Encore is a USA company, and Intrum is Swedish with a large...

Encore is a USA company, and Intrum is Swedish with a large business in Europe. I have tended to keep my eye on them to get a feel of how Covid-19 affected them, and hence is likely to affect CCP. They report quarterly, and fairly promptly so in April and in September there is relevant information from them at a time when CCP is silent. Both use too much debt for my liking, but they are as good as one gets in the debt-buying sector, but for CCP.

I do not think the woes of the sector rise mainly from miss-pricing, although miss-pricing may be more likely to happen via the root cause (undisciplined accounting). I think the main problem is the ease at which under the fair-value accounting model, profits can be fabricated by overvaluing PDLs after they have been purchased. This, coupled to poor management ethics, encourages debt buyers to focus on buying debt, rather than collecting on it. It works thus. Buy a PDL for $1m, value it at $1.3m, and voila, $.3m profit pops to the fore.

The fair-value accounting model works for bond traders, because fair value is set by the bond market. In the absence of an established market for secondary PDLs, management simply invents values, and the temptation to inflate profit is too tempting for some managers (think performance bonuses, dumping shares at window-dressed prices and raising money or borrowing on the basis of window-dressed performance).

CCP went through that crap in the years before 2008, and nearly destroyed itself. Although mandated to use the fair-value accounting model for PDLs, CCP does so in a way that mirrors the effect of following the emerging-value amortisation approach, and CCP applies a high amortisation/collections ratio. If you want to know more about this, read my 49822762 post of 27/12/2020