Investors Sell Debt Buyers' Stock as Economy Declines

The downturn in the economy in the last year been reflected in the stock prices of the five major publicly traded debt buyers and collectors, according to an analysis of stock data by industry consultant Kaulkin Ginsberg. The total market capitalization of these five companies has declined from $2.58 billion at the end of May 2007 to $1.51 billion as of yesterday’s close.

The hardest hit has been Asta Funding (Nasdaq: ASFI), slammed by investors and trading down more than 82 percent since May 2007 from $42.21 to a close of $7.47 yesterday. The company recently announced it would use an $8.2 million loan from its chief owners the Stern Family to pay off a third-party collector it hired (“Asta Funding Gets Loan from Controlling Stern Family; Shares Tank,” May 2). Asta’s problems stem from its $300 million purchase of a $6.9 billion portfolio in March 2007.

The news has been unpleasant but not nearly so bad for the four other firms – Asset Acceptance Capital Corp. (Nasdaq: AACC), Encore Capital Group (Nasdaq: ECPG), First City Financial (Nasdaq: FCFC) and Portfolio Recovery Associates (Nasdaq: PRAA).

From May 2007 to yesterday’s close, Asset Acceptance stock has fallen more than 27 percent from $19.20 to $13.93; Encore’s stock has dropped about 17 percent from $12.07 to $10.06; First City has seen a decline of nearly a half, from $9.37 to $4.81; and Portfolio Recovery has seen its stock trade down a little more than 33 percent from $59.20 to $39.51.

In comparison, the Nasdaq Composite index closed at 2486.70, down about 13 percent from its 52-week high of 2861.51, and the Dow Jones Industrial Average was down about 12 percent to 12,594 from its 52-week high of 14,280.

Analyst Audrey Snell, who follows the debt purchasing industry for Kaufman Brothers, said that debt buyer results dropped in the first quarter of 2008 as they took impairment charges to account for slower collections than originally projected on purchased portfolios.

The debt buyers have been rocked by the broad credit crunch, rising unemployment, and consumer difficulty in paying off their bills, said Snell. “Right now consumers are hurting and that is impacting these companies,” she said.

Still, the sector remains a positive one. “These buyers have bought lots of paper at good prices. That sets up a robust turn when collections improve,” said Snell. “These are good companies that will come back.”