PDL Accounting, page-10

Klog

It is not only the quality of the PDLs acquired that may explain the low ratio of amortisation to collections at PCN, relative to CCP – the average age of the debts is also a factor. If PCN has a higher percentage of new debt, this too could explain the lower amortisation rate.

Secondly, the ratio of amortisation to collections is an outcome of a PDL valuation exercise, it is not the basis used by the company to calculate the amortisation. For CCP, the sheer number of PDLs, plus the sameness of their average quality tends to make the amortisation:collections ratio fairly static.

I repeat, the reported profits of PDL operations is subjective, so assessing the quality of management is important. It is, therefore, understandable that some investors avoid investing in the sector. In 1989 Peter Lynch advised, “Go for a business that any idiot can run – because sooner or later any idiot probably is going to be running it. Warren Buffet often repeated this advice. I hold that it is not only managerial idiocy that is the problem – their ethics could be more important, especially where accounting latitude is wide. I view CCP's near-death experience in 2008 as a positive, because current management probably will not repeat the behaviour that caused the problem then (debt-fuelled rapid expansion).