Q3 2023 PRA Group Inc Earnings Call
Participants
Najim Mostamand; VP of IR; PRA Group, Inc.
Rakesh Sehgal; Executive VP, CFO & Head of Corporate Development; PRA Group, Inc.
Vikram A. Atal; President, CEO & Director; PRA Group, Inc.
David Michael Scharf; MD & Equity Research Analyst; JMP Securities LLC, Research Division
Mark Douglas Hughes; MD; Truist Securities, Inc., Research Division
Robert James Dodd; Director & Research Analyst; Raymond James & Associates, Inc., Research Division
Robert Paul Napoli; Partner and Co-Group Head of Financial Services & Technology; William Blair & Company L.L.C., Research Division
Presentation
Operator
Good afternoon, and welcome to the PRA Group's Third Quarter 2023 Conference Call. All participants will be in listen only mode. (Operator Instructions). I would now like to turn the conference over to Mr. Najim Mostamand, Vice President of Investor Relations for PRA Group. Please go ahead.
Najim Mostamand
All right. Thank you. Good evening, everyone, and thank you for joining us. With me today are Vikram Atal, President and Chief Executive Officer; and Rakesh Segal, Executive Vice President and Chief Financial Officer. We will make forward-looking statements during the call, which are based on management's current beliefs, projections, assumptions and expectations. We assume no obligation to revise or update these statements. We caution listeners that these forward-looking statements are subject to risks, uncertainties, assumptions and other factors that could cause our actual results to differ materially from our expectations.
Please refer to the earnings press release and our SEC filings for a detailed discussion of these factors. The earnings release, the slide presentation that we will use during today's call and our SEC filings can all be found in the Investor Relations section of our website at www.pragroup.com. Additionally, a replay of this call will be available shortly after its conclusion, and the replay dial-in information is included in the earnings press release. All comparisons mentioned today will be between Q3 2023 and Q3 2022 unless otherwise noted, and our Americas results include Australia.
During our call, we will discuss adjusted EBITDA and debt to adjusted EBITDA for the 12 months ended September 30, 2023, and December 31, 2022. Please refer to today's earnings release and the appendix of the slide presentation used during this call for a reconciliation of the most directly comparable U.S. GAAP financial measures to these non-GAAP financial measures. And with that, I'd now like to turn the call over to Vikram Atal, our President and Chief Executive Officer.
Vikram A. Atal
Thank you, Najim, and thank you for everyone for joining us this evening. In a few minutes, I will pass the baton to Rakesh to cover the financial section of our third quarter (technical difficulty) results. For me to provide a link between the results we are reporting today, which closely parallel our prior expectations and the confidence I have in the results we expect to realize -- we believe them. We believe these future results will be driven by pricing, operational effectiveness and efficiency.
First, portfolio supply and pricing. The chart on the upper left profiles our quarterly investments in Europe stretching back 3 years. As you can see, purchasing levels vary throughout the year. This is due to the mix of spot transactions versus forward flows in the region, but the overall picture indicates relatively stable averages continuing into this year. Despite the competition in Europe, we continue to benefit from our deep relationships with sellers to maintain investment levels and renew important forward flow agreements.
Moving across to the chart on the right, the U.S. picture shows the correlation between the overall industry credit card charge-off rates and our portfolio purchases. We believe these recent trends will continue into 2024, providing clear opportunities for us to benefit from this important tailwind. It is worth pointing out that along with the growth in volumes, the return on our new purchases have improved over recent quarters and a substantial majority of our forward flows are now priced to reflect the current macroeconomic conditions and funding environment. Because these increased volumes and return profiles are fairly recent developments, they have not yet flowed through our current results to any meaningful extent. However, we expect for this dynamic to positively influence cash collections and revenues through 2024 and beyond.
Next, operational effectiveness. As I have referenced on previous calls, it is essential for us to not only focus on the front end of our business, purchasing portfolios at attractive returns, but also to optimize the value from our back book. Therefore, from my very first week as CEO, I have encouraged and challenged our team to reevaluate and enhance our operational effectiveness.
They have responded superbly, -- over the past 6 months, we have identified, tested and begun rolling out a wide range of cash-generating initiatives, both large and small to address our performance in the U.S. Some of these initiatives include enhancements to our legal collection activities, where we are identifying new information sources to optimize the value and decision-making processes across this important channel.
We are also leveraging additional third-party resources to bolster and accelerate our post-judgment customer interactions. Both sets of initiatives have identified significant opportunities that are now migrating into execution mode. Similar efforts have been made within our U.S. call center operations with correspondingly encouraging opportunities. We implemented a wide range of operational strategy enhancements starting in the second quarter, expanded these in the third quarter and are rolling out further initiatives this quarter.
These changes are driving increased customer contact rates and more effective customer interactions leading to a growth in payment plans and U.S. cash collections performance that has modestly outperformed our internal expectations over the past 6 months.
Due to the [time lag] between the actions being taken and the impact on cash generation, particularly within the legal channel, but also extending into the call center, the effect of these initiatives and enhancements are only minimally reflected in our year-to-date results. Finally, efficiency. Our relative underinvestment in platform and system upgrades will be a focus of ours in the time to come. Meanwhile, in the near term, there are tangible opportunities for us to improve our efficiency that don't require complex changes to our core architecture. Over the past 6 months, we have instituted initiatives that are improving call center productivity and optimizing our site footprint in the U.S.
We have also piloted multiple programs with third parties to leverage lower cost locations to support both voice and data processes. The rollout of these programs has commenced in the current quarter with an expectation that we will expand these over the next 12 to 18 months. While growth in account volumes and expanded legal processes suggest a corresponding increase in expenses, we believe these anticipated higher expenses will be largely offset by the efficiency initiatives underway.
In other words, growth in cash collections is expected to outpace our growth in operating expenses over the near term. This should position us to march towards an improved cash efficiency ratio into the low 60s level. With growing portfolio supply, improved pricing, increased operational effectiveness in the U.S. and robust efficiency measures, we believe we have clear line of sight to deliver significantly improved financial performance in 2024 and beyond.
The speed, scope and impact of the effort underway has far exceeded my initial expectations. We recognize the need to deliver results for our shareholders, and we will not let up the pace at which we are working to achieve this. With that, it's over to Rakesh for a review of our quarterly results.
Rakesh Sehgal
Thanks, Vik. Looking at our investments this quarter, we purchased $311 million of portfolios, up 70% year-over-year. This level of investment was driven by increased forward flow volumes, purchases from new sellers for PRA and a few spot transactions that were higher than anticipated.
Given the strong investment levels to date, our diverse geographic footprint across Americas and Europe and the healthy pipeline of portfolios for sale, we are well on track to achieve over $1 billion in portfolio investments in 2023, a feat we haven't achieved since 2019.
This demonstrates our ability to capitalize on industry tailwinds as credit normalizes. We are especially pleased that these recent investments are being achieved at improved prices and returns compared to the 2020 to 2022 time period. In the Americas, we invested $232 million in the quarter, which represented the highest quarterly level of purchasing since 2017.
We are highly encouraged by the U.S. market with investment levels increasing for the fourth consecutive quarter as volumes and pricing continue to improve, this should have a positive impact on portfolio income, which demonstrates the significant opportunity ahead of us as we move further into the credit cycle. You can see prices improving by the purchase price multiple expansion in our 2023 Americas core vintage, which was initially recorded at 1.75x at the end of the first quarter, but has since grown to 1.9x year-to-date at the end of the third quarter.
In our existing U.S. workflows of fresh paper, we once again experienced a sequential increase in volume from the prior quarter. As mentioned earlier, our forward floor agreements now largely reflect the higher interest rate environment and should generate returns exceeding recent vintages. At a macro level, active credit card balances in the U.S. have exceeded $1 trillion, up from roughly $850 billion pre-pandemic.
Charge-off rates are also trending higher, reaching 3.2% with signs of continued credit normalization from pandemic era of lows, suggesting a continued tailwind. Moving to Europe. Our European business continues to capitalize on stable investment volumes. As many of you know, Europe is more of a spot driven market and generally experiences lower volumes of supply in Q3, which is reflected in this quarter's investment of $79 million.
In the markets where we do have forward flows, the volumes remain stable and have yet to show an increase. The European market continues to be competitive. And as we have done in the past, we are being very disciplined, ensuring that returns are appropriate. For example, we are observing that price discovery is in process in certain countries. We saw portfolio is brought to market earlier this year that did not meet the seller's internal pricing thresholds and were bold. Some of these portfolios have since come back to market, and we have purchased them at improved levels of return.
Moving on to financials. Total revenues were $216 million for the quarter. Total portfolio revenue was $212 million, with portfolio income of $190 million and changes in expected recoveries of $22 million. Following a period of declines, portfolio income has been stable for the past several quarters, and we now believe we are positioned for growth based on expanding volumes and improved pricing. During the quarter, we collected $18 million in excess of our expected recoveries, exceeding our expectations on a consolidated basis by 4%, with the Americas overperforming by 3% and Europe overperforming by 6%.
Operating expenses for the third quarter were $173 million, which were consistent with the prior year period. Of note, this number includes a noncash impairment charge of $5 million related to our previously announced decision to cease call center operations at one of our owned regional facilities in the U.S. Agency fees were up $4 million this quarter, primarily due to higher cash collections in Brazil. Our legal collection costs were $21 million for the quarter, which were down $3 million from the prior year period.
We would like to reiterate our expectation for legal collection costs to be in the low to mid-$20 million range in Q4. Our cash efficiency ratio was 58.9% for the third quarter, which was up slightly from the prior year period. We expect the cash efficiency ratio to remain relatively stable for the fourth quarter. Net interest expense for the third quarter was $49 million, an increase of $17 million, primarily reflecting higher debt balance and increased interest rates. We expect net interest expense to be in the low $50 million range for the fourth quarter. Our effective tax rate for the quarter was negative 28%.
Looking at the full year, we expect an effective tax rate in the low 20% range. Net loss attributable to PRA was $12 million or negative $0.31 in diluted earnings per share. This includes a $0.10 per share impact from the noncash impairment I mentioned earlier. Cash collections for the quarter were $420 million compared to $412 million in the third quarter of 2022.
The 2% increase, a 1% decrease on a constant currency basis was primarily due to higher collections in Brazil and Europe, which were partially offset by lower collections in the U.S. During 2022, we were witnessing year-over-year declines compared to 2021 due to excess consumer liquidity during the pandemic era. The year-over-year decline has now stabilized, and we expect this positive momentum to continue to build into 2024. For the quarter, Americas cash collections decreased 2% or 3% on a constant currency basis, driven primarily by the impact of lower levels of portfolio purchases in the U.S. over the last few years.
Americas Cash collections modestly exceeded our internal expectations for the quarter. European cash collections for the quarter increased 9% or 2% on a constant currency basis. Our year-to-date cash performance versus our expectations at December 31, 2022, has experienced 5% over performance in Europe and 3% underperformance in the Americas or 1% over performance on a consolidated basis. Let me give you a little more color on what we're seeing with our customers. There has been a lot of discussion in the news lately regarding pressure on the consumer.
We have seen limited evidence to date that such pressure is impacting our U.S. customers. Year-to-date, we exceeded our cash collection expectations, particularly in our older vintages. In Europe, we have seen that the cost of line is having some impact on consumers in a few of our markets. In these markets, we have observed fewer large onetime payments. However, the proportion of customers paying us has remained stable. So we think that this will cause a timing delay instead of an overall reduction in cash collections.
It's worth noting that the other markets are still performing well and that Europe as a whole has consistently exceeded our internal expectations. In both markets, it is our experience that economic downturns and increased pressure on the consumer has historically led to a more charge-offs and portfolio supply then more, more than offset the impact to cash collections.
ERC at September 30 was $6 billion, which was up 12% compared to $5.3 billion at September 30 last year. On a sequential basis, ERC increased more than $70 million compared to the prior quarter, with ERC in the U.S. increasing by $135 million. ERC liquidates over a shorter time frame in the U.S., so it is encouraging to see our U.S. ERC increasing. We expect to collect $1.5 billion of our ERC balance during the next 12 months. It's important to note that this number only reflects the amount we expect to collect on our existing portfolio. It does not include the cash we expect to collect from new purchases made over the next 12 months.
Based on the average purchase price multiples we have recorded in 2020 trade; we would need to invest approximately $841 million globally over the same time frame to replace this runoff and maintain current ERC levels. With the continued build in U.S. supply, we anticipate that we will exceed this level of investment and grow ERC further as we close this year and move into 2024. We have a strong capital structure with a debt to adjusted EBITDA leverage ratio of 2.8x at September 30.
We expect leverage to increase slightly as we continue to deploy capital at favorable returns. However, our long-term goal is to have our leverage be in the 2x to 3x range. In all 3 of our credit facilities, we have deep banking relationships, many of which stretch back over a decade. In terms of funding capacity, we have $3.1 billion in total committed capital to draw under our credit facilities. Our bank lines have margins ranging from 235 to 380 basis points over benchmark that provide an attractive cost of capital in this market and give us an advantage.
As of September 30, we had total availability of $1.3 billion, comprised of $278 million based on our current ERC and $1.1 billion of additional availability that we can draw from subject to debt covenants, including advance rates. Given the build in supply we are expecting, we believe the capital available under our credit facilities, the cash generated from our business, including the initiatives Rick mentioned and access to capital markets in both the U.S. and Europe, should position us well to take advantage of where we are in the cycle.
It's also worth noting that we do not have debt maturing until September 2025. Looking ahead, our capital allocation strategy remains focused on purchasing portfolios at favorable prices. We have recalibrated our net return thresholds in light of their higher interest rate environment, and we expect to see the positive impact of this in our financial results as we move through 2024. That being said, I am very encouraged by the early signs of financial and operational progress in our business and the path that we have laid forward to create shareholder value. Now I'll turn it back to Vik.
Vikram A. Atal
Thanks, Rakesh. Building on the strong progress we've made in the second quarter; the third quarter was another step in the right direction as we continue to capitalize on the growing portfolio of supply in the U.S. and execute on our initiatives. As far as the next few months and quarters are concerned, we are encouraged by where the business is heading, to recap. One, portfolio purchases and pricing are improving, supported by the tailwind of increasing portfolio supply in the U.S. and our strong and diversified positioning across Europe. Second, operational effectiveness initiatives are in motion and should generate appreciably more cash. And finally, expenses remain carefully controlled. These developments provide a strong framework to deliver significantly improved results in 2024. And with that, we are now ready for questions.
Question and Answer Session
Operator
We will now begin the session. To ask a question, (Operator Instructions) you may -- if you are usually see your phone, please pick up your site. At this time, we will pause momentarily to assemble the roster. And our first question will come from David Scharf of JMP.
David Michael Scharf
Good afternoon, thanks for taking my questions. And welcome aboard I guess, your first earnings call. Sure. So, I guess a couple of things. I first wanted to maybe drill down into kind of the purchasing environment and maybe the timing of how this is -- you expect this to unfold with respect to your portfolio returns because, obviously, a big question for investors is when we see sort of a return to consistent GAAP profitability.
I believe you had mentioned that the overall collection multiple and therefore, the yield, I guess, it improved closer to 1.9x cumulatively from 1.7 earlier in the year. Can you give us a sense for when the weighted average yield on your portfolio, specifically the North American core. How long it takes at current pricing levels? How long does it take for the weighted average yield to return to 2019 levels? Because it seems like North American core was sort of yielding mid- to high 40% returns on a gross basis forever until 2020, then it dropped about 10 percentage points into kind of GAAP loss territory and it feels like it needs to get back to that mid- to high 40% range, which corresponds to maybe anywhere from a 2.1% to a 2.4 multiple.
Like can you walk us through just the timing based on your expectations of purchase volumes and how long it takes kind of the old stuff to run off?
Rakesh Sehgal
Yes. So sure. That's a great question. So, look, the way to think about it -- and I'm glad you're bifurcating the U.S. versus Europe because the way the cash comes in from a timing perspective in the U.S., it's over a much shorter time period. I would say that most of the cash comes in in the first, call it, 4 years. And so, that's why what you're seeing is we're very encouraged by the multiples we're seeing in 2023 and between the volumes and the pricing that we're seeing in 2023, what we're going to see is that's going to offset some of the lower volumes and the lower multiples that we saw in the 2021, 2022 vintages.
David Michael Scharf
Right. And I guess, Rakesh, just in terms of expectations for purchase volumes, I mean, -- is it -- do we -- is it mid-24, mid-2025, -- just once again, trying to get a sense for how you see this transformation taking place, whereby the blended yield on your portfolio, which is what reaches sort of pre-2020 levels because that seems to be sort of the high -- almost the magical level to return to being a consistent GAAP earner?
Rakesh Sehgal
Yes. So look, a couple of things, right? So, one is in terms of the purchase multiples that you mentioned. So, remember that this is happening in the latest vintage, and this is happening with respect to a different environment that the interest rates, and if we are blending towards the 19, when you do the math as to -- when we started the year at 1.75. So, we are obviously writing business at multiples that's higher. And then second is, you need to think about some of the initiatives that Vik mentioned.
So what we're doing in the short term here over the next 12 to 18 months where you're going to see the fruition is the investment that we're making with respect to how we run the business, whether it is internally or leveraging external parties, whether that is data, whether that is from an efficiency or a cost-effectiveness perspective, and the combination of the 2, our expectation is that that's going to drive meaningfully higher numbers on the multiples in the next, call it, 24 months' time frame.
And so, between the offset of the existing book of the last 2 years, David, and the new initiatives, our expectation, and that's what we're focused on. Our expectation is that we're going to create significantly enhanced value on our cash collections.
David Michael Scharf
Got it. Understood. And appreciate the color. Maybe as a follow-up on that operational side. I know you referenced the U.S. collection center being wound down. Are there efforts underway? I mean, are offshore collection capabilities being explored either CRA zone or leveraging third party?
Vikram A. Atal
Yes. Just to supplement Rakesh has outlined. So David, we're looking at cash initiatives, cash generating initiatives in the U.S. covering both the legal sphere and the nonlegal activity. And as I mentioned in my remarks, we are seeing tangible and meaningful opportunities that we are now starting to execute against on both. With regard to leveraging lower cost locations, I mentioned that, too, we are exploring and are rolling out some items this quarter and we'll be exploring piloting other items in the first quarter of next year. That extend both voice and data processes. So, you'll be hearing more about that as those programs evolve over time.
Operator
The next question comes from Robert Napoli of William Blair. Please go ahead.
Robert Paul Napoli
Maybe following along the same line of questioning as David. I think you mentioned getting the cash efficiency ratio into the low 60s. I'm sorry, over what time frame and what's the visibility to getting there? I think you had mentioned 2024. But just any color on the improvements. I mean, that's a pretty big improvement in the efficiency ratio.
Vikram A. Atal
Sure, Bob. I'll take that. As Rakesh mentioned in his remarks, we're looking at a fairly stable cash efficiency ratio for the fourth quarter... And... Folks probably know that on the call, fourth quarter is generally a seasonally sort of softer quarter for cash generation, right? So -- and in the first quarter, that's generally been seasonally higher than the U.S. in terms of cash collection. So, the cash efficiency ratio might improve. But I think if you're asking the question about from a secular perspective, when should we see the lift in the cash efficiency.
At this point, we're looking at the back end of 2024 is when we would start seeing the impact of the higher pricing, combined with the initiatives falling into place and coupled with the expense initiatives that we've got that are offsetting some of the natural growth that we need to have in our business for covering expanded volumes and covering potentially more legal activity.
Robert Paul Napoli
That's helpful. And then I guess, if I look at your stock today, it's trading below tangible book value. And I don't know that if you even go back to the great financial crisis, the stock PRA never traded below tangible book value. When you look at the underwriting that you're doing for the purchases, what type of an ROE do you think you're underwriting to? I mean what is the target? You must have -- I mean, it all rolls up into an ROE. So just how are you managing the returns on your underwriting? What kind of return level are you targeting?
Rakesh Sehgal
Yes. Bob, it's Rakesh. Look, our goal is to ultimately create shareholder value. So, what I will tell you is, we obviously look at the gross multiples that you're looking at, but we also have recalibrated our net return thresholds, both here in the Americas as well as in Europe. And the new vintages where we're originating is with the idea to make a meaningfully improved return versus what we saw over the last couple of years.
So, I won't get into specific numbers, but rest assured, we are writing at numbers that's going to make us profitable. And to your point, look, the cash efficiency is a metric that I understand your purposes, folks have looked at, but all these initiatives are being undertaken, we are looking at a return on investments of each of those initiatives because we want to spend the money to ultimately make more money and make it in a more cost-efficient manner. So, we're looking at different metrics and KPIs internally to ensure we are delivering shareholder value over the long term.
Robert Paul Napoli
Thank you. Appreciate it.
Operator
Next question comes from Robert Dodd of Raymond James.
Robert James Dodd
I want to look somewhat, I think, longer term on that. I think you made some comment about underinvestment in platform investment in platforms and that needs to be corrected, but that's a much more complex issue. Can you give us any more -- I mean, are we looking at -- you're going through 12 to 18 months of all these efficiency initiatives and then there being another multiyear cycle of a complete platform rebuild, or can you give us any color on what you're talking about there?
Vikram A. Atal
Robert, first sort of priority as I enter this position was to ensure that -- we diagnosed what bedeviled us and we're addressing it, right? And I believe I can say, looking back over the last 6 months, that we have established that. We have stabilized the business. We have launched numerous initiatives to generate revenues, which is our focus. And so that's going to be the priority into the near term. As we do that, we are reviewing the status of our underlying systems architecture and sort of all of the sort of upgrades that might be required over time.
And probably in the next 12 months, we will start putting some tent of paper with regard to in what priority and in what order we start doing that. And that, as you know, is not a simple exercise. That might be -- take us a while to do, but we are going to be very thoughtful about making sure that anything we do is not disruptive to the momentum that we're creating over the next 12 months, right? And so, we will phase that in as necessary. And it is not an impediment, as I mentioned, to us being able to create near-term value in the franchise.
Rakesh Sehgal
Yes. If I could just add to that. I think you should be encouraged by the fact that we're looking at this in a couple of phases, right? We're thinking about what do we need to do in the next 12 months and how do we create that value and have meaningfully improved results in 2024. But sitting here today, we're also thinking about the long term, how do we create a much more sustainable thriving business, and that means we need to invest in some systems and processes. So that's going to be in the longer term. It's a multiyear cycle and investment that we're on, but we're already thinking about that.
And so, the idea is to build that vision of where we want to be in the next 12 to 18 months and then sitting here today, where we want to be in the next 3 to 5 years.
Robert Paul Napoli
Got it. I appreciate that color. Another one on the market in U.S., I think you said there were some spot transactions that came in surprisingly large relative to normal. Do you -- are you seeing anything in terms of is the market evolving? Do you think those are just one-off or currencies? Or do you think there's going to be a greater incidence of spot activity in the future in the U.S. market. Obviously, if there's more volume, there probably would be. But I mean, is it anything unusual about that that you think is really indicating a market change in terms of how sellers [think compared].
Rakesh Sehgal
Yes. I think the comment was made more in general versus the U.S. So, at the start of my remarks, we were talking about just a few spot transactions that were higher than anticipated. And that also includes Americas. It wasn't focused just on the U.S. And I would just say that in the U.S., we're very encouraged by the ability of us being able to reprice substantially most of our workflows to take into account the higher interest rate environment. Do we see spot transaction? Yes. But that comment was made more generally.
Vikram A. Atal
I think Robert in his comment that in a time when credit card charge-offs are rising at a fairly rapid clip, and us will bring items to market that are over and above any of their forward flow arrangements that they might have entered into, right? And we're seeing -- certainly having some visibility to that, right, in terms of deals being brought to market.
Operator
The next question comes from Mark Hughes of Truist.
Mark Douglas Hughes
Rakesh, could you give the number -- the $22 million change in recovery, could you break out by the outperformance in the quarter versus the expected change in future collections.
Rakesh Sehgal
Sure. So, the outperformance in the quarter was 18 that we mentioned earlier and then 22 of the total. So 4 is the difference, which is the change in expected future recoveries.
Mark Douglas Hughes
Okay. Great. I understand. The tax rate for next year or this year, it's in the low 20s. Is that a good bogey for next year or something different?
Rakesh Sehgal
Yes. I would just focus right now on for this year. So what we are telling you is for Q4 mark is to model in a low 20% range. We'll come back to you as we move into 2024, what you should model in for next year.
Mark Douglas Hughes
Okay. And do you have any view -- you talked about credit normalization. It's interesting to hear your description of the consumer and your consumers don't seem to be under pressure. How do you view this evolving? There's some potential, I think BofA has talked about the normalization extending for a few more quarters and then maybe stabilizing. Do you have a view on any of that?
Rakesh Sehgal
Yes. Look, obviously, the consumers that we have are on their own journey that's probably different from the consumers around some of the larger money center banks. As I mentioned, Mark ally in my remarks, we looked at how our consumers are performing. And look, we've seen limited evidence of them being under pressure today in the U.S. We anticipate cash collections to continue in the coming quarters as we engage with them, especially through all the initiatives that we were talking about earlier.
So, I view this as a tailwind in the sense that as credit normalizes further because some of the remarks made by the banks was they still expect credit to normalize further. Some of them actually reduce the credit cost this quarter -- so we view that as a positive from a supply perspective. So, all in all, between the consumer, as they are our customers today and the increased supply coming, we view that as a tailwind for our business.
Mark Douglas Hughes
And then I think you had mentioned some new sellers. Any way to characterize the pace with existing sellers? What's the magnitude of the new sellers? Are there others that are exploring debt sales as well?
Rakesh Sehgal
Yes. So look, these are sellers that have been in the market. We just haven't engaged with them previously. So this is a positive for us as we expand the number of sellers from whom we buy and we get on their panels. So we're not -- this is not changing our product focus. So it's still looking at the credit card, the PLCC space and the areas that we're in today and just expanding the number of sellers that we buy from.
Operator
The next question is a follow-up from Bob Napoli of William Blair.
Robert Paul Napoli
Just a little more commentary on Europe. I mean it seems that an international player, Australian player talked about a much tougher collections environment, payment plans being canceled or something like that. Another competitor just talked about how challenging it seems like your European business is doing somewhat better. I mean, you've talked about competition, but, how do you explain PRA's international commentary versus what we heard out of the other public company out of Australia and other competitors discussing Europe?
Vikram A. Atal
There might be, it depends on the markets in which different players are present at Bob. I can't comment on who you're referring to, but our business is fairly well distributed across Europe with the Nordics, Poland, U.K. and then Southern Europe. And similar to what Rakesh mentioned, there might be a market or 2 where large payments are impacted, but that has not affected the payer rate, right? So, the volume of customers making payments has remained stable even in those markets that that might be experiencing slightly more stress.
And so that has an impact on the timing of cash versus the totality of cash we will generate. So, we certainly are seeing no particular stress. And as you can see from our results over many quarters, our business in Europe has been performing consistently and consistently well.
Robert Paul Napoli
The 2021 pool of U.S. Americas is where you've taken the biggest write-down. And I think you actually even had maybe a hair of an improvement in the collection petal there. Are you comfortable with that whole now ,because in the past, whenever you've had a pull in this industry, you generally get follow-up marks, but it seems like you actually took a little bit of a positive mark there is, does that pull, and does that hold strength, your return should go up. But anything, any commentary on that specifically?
Vikram A. Atal
I think we've talked about that in the past, Bob, it's a fair question, just given the sort of issues we had with the vintage and we reported out in the first quarter. In terms of the performance of the call center, that's moving along to expectations. As we've talked about, we have ramped up our legal activities against that vintage, and that just comes through with a slight lag in terms of when it starts taking effect. So, at this point in time, we feel that we're in pretty good shape with that vintage, and we're tracking it. And these initiatives that we've got underway cutting across every vintage of our business, and we should see that impacting the 21 vintage over time as we get through 2024 as well.
Rakesh Sehgal
Yes. And if I could just add to that, just to round it out, right, it's revenue recognition. You're asking about CECL rates under those rules, it's our best estimate with respect to our expectation for the cash flows. And what you're going to see is variability quarter-to-quarter. But I think what encourages us is that over the long term, we have always experienced a modest outperformance versus where we originated. And as you can see, that particular vintage, in a quarter 2 date, we're seeing some positives. So, and then the second is also just around the initiatives that Vik mentioned, we're starting to really focus in on that, and we should start seeing a better performance coming out of that vintage as these initiatives take hold.
Robert Paul Napoli
If I could just squeeze one last one. And you had mentioned last quarter, outsourcing, offshoring as part of your bit strategies. Any updated commentary on offshoring outsourcing.
Vikram A. Atal
Yes. So I think good question, Bob. Thank you. So I look at outsourcing in 2 ways. One is leveraging local players in the U.S. market to bolster and accelerate activities that we want to do. And that's what we have actually expanded our sort of engagement levels with some third parties, particularly on the legal front to bolster and accelerate our activities there. That's U.S.-based. And then in offshoring, we piloted a couple of programs in the second quarter into the third quarter. And now in the fourth quarter, we're rolling out programs with a couple of parties, and we are in pilot mode with other parties with regard to leveraging lower cost locations. And I think the sense is that over the next 6 to 9 months, we will validate and at this point in time, we fully expect that there will be positive validation.
We will validate that these relationships are working to expectations, meeting our schedules. And at that point in time, we will have a discussion internally as to whether we scale them up and at what level. So, based on the last 3, 4 months of activity, we are very encouraged by what we've accomplished. And as you might recognize, we've been moving at a rapid-fire speed on this stuff to get it done so quickly.
Robert Paul Napoli
Thank you.
Operator
The next question is a follow-up from David Scharf of JMP.
David Michael Scharf
Great. Maybe just a couple in here. One, Rakesh, just a quick maybe update on status of kind of loan covenants. I'm assuming there is nothing to report, but I know there was kind of a unique situation in Q1, where the company had to seek a one-off covenant relief on the operating income. Is there anything else in your bank facilities, whether it's restricted payments or coverage ratios or definitional changes that we ought to be aware of? Or is everything pretty much status quo since that Q1 event?
Rakesh Sehgal
Yes. I would to say status quo, right? The Q1 event was NOI. And as you could see, our income from operations positive. So no changes there, David.
David Michael Scharf
Got it. That's what I thought. And then one last one, circling back to kind of the purchasing outlook and supply. It seems like the last few years, pulling through the queue, the concentration of the company's purchases in private label seems to have gotten larger and larger relative to over the last 3, 5, 10 years. And instinctively, I think it's kind of harder to collect from lower balance accounts. As you look at kind of your flow deals and just the overall increase in supply, a lot of people are used to thinking more in terms of the general purpose asset class versus private label. Is your mix changing? Or are you engaging with more private general purpose auctions? And should that matter to us? Or am I overthinking this?
Vikram A. Atal
I actually -- I'm just looking at some data here. I'm not sure what you're tracking to, David. But in our Q, we report out the mix of the portfolios between the major credit cards and private label and actually private label as a percent of our purchases has actually declined versus a year ago. But I would also say that the whole notion of private label versus major credit cards has got, so a little bit distorted out of a time because it's a question of really -- if you're talking about average paradises and say and thinking that what is the connectability across average senses, we are not seeing a change, material change in the average balances that we're collecting on, right? And in fact, one way that comes up is in what percent of our accounts are those that we might target take it necessary for legal coverage, and that hasn't really changed our overtime.
David Michael Scharf
Got it. Very helpful thing.
Operator
The next question is a follow-up from Mark Hughes of Truist.
Mark Douglas Hughes
Rakesh, what is the factors that drive the $1.1 billion in availability. I think you said subject covenants and advance rates. Could you just maybe expand on that? Is that available under what circumstance is it available?
Rakesh Sehgal
Yes, sure. So look, we have committed capital of $3.1 billion, Mark, and we borrowed certain amounts under the credit facilities. And so that $1.1 billion that I was mentioning is something that we can draw on subject to the advance rates that we have in those facilities as we purchase more ERC. So, our advance rates that we've disclosed range anywhere from 35% to 55%. And so, we can -- as we acquire more ERC, we can draw down on that debt available to us to fund our purchases.
Mark Douglas Hughes
Okay. Very good. And then did you give a number when you gave the $841 million to replace the runoff. Could you give the associated number what you do forecast for runoff over the next 12 months?
Rakesh Sehgal
Yes. So you're talking about the dollars of ERC running up, that's the $1.5 billion.
Mark Douglas Hughes
Okay. And then you're saying that the purchases in order to replace that, you need $841 million, correct?
Rakesh Sehgal
Correct. And we're just looking at the multiples that... We are seeing... In '23. Exactly. Yes.
Mark Douglas Hughes
Thank you very much. Thank you.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Vikram -- also for any closing remarks.
Vikram A. Atal
Thank you, everyone, for joining us this afternoon, and we appreciate further input and feedback over the next several weeks and months. Thank you.
Operator
The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.
