PRA GROUP INC [PRAA] Filings

10-Q 1 praa-20220331.htm 10-Q praa-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2022

☐ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ________ to ________

Commission File Number: 000-50058

PRA Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware

75-3078675

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

120 Corporate Boulevard

Norfolk, Virginia 23502

(Address of principal executive offices)

(888) 772-7326

(Registrant's Telephone No., including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	PRAA	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

The number of shares of the registrant's common stock outstanding as of May 4, 2022 was 39,789,622.

Table of Contents


Part I. Financial Information

Item 1.	Financial Statements (Unaudited)	3
	Consolidated Balance Sheets	3
	Consolidated Income Statements	4
	Consolidated Statements of Comprehensive Income/(Loss)	5
	Consolidated Statement of Changes in Equity	6
	Consolidated Statements of Cash Flows	7
	Notes to Consolidated Financial Statements	8
	1. Organization and Business	8

	2 . Finance Receivables, net	9
	3 . Investments	11
	4 . Goodwill	12
	5 . Leases	13
	6 . Borrowings	14
	7 . Derivatives	18
	8 . Fair Value	19
	9 . Accumulated Other Comprehensive Loss	22
	1 0 . Earnings per Share	22
	1 1 . Income Taxes	23
	1 2 . Commitments and Contingencies	23
	1 3 . Recently Issued Accounting Standards	24

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4.	Controls and Procedures	45

Part II. Other Information

Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3.	Defaults Upon Senior Securities	46
Item 4.	Mine Safety Disclosures	46
Item 5.	Other Information	46
Item 6.	Exhibits	46

Signatures		48

Part I. Financial Information

Item 1. Financial Statements (Unaudited)

PRA Group, Inc.

Consolidated Balance Sheets

March 31, 2022 and December 31, 2021

(Amounts in thousands)


	(unaudited)
	March 31, 2022		December 31, 2021
Assets
Cash and cash equivalents	$	79,089	$	87,584
Investments	93,249		92,977
Finance receivables, net	3,310,747		3,428,285
Income taxes receivable	49,064		41,146
Deferred tax assets, net	63,965		67,760
Right-of-use assets	55,093		56,713
Property and equipment, net	54,401		54,513
Goodwill	483,380		480,263
Other assets	68,845		57,002
Total assets	$	4,257,833	$	4,366,243
Liabilities and Equity
Liabilities:
Accounts payable	$	6,339	$	3,821
Accrued expenses	90,282		127,802
Income taxes payable	13,743		19,276
Deferred tax liabilities, net	45,365		36,630
Lease liabilities	59,706		61,188
Interest-bearing deposits	117,035		124,623
Borrowings	2,539,462		2,608,714
Other liabilities	39,734		59,352

Total liabilities	2,911,666		3,041,406

Equity:
Preferred stock, $0.01 par value, 2,000 shares authorized, no shares issued and outstanding	—		—
Common stock, $0.01 par value, 100,000 shares authorized, 40,410 shares issued and outstanding at March 31, 2022; 100,000 shares authorized, 41,008 shares issued and outstanding at December 31, 2021	404		410
Additional paid-in capital	—		—
Retained earnings	1,548,845		1,552,845
Accumulated other comprehensive loss	(243,709)		(266,909)
Total stockholders' equity - PRA Group, Inc.	1,305,540		1,286,346
Noncontrolling interest	40,627		38,491
Total equity	1,346,167		1,324,837
Total liabilities and equity	$	4,257,833	$	4,366,243

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

PRA Group, Inc.

Consolidated Income Statements

For the Three Months Ended March 31, 2022 and 2021

(unaudited)

(Amounts in thousands, except per share amounts)


	Three Months Ended March 31,
	2022		2021
Revenues:
Portfolio income	$	207,532	$	231,672
Changes in expected recoveries	29,914		50,136
Total portfolio revenue	237,446		281,808
Fee income	1,830		2,181
Other revenue	1,329		5,480
Total revenues	240,605		289,469



Operating expenses:
Compensation and employee services	71,096		73,984
Legal collection fees	10,873		12,926
Legal collection costs	16,557		21,312
Agency fees	17,388		15,591
Outside fees and services	19,378		20,760
Communication	12,583		12,663
Rent and occupancy	4,987		4,480
Depreciation and amortization	3,778		3,981
Other operating expenses	11,998		13,018

Total operating expenses	168,638		178,715

Income from operations	71,967		110,754
Other income and (expense):

Interest expense, net	(31,748)		(31,552)
Foreign exchange loss	(532)		(26)
Other	(490)		26
Income before income taxes	39,197		79,202
Income tax expense	4,579		17,322
Net income	34,618		61,880
Adjustment for net (loss)/income attributable to noncontrolling interests	(5,354)		3,474
Net income attributable to PRA Group, Inc.	$	39,972	$	58,406
Net income per common share attributable to PRA Group, Inc.:
Basic	$	0.98	$	1.28
Diluted	$	0.97	$	1.27
Weighted average number of shares outstanding:
Basic	40,777		45,669
Diluted	41,304		46,045

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

PRA Group, Inc.

Consolidated Statements of Comprehensive Income/(Loss)

For the Three Months Ended March 31, 2022 and 2021

(unaudited)

(Amounts in thousands)


	Three Months Ended March 31,
	2022		2021
Net income	$	34,618	$	61,880
Other comprehensive income/(loss), net of tax:
Currency translation adjustments	12,270		(24,531)
Cash flow hedges	18,580		12,323
Debt securities available-for-sale	(160)		—
Other comprehensive income/(loss)	30,690		(12,208)
Total comprehensive income	65,308		49,672
Less comprehensive income/(loss) attributable to noncontrolling interests	2,136		(950)
Comprehensive income attributable to PRA Group, Inc.	$	63,172	$	50,622

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

PRA Group, Inc.

Consolidated Statements of Changes in Equity

For the Three Months Ended March 31, 2022 and 2021

(unaudited)

(Amounts in thousands)


	Common Stock			Additional Paid-In		Retained		Accumulated Other Comprehensive		Noncontrolling		Total
	Shares	Amount		Capital		Earnings		(Loss)		Interest		Equity
Balance at December 31, 2021	41,008	$	410	$	—	$	1,552,845	$	(266,909)	$	38,491	$	1,324,837
Components of comprehensive income, net of tax:
Net income	—	—		—		39,972		—		(5,354)		34,618
Currency translation adjustments	—	—		—		—		4,780		7,490		12,270
Cash flow hedges	—	—		—		—		18,580		—		18,580
Debt securities available-for-sale	—	—		—		—		(160)		—		(160)

Vesting of restricted stock	262	3		(3)		—		—		—		—
Repurchase and cancellation of common stock	(860)	(9)		4,527		(43,972)						(39,454)
Share-based compensation expense	—	—		3,891		—		—		—		3,891
Employee stock relinquished for payment of taxes	—	—		(8,415)		—		—		—		(8,415)
Balance at March 31, 2022	40,410	$	404	$	—	$	1,548,845	$	(243,709)	$	40,627	$	1,346,167


	Common Stock			Additional Paid-In		Retained		Accumulated Other Comprehensive		Noncontrolling		Total
	Shares	Amount		Capital		Earnings		(Loss)		Interest		Equity
Balance at December 31, 2020	45,585	$	456	$	75,282	$	1,511,970	$	(245,791)	$	31,609	$	1,373,526
Effect of change in accounting principle (1)	—	—		(26,697)		12,008		—		—		(14,689)
Balance at January 1, 2021	45,585	456		48,585		1,523,978		(245,791)		31,609		1,358,837
Components of comprehensive income, net of tax:
Net income	—	—		—		58,406		—		3,474		61,880
Currency translation adjustments	—	—		—		—		(20,108)		(4,423)		(24,531)
Cash flow hedges	—	—		—		—		12,323		—		12,323






Distributions to noncontrolling interest	—	—		—		—		—		(3,933)		(3,933)

Vesting of restricted stock	214	2		(2)		—		—		—		—

Share-based compensation expense	—	—		4,113		—		—		—		4,113

Employee stock relinquished for payment of taxes	—	—		(5,460)		—		—		—		(5,460)

Balance at March 31, 2021	45,799	$	458	$	47,236	$	1,582,384	$	(253,576)	$	26,727	$	1,403,229

(1) Reflects adjustments recorded for the January 1, 2021 adoption of an accounting update. Refer to the Company's 2021 Annual Report on Form 10-K for more information.

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

PRA Group, Inc.

Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2022 and 2021

(unaudited)

(Amounts in thousands)


	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities:
Net income	$	34,618	$	61,880
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation expense	3,891		4,113
Depreciation and amortization	3,778		3,981


Amortization of debt discount and issuance costs	2,627		2,256
Changes in expected recoveries	(29,914)		(50,136)

Deferred income taxes	7,203		10,371
Net unrealized foreign currency transactions	(7,126)		2,134
Fair value in earnings for equity securities	(60)		(107)
Other	(253)		(419)

Changes in operating assets and liabilities:
Other assets	738		10,713

Accounts payable	1,765		(431)
Income taxes payable, net	(13,290)		(3,669)
Accrued expenses	(26,775)		(20,227)
Other liabilities	(87)		(336)
Right of use asset/lease liability	141		85

Net cash (used)/provided by operating activities	(22,744)		20,208
Cash flows from investing activities:
Purchases of property and equipment, net	(3,744)		(2,366)

Purchases of finance receivables	(147,452)		(159,328)
Recoveries applied to negative allowance	278,271		328,559
Purchases of investments	(1,521)		—
Proceeds from sales and maturities of investments	775		764
Business acquisition, net of cash acquired	—		(647)


Net cash provided by investing activities	126,329		166,982
Cash flows from financing activities:
Proceeds from lines of credit	106,371		45,369
Principal payments on lines of credit	(154,810)		(226,621)



Principal payments on long-term debt	(2,500)		(2,500)
Repurchases of common stock	(48,702)		—
Payments of origination cost and fees	(614)		(113)
Tax withholdings related to share-based payments	(8,415)		(5,460)
Distributions paid to noncontrolling interest	—		(3,933)


Net (decrease)/increase in interest-bearing deposits	(3,977)		303


Net cash used in financing activities	(112,647)		(192,955)
Effect of exchange rate on cash	910		(6,427)
Net decrease in cash and cash equivalents	(8,152)		(12,192)
Cash and cash equivalents beginning of period	89,072		121,047
Cash and cash equivalents, end of period	$	80,920	$	108,855

Supplemental disclosure of cash flow information:
Cash paid for interest	$	27,196	$	32,622
Cash paid for income taxes	10,610		10,463

Cash, cash equivalents and restricted cash reconciliation:
Cash and cash equivalents per Consolidated Balance Sheets	$	79,089	$	92,798
Restricted cash included in Other assets per Consolidated Balance Sheets	1,831		16,057
Total cash, cash equivalents and restricted cash	$	80,920	$	108,855

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

PRA Group, Inc.

Notes to Consolidated Financial Statements

1. Organization and Business:

Nature of operations: As used herein, the terms "PRA Group," the "Company," or similar terms refer to PRA Group, Inc. and its subsidiaries.

PRA Group, Inc., a Delaware corporation, is a global financial and business services company with operations in the Americas, Europe and Australia. The Company's primary business is the purchase, collection and management of portfolios of nonperforming loans. The Company also provides fee-based services on class action claims recoveries and by servicing consumer bankruptcy accounts in the United States ("U.S.").

Basis of presentation: The Consolidated Financial Statements of the Company are prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). The accompanying interim financial statements have been prepared in accordance with the instructions for Quarterly Reports on Form 10-Q and, therefore, do not include all information and Notes to the Consolidated Financial Statements necessary for a complete presentation of financial position, results of operations, comprehensive income/(loss) and cash flows in conformity with GAAP. In the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair presentation of the Company's Consolidated Balance Sheets as of March 31, 2022, its Consolidated Income Statements, Statements of Comprehensive Income/(Loss), Consolidated Statements of Changes in Equity and Statements of Cash Flows for the three months ended March 31, 2022 and 2021 have been included. The Company's Consolidated Income Statements for the three months ended March 31, 2022 may not be indicative of future results.

These unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 (the "2021 Form 10-K").

Consolidation: The Consolidated Financial Statements include the accounts of PRA Group and other entities in which the Company has a controlling interest. All significant intercompany accounts and transactions have been eliminated.

Entities in which the Company has a controlling financial interest, through ownership of the majority of the entities’ voting equity interests, or through other contractual rights that give the Company control, consist of entities which purchase and collect on portfolios of nonperforming loans.

Investments in companies in which the Company has significant influence over operating and financing decisions, but does not own a majority of the voting equity interests, are accounted for in accordance with the equity method of accounting, which requires the Company to recognize its proportionate share of the entity’s net earnings. These investments are included in Other assets, with income or loss included in Other revenue.

The Company performs on-going reassessments of whether changes in the facts and circumstances regarding the Company’s involvement with an entity cause the Company’s consolidation conclusion to change.

Segments: The Company has determined that it has two operating segments that meet the aggregation criteria of Accounting Standards Codification ("ASC") 280, Segment Reporting ("ASC 280") and, therefore, it has one reportable segment, accounts receivable management. This conclusion is based on similarities among the operating units, including economic characteristics, the nature of the products and services, the nature of the production processes, the types or class of customer for their products and services, the methods used to distribute their products and services and the nature of the regulatory environment.

The following tables show the amount of revenue generated for the three months ended March 31, 2022 and 2021, and long-lived assets held at March 31, 2022 and 2021, both for the U.S., the Company's country of domicile, and outside of the U.S. (amounts in thousands):


	As of and for the				As of and for the
	Three Months Ended March 31, 2022				Three Months Ended March 31, 2021
	Revenues (2)		Long-Lived Assets		Revenues (2)		Long-Lived Assets
United States	$	151,425	$	85,809	$	178,181	$	96,630
United Kingdom	43,954		6,851		48,177		2,269
Other (1)	45,226		16,834		63,111		8,765
Total	$	240,605	$	109,494	$	289,469	$	107,664

PRA Group, Inc.

Notes to Consolidated Financial Statements

(1) None of the countries included in "Others" comprise greater than 10% of the Company's consolidated revenues or long-lived assets.

(2) Based on the Company’s financial statement information used to produce the Company's general-purpose financial statements, it is impracticable to report further breakdowns of revenues from external customers by product or service.

Revenues are attributed to countries based on the location of the related operations. Long-lived assets consist of net property and equipment and right-of-use assets. The Company reports revenues earned from collection activities on nonperforming loans, fee-based services and investments. For additional information on the Company's investments, see Note 3.

2. Finance Receivables, net:

Finance receivables, net consisted of the following at March 31, 2022 and December 31, 2021 (amounts in thousands):


	March 31, 2022		December 31, 2021
Amortized cost	$	—	$	—
Negative allowance for expected recoveries (1)	3,310,747		3,428,285
Balance at end of period	$	3,310,747	$	3,428,285

(1) The negative allowance balance includes certain portfolios of nonperforming loans for which the Company holds a beneficial interest representing approximately 0.9% of the balance.

Changes in the negative allowance for expected recoveries by portfolio segment for the three months ended March 31, 2022 and 2021 were as follows (amounts in thousands):


	Three Months Ended March 31, 2022
	Core		Insolvency		Total
Balance at beginning of period	$	2,989,932	$	438,353	$	3,428,285
Initial negative allowance for expected recoveries - portfolio acquisitions (1)	129,404		18,048		147,452
Foreign currency translation adjustment	(11,009)		(5,624)		(16,633)
Recoveries applied to negative allowance (2)	(231,153)		(47,118)		(278,271)
Changes in expected recoveries (3)	25,147		4,767		29,914
Balance at end of period	$	2,902,321	$	408,426	$	3,310,747


	Three Months Ended March 31, 2021
	Core		Insolvency		Total
Balance at beginning of period	$	3,019,477	$	495,311	$	3,514,788
Initial negative allowance for expected recoveries - portfolio acquisitions (1)	133,007		25,954		158,961
Foreign currency translation adjustment	(24,249)		1,589		(22,660)
Recoveries applied to negative allowance (2)	(285,171)		(43,388)		(328,559)
Changes in expected recoveries (3)	48,410		1,726		50,136
Balance at end of period	$	2,891,474	$	481,192	$	3,372,666

(1) Initial negative allowance for expected recoveries - portfolio acquisitions

Portfolio acquisitions for the three months ended March 31, 2022 and 2021 were as follows (amounts in thousands):


	Three Months Ended March 31, 2022
	Core		Insolvency		Total
Face value	$	948,057	$	97,083	$	1,045,140
Noncredit discount	(91,600)		(5,852)		(97,452)
Allowance for credit losses at acquisition	(727,053)		(73,183)		(800,236)
Purchase price	$	129,404	$	18,048	$	147,452

PRA Group, Inc.

Notes to Consolidated Financial Statements


	Three Months Ended March 31, 2021
	Core		Insolvency		Total
Face value	$	1,088,655	$	134,811	$	1,223,466
Noncredit discount	(132,532)		(7,498)		(140,030)
Allowance for credit losses at acquisition	(823,116)		(101,359)		(924,475)
Purchase price	$	133,007	$	25,954	$	158,961

The initial negative allowance recorded on portfolio acquisitions for the three months ended March 31, 2022 and 2021 was as follows (amounts in thousands):


	Three Months Ended March 31, 2022
	Core		Insolvency		Total
Allowance for credit losses at acquisition	$	(727,053)	$	(73,183)	$	(800,236)
Writeoffs, net	727,053		73,183		800,236
Expected recoveries	129,404		18,048		147,452
Initial negative allowance for expected recoveries	$	129,404	$	18,048	$	147,452


	Three Months Ended March 31, 2021
	Core		Insolvency		Total
Allowance for credit losses at acquisition	$	(823,116)	$	(101,359)	$	(924,475)
Writeoffs, net	823,116		101,359		924,475
Expected recoveries	133,007		25,954		158,961
Initial negative allowance for expected recoveries	$	133,007	$	25,954	$	158,961

(2) Recoveries applied to negative allowance

Recoveries applied to the negative allowance were calculated as follows for the three months ended March 31, 2022 and 2021 (amounts in thousands):


	Three Months Ended March 31, 2022
	Core		Insolvency		Total
Recoveries (a)	$	425,508	$	60,295	$	485,803
Less - amounts reclassified to portfolio income	194,355		13,177		207,532
Recoveries applied to negative allowance	$	231,153	$	47,118	$	278,271


	Three Months Ended March 31, 2021
	Core		Insolvency		Total
Recoveries (a)	$	500,332	$	59,899	$	560,231
Less - amounts reclassified to portfolio income	215,161		16,511		231,672
Recoveries applied to negative allowance	$	285,171	$	43,388	$	328,559

(a) Recoveries includes cash collections, buybacks and other cash-based adjustments.

PRA Group, Inc.

Notes to Consolidated Financial Statements

(3) Changes in expected recoveries

Changes in expected recoveries consisted of the following for the three months ended March 31, 2022 and 2021 (amounts in thousands):


	Three Months Ended March 31, 2022
	Core		Insolvency		Total
Changes in expected future recoveries	$	9,771	$	(3,525)	$	6,246
Recoveries received in excess of forecast	15,376		8,292		23,668
Changes in expected recoveries	$	25,147	$	4,767	$	29,914


	Three Months Ended March 31, 2021
	Core		Insolvency		Total
Changes in expected future recoveries	$	(46,502)	$	(6,350)	$	(52,852)
Recoveries received in excess of forecast	94,912		8,076		102,988
Changes in expected recoveries	$	48,410	$	1,726	$	50,136

In order to make estimates of cash collections, the Company considered historical performance, current economic forecasts, short-term and long-term growth and consumer habits in the various geographies in which the Company operates. The Company considered recent collection activity in its determination to adjust assumptions related to near-term estimated remaining collections ("ERC") for certain pools. Based on these considerations, the Company’s estimates incorporate changes in both amounts and in the timing of expected cash collections over the forecast period.

Changes in expected recoveries for the three months ended March 31, 2022 were a net positive $29.9 million. This reflects $23.7 million in recoveries received in excess of forecast reflecting strong cash collections overperformance in Europe and a $6.2 million positive adjustment to changes in expected future recoveries. The changes in expected future recoveries includes the Company's continued assumption that the majority of the overperformance was due to acceleration in the timing of cash collections. The Company also made near-term adjustments to expected future collections in certain geographies bringing them in line with recent performance trends with corresponding adjustments made later in the forecast period. The change in expected recoveries included a $20.5 million write down on one portfolio in Brazil.

Changes in expected recoveries for the three months ended March 31, 2021 were a net positive $50.1 million. This reflected $103.0 million in recoveries received in excess of forecast, which was largely due to significant cash collections overperformance, reduced by a $52.9 million negative adjustment to changes in expected future recoveries. The change in expected future recoveries reflect the Company's assumption that the majority of the overperformance was due to acceleration in the timing of cash collections rather than an increase to total expected collections.

3. Investments:

Investments consisted of the following at March 31, 2022 and December 31, 2021 (amounts in thousands):


	March 31, 2022		December 31, 2021


Debt securities



Available-for-sale	$	75,202	$	77,538


Equity securities
Exchange traded funds	3,406		1,746
Private equity funds	5,059		5,137
Mutual funds	508		508
Equity method investments	9,074		8,048

Total investments	$	93,249	$	92,977

PRA Group, Inc.

Notes to Consolidated Financial Statements

Debt Securities

Available-for-sale

Government securities: The Company's investments in government instruments, including bonds and treasury securities, are classified as available-for-sale and are stated at fair value.

The amortized cost and estimated fair value of investments in debt securities at March 31, 2022 and December 31, 2021 were as follows (amounts in thousands):


	March 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Aggregate Fair Value
Available-for-sale


Government securities	$	75,582	$	—	$	380	$	75,202






	December 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Aggregate Fair Value
Available-for-sale

Government securities	$	77,757	$	—	$	219	$	77,538

Equity Securities

Exchange traded funds: The Company invests in certain treasury bill exchange traded funds, which were accounted for as equity securities and carried at fair value. Gains and losses from these investments are included within Other income and (expense) in the Company's Consolidated Income Statements.

Private equity funds: Investments in private equity funds represent limited partnerships in which the Company has less than a 1% interest.

Mutual funds: Mutual funds represent funds held in Brazil in a Brazilian real denominated mutual fund benchmarked to the U.S. dollar that invests principally in Brazilian fixed income securities. The investments are carried at fair value based on quoted market prices. Gains and losses from these investments are included as a foreign exchange component of Other income and (expense) in the Company's Consolidated Income Statements.

Equity Method Investments

The Company has an 11.7% interest in RCB Investimentos S.A. ("RCB"), a servicing platform for nonperforming loans in Brazil. This investment is accounted for on the equity method because the Company exercises significant influence over RCB’s operating and financial activities. Accordingly, the Company’s investment in RCB is adjusted for the Company’s proportionate share of RCB’s earnings or losses, capital contributions made and distributions received.

4. Goodwill:

The Company performs an annual review of goodwill as of October 1 of each year or more frequently if indicators of impairment exist. The Company performed its most recent annual review as of October 1, 2021 and concluded that no goodwill impairment was necessary. The Company performed its quarterly assessment by evaluating whether any triggering events had occurred as of March 31, 2022, which included considering current market condition and concluded that no such event had occurred as of March 31, 2022.

The changes in goodwill for the three months ended March 31, 2022 and 2021, were as follows (amounts in thousands):


	Three Months Ended March 31,
	2022		2021
Balance at beginning of period	$	480,263	$	492,989






Change in foreign currency translation adjustment	3,117		(238)




Balance at end of period	$	483,380	$	492,751

PRA Group, Inc.

Notes to Consolidated Financial Statements

5. Leases:

The Company's operating lease portfolio primarily includes corporate offices and call centers. The majority of its leases have remaining lease terms of one year to 15 years, some of which include options to extend the leases for up to five years, and others include options to terminate the leases within one year. Exercises of lease renewal options are typically at the Company's sole discretion and are included in its right-of-use ("ROU") assets and lease liabilities based upon whether the Company is reasonably certain of exercising the renewal options. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments.

The components of lease expense for the three months ended March 31, 2022 and 2021, were as follows (amounts in thousands):


	Three Months Ended March 31,
	2022		2021
Operating lease expense	$	3,232	$	2,981
Short-term lease expense	904		676







Sublease income	(115)		—
Total lease expense	$	4,021	$	3,657

Supplemental cash flow information and non-cash activity related to leases for the three months ended March 31, 2022 and 2021 were as follows (amounts in thousands):


	Three Months Ended March 31,
	2022		2021
Cash paid for amounts included in the measurement of operating lease liabilities	$	3,098	$	2,865

ROU assets obtained in exchange for operating lease obligations	1,106		304

Lease term and discount rate information related to operating leases was as follows:


	Three Months Ended March 31,
	2022		2021
Weighted-average remaining lease term (years)	8.4		9.0


Weighted-average discount rate	4.48	%	4.72	%

Maturities of lease liabilities at March 31, 2022 were as follows for the following periods (amounts in thousands):


	Operating Leases
For the nine months ending December 31, 2022	$	8,428
For the year ending December 31, 2023	9,657
For the year ending December 31, 2024	9,080
For the year ending December 31, 2025	8,834
For the year ending December 31, 2026	7,709
Thereafter	28,441
Total lease payments	$	72,149
Less: imputed interest	12,443
Total present value of lease liabilities	$	59,706

PRA Group, Inc.

Notes to Consolidated Financial Statements

6. Borrowings:

The Company's borrowings consisted of the following as of March 31, 2022 and December 31, 2021 (amounts in thousands):


	March 31, 2022		December 31, 2021
Americas revolving credit (1)	$	372,870	$	372,119
Europe revolving credit	727,417		795,687

Term loan	457,500		460,000


Senior notes	650,000		650,000
Convertible notes	345,000		345,000
	2,552,787		2,622,806
Less: Debt discount and issuance costs	(13,325)		(14,092)
Total	$	2,539,462	$	2,608,714

(1) Includes a credit agreement with Banco de Occidente. As of March 31, 2022 and December 31, 2021, the outstanding balance under the credit agreement was approximately $0.9 million, with interest rates of 8.69% and 5.85%, respectively.

The following principal payments were due on the Company's borrowings as of March 31, 2022 for the 12-month periods ending March 31, (amounts in thousands):


2023	$	10,324
2024	1,082,741
2025	10,242
2026	310,000
2027	789,480
Thereafter	350,000
Total	$	2,552,787

The Company determined that it was in compliance with the covenants of its financing arrangements as of March 31, 2022.

North American Revolving Credit and Term Loan

The Company has a credit agreement with Bank of America, N.A., as administrative agent, Bank of America, National Association, acting through its Canada branch, as the Canadian Administrative Agent, and a syndicate of lenders named therein (the "North American Credit Agreement").

The total credit facility under the North American Credit Agreement includes an aggregate principal amount of $1.5 billion (subject to compliance with a borrowing base and applicable debt covenants), which consists of (i) a fully-funded $457.5 million term loan, (ii) a $1.0 billion domestic revolving credit facility, and (iii) a $75.0 million Canadian revolving credit facility. The facility includes an accordion feature for up to $500.0 million in additional commitments (at the option of the lenders) and also provides for up to $25.0 million of letters of credit and a $25.0 million swingline loan sub-limit that would reduce amounts available for borrowing. The term and revolving loans accrue interest, at the option of the Company, at either the base rate, Canadian dollar offered rate, or the Eurodollar rate (each, as defined in the North American Credit Agreement), for the applicable term plus 2.25% per annum, or 2.00% if the consolidated senior secured leverage ratio (as defined in the North American Credit Agreement) is less than or equal to 1.60 to 1.0. The revolving loans within the credit facility are subject to a 0.0% floor. The revolving credit facilities also bear an unused line fee of 0.35% per annum, or 0.30% if the consolidated senior secured leverage ratio (as defined in the North American Credit Agreement) is less than or equal to 1.60 to 1.0, payable quarterly in arrears and matures July 30, 2026. As of March 31, 2022, the unused portion of the North American Credit Agreement was $703.0 million. Considering borrowing base restrictions, as of March 31, 2022, the amount available to be drawn was $72.9 million.

Borrowings under the North American Credit Agreement are guaranteed by the Company's U.S. and Canadian subsidiaries (provided that the Canadian subsidiaries only guarantee borrowings under the Canadian revolving credit facility)

PRA Group, Inc.

Notes to Consolidated Financial Statements

and are secured by a first priority lien on substantially all of the Company's North American assets. The North American Credit Agreement contains restrictive covenants and events of default, including the following:

•the ERC borrowing base is 35% for all eligible core asset pools and 55% for all insolvency eligible asset pools;

•the consolidated total leverage ratio cannot exceed 3.50 to 1.0 as of the end of any fiscal quarter;

•the consolidated senior secured leverage ratio cannot exceed 2.25 to 1.0 as of the end of any fiscal quarter;

•subject to no default or event of default, cash dividends and distributions during any fiscal year cannot exceed $20.0 million; and

•the Company must maintain positive consolidated income from operations during any fiscal quarter.

European Revolving Credit Facility

European subsidiaries of the Company ("PRA Europe") are parties to a credit agreement with DNB Bank ASA and a syndicate of lenders named therein, for a Multicurrency Revolving Credit Facility (the "European Credit Agreement").

The European Credit Agreement provides borrowings for an aggregate amount of approximately $1.35 billion (subject to the borrowing base), accrues interest at the Interbank Offered Rate plus 2.70% - 3.80% (as determined by the ERC ratio ("ERC Ratio") as defined in the European Credit Agreement), bears an unused line fee, currently 1.12% per annum, or 35% of the margin, is payable monthly in arrears and matures February 19, 2023. The European Credit Agreement also includes an overdraft facility in the aggregate amount of $40.0 million (subject to the borrowing base), which accrues interest (per currency) at the daily rates as published by the facility agent, bears a facility line fee of 0.125% per quarter, payable quarterly in arrears and matures February 19, 2023. As of March 31, 2022, the unused portion of the European Credit Agreement (including the overdraft facility) was $662.6 million. Considering borrowing base restrictions and other covenants as of March 31, 2022, the amount available to be drawn under the European Credit Agreement (including the overdraft facility) was $498.2 million.

Borrowings under the European Credit Agreement are guaranteed by substantially all of the Company's European subsidiaries and are secured by the shares of most of the Company's European subsidiaries and all intercompany loans receivable in Europe. The European Credit Agreement contains restrictive covenants and events of default, including the following:

•the ERC Ratio cannot exceed 45%;

•the gross interest-bearing debt ratio in Europe cannot exceed 3.25 to 1.0 as of the end of any fiscal quarter;

•interest bearing deposits in AK Nordic AB cannot exceed SEK 1.2 billion; and

•PRA Europe's cash collections must meet certain thresholds, measured on a quarterly basis.

On March 29, 2022, in connection with the refinancing of the Company's European credit facilities, the Company executed the Eighth Amendment and Restatement to its European Credit Agreement ("Eighth Amendment"). On April 7, 2022, the Eighth Amendment was made effective, and among other things, extended the agreement for one year to February 19, 2024 and decreased aggregate borrowing limits by $600.0 million.

UK Revolving Credit Facility

On April 1, 2022, PRA Group Europe Holding I S.a r.l ("PRA Group Europe"), a wholly owned subsidiary of the Company, entered into a credit agreement (the "UK Credit Agreement") with PRA UK and the Company, as guarantors, the lenders party thereto and MUFG Bank, Ltd., London Branch, as the administrative agent (the "Administrative Agent").

The UK Credit Agreement consists of an $800.0 million revolving credit facility (subject to a borrowing base), and an accordion feature for up to $