actual or expected operating results, market capitalization, business climate, economic factors or other negative events that may be outside the control of management could result in a material non-cash impairment charge in the future.
−Removed: In December 2018, the Company completed the sale of all its interests in Refinancia S.A.
−Removed: and its subsidiaries (collectively, “Refinancia”) to the existing minority shareholders of Refinancia.
−Removed: As a result, the Company no longer consolidates Refinancia and the goodwill carried at Refinancia was eliminated from the Company’s consolidated statements of financial position.
−Removed: The following table summarizes the activity in the Company’s goodwill balance, as follows (in thousands):
−Removed: Balance at beginning of period:
+Added: The Company’s goodwill is attributable to reporting units included in its portfolio purchasing and recovery segment.
+Added: The following table summarizes the activity in the Company’s goodwill balance during the periods presented (in thousands):
+Added: Year Ended December 31,
+Added: Balance as of beginning of period:
$ 884,185 $ 868,126
−Removed: Goodwill adjustment — ( 2,213 )
−Removed: Goodwill eliminated in connection with divestiture — ( 13,347 )
Goodwill impairment — ( 10,718 )
Effect of foreign currency translation 22,777 26,777
−Removed: Balance at end of period:
+Added: Balance as of end of period:
$ 906,962 $ 884,185
14 unchanged sentences
Trade name and other 7
−Removed: The amortization expense for intangible assets subject to amortization was $ 7.7 million, $ 11.7 million, and $ 8.9 million for the years ended December 31, 2019, 2018, and 2017, respectively.
−Removed: Estimated future amortization expense related to finite-lived intangible assets at December 31, 2019 is as follows ( in thousands ):
+Added: The amortization expense for intangible assets subject to amortization was $ 8.0 million, $ 7.7 million, and $ 11.7 million during the years ended December 31, 2020, 2019, and 2018, respectively.
+Added: Estimated future amortization expense related to finite-lived intangible assets as of December 31, 2020 is as follows ( in thousands ):
Thereafter 12,685
Total $ 45,012
−Removed: Quarterly Information (Unaudited)
−Removed: The following table summarizes quarterly financial data for the periods presented ( in thousands, except per share amounts ):
−Removed: Three Months Ended
−Removed: March 31 June 30 September 30 December 31
−Removed: Gross collections $ 513,853 $ 514,881 $ 499,395 $ 498,799
−Removed: Total revenues, adjusted by net allowances 347,077 346,874 355,936 347,794
−Removed: Total operating expenses 236,019 233,142 247,591 234,584
−Removed: Income from continuing operations 49,442 36,822 39,413 43,232
−Removed: Net income 49,442 36,822 39,413 43,232
−Removed: Amounts attributable to Encore Capital Group, Inc.:
−Removed: Income from continuing operations 49,254 36,661 38,869 43,085
−Removed: Net income attributable to Encore Capital Group, Inc.
−Removed: 49,254 36,661 38,869 43,085
−Removed: Earnings per share attributable to Encore Capital Group, Inc.:
−Removed: Basic earnings per share $ 1.58 $ 1.17 $ 1.24 $ 1.38
−Removed: Diluted earnings per share 1.57 1.17 1.23 1.36
−Removed: Gross collections $ 489,102 $ 496,093 $ 498,843 $ 483,582
−Removed: Total revenues, adjusted by net allowances 326,788 349,747 336,774 348,721
−Removed: Total operating expenses 238,336 246,314 239,246 232,834
−Removed: Income from continuing operations 23,713 26,974 13,016 46,033
−Removed: Net income 23,713 26,974 13,016 46,033
−Removed: Amounts attributable to Encore Capital Group, Inc.:
−Removed: Income from continuing operations 21,827 26,298 20,725 47,036
−Removed: Net income attributable to Encore Capital Group, Inc.
−Removed: 21,827 26,298 20,725 47,036
−Removed: Earnings per share attributable to Encore Capital Group, Inc.:
−Removed: Basic earnings per share $ 0.84 $ 1.01 $ 0.69 $ 1.51
−Removed: Diluted earnings per share 0.83 1.00 0.69 1.50
−Removed: Subsequent Event
−Removed: On February 18, 2020, Cabot Securitisation amended and restated its Senior Facility Agreement.
−Removed: Pursuant to the amendment and restatement of the Senior Facility Agreement, the total commitment amount was increased by £ 50.0 million from £ 300.0 million to £ 350.0 million, the repayment date was extended from September 15, 2023 to March 15, 2025 and SONIA (sterling overnight index average) replaced LIBOR as the reference rate.
−Removed: Funds drawn under the amended and restated Senior Facility Agreement bear interest at a rate per annum equal to SONIA plus a margin of 3.06 % plus, for periods after March 15, 2023, a step-up margin ranging from zero to 1.00 %.
−Removed: Cabot Securitisation has drawn down the additional £ 50.0 million and used the proceeds to purchase receivables from Cabot Securitisation II in order to effect the termination of the £ 50.0 million senior facility of Cabot Securitisation II.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.