CCP collapsed when the GFC hit, but not because of the GFC. To...

CCP collapsed when the GFC hit, but not because of the GFC. To think that the GFC caused the problem is the hoary post hoc ergo propter hoc fallacy. CCP colapsed because of bad management for a number of years. Its recovery had a GFC nexus – CCP bought fresh PDLs at low price because CCP, other debt buyers and the sellers of PDLs thought that collections would be difficult, so PDLs were cheap. Collections transpired to be better than expected, so CCP made better profits than it expected. You can read about this in the second link provided below, but let me first go off at a tangent, and discuss Encore Capital's recent performance.

Encore Capital, based in the US, reported a good Q1 ending 31/3/22. https://www.encorecapital.com/financial-press-releases/ Its main rival, PRA did not. Sometimes comparative differences in an accounting period can be ascribed to accounting treatment. For instance, if a PDL turns out to be more collectible, one company my simply do nothing, and book the revenue and profit as the money flows in, another company my revalue the PDL as an asset, and the credit side of that immediately flows into profit. The cash flow remains the same, however. I'll not comment on PRA's accounting, but I know that CCP would, if it could , take the do-nothing path.

In the above link you can read. “Our exceptional financial performance in the period was driven primarily by better-than-expected collections within our U.S. business, MCM. As a result of MCM’s persistent collections over-performance in recent quarters, we increased the estimated remaining collections (ERC) for certain vintages. The combination of over-performance in the first quarter and increased expectations for the future added $167 million to our revenue line and contributed to our significant increase in earnings for the quarter.” That means part of the improved reported profit performance sprung from revaluing PDLs.

One can be fairly sure that CCP has had the same better-than-expected collections experience, but CCP would let the cash inflow speak for itself over time. That is, as the cash is collected, CCP amortises its PDLs at a predetermined percentage of collections. Consequently, a PDL will be fully amortised early, and subsequent collections drop straight into revenue without amortisation, so super profit from better-than-expected collections is recognised in later accounting periods. Part of CCP's stellar performance immediately after the GFC arose from better-than-expected collections (Thomas Beregi said as much when interviewd by Alan Kohler – disallowed link/investment-news/debt-ledgers-credit-corp-group/145441

CCP's tendency to understate profit, means that it understates asset values, and it always has leeway to hit whatever guidance it gives.