PRAA · Read the filing

Item 1A. Risk Factors.

You should carefully read the following discussion of material factors, events and uncertainties when evaluating our business and the forward-looking information contained in this Annual Report on Form 10-K. The events and consequences discussed in these risk factors could materially and adversely affect our business, operating results, liquidity and financial condition. While we believe we have identified and discussed below the material risk factors affecting our business, these risk factors do not identify all the risks we face, and there may be additional risks and uncertainties that we do not presently know or that we do not currently believe to be material that may have an adverse effect on our business, performance or financial condition in the future.

Operational and Industry Risks

The continuation of the COVID-19 pandemic could have an adverse effect on our business, results of operations and financial results.

We cannot predict the extent to which the continuing COVID-19 pandemic will impact our business, results of operations and financial results due to numerous evolving factors such as the extent to which vaccines will be available and their effectiveness against mutations of COVID-19. However, the continuation or worsening of the COVID-19 pandemic could adversely affect our business, results of operations and financial results if:

•the current deterioration in the economic and inflationary environment resulting from the pandemic worsens or continues throughout 2021;

•political, legal and regulatory actions and policies in response to the pandemic prevent us from performing our collection activities or result in material increases in our costs to comply with such laws and regulations;

•consumers respond to COVID-19 by failing to pay amounts owed to us as a result of their unemployment or other factors that impact their ability to make payments;

•we are unable to maintain staffing levels necessary to operate our business due to extended lockdowns, governmental actions that result in our business operations being deemed non-essential or continued spread of COVID-19 causing employees to be unable or unwilling to work;

•we are unable to collect on existing nonperforming loans or experience material decreases in our cash collections;

•we are unable to purchase nonperforming loans needed to operate our business because credit originators become unable or unwilling to sell their nonperforming loans consistent with historical levels; or

•we suffer a cybersecurity incident as a result of increased vulnerability while a larger number of our employees work remotely.

A deterioration in the economic or inflationary environment in the countries in which we operate could have an adverse effect on our business and results of operations.

Our performance may be adversely affected by economic, political or inflationary conditions in any market in which we operate. These conditions could include regulatory developments, changes in global or domestic economic policy, legislative changes, the sovereign debt crises experienced in several European countries and the uncertainty regarding the EU’s future as a result of the UK's departure from the EU. Deterioration in economic conditions, or a significant rise in inflation could cause personal bankruptcy and insolvency filings to increase, and the ability of consumers to pay their debts could be adversely affected. This may in turn adversely impact our business and financial results.

If global credit market conditions and the stability of global banks deteriorate, the amount of consumer or commercial lending and financing could be reduced, thus reducing the volume of nonperforming loans available for purchase, which could adversely affect our business, financial results and ability to succeed in international markets.

Other factors associated with the economy that could influence our performance include the financial stability of the lenders on our bank loans and credit facilities and our access to capital and credit. The financial turmoil that adversely affected

the banking system and financial markets during the prior global recession beginning in 2007 resulted in the tightening of credit markets. While the banking system and financial markets recovered from the prior recession, a worsening of current conditions, including as a result of the COVID-19 pandemic, could have a negative impact on our business, including the insolvency of lending institutions, notably the lenders providing our bank loans and credit facilities, resulting in our difficulty in or inability to obtain credit. These and other economic factors could have an adverse effect on our financial condition and results of operations.

We may not be able to continually replace our nonperforming loans with additional portfolios sufficient to operate efficiently and profitably, and/or we may not be able to purchase nonperforming loans at appropriate prices.

To operate profitably, we must purchase and service a sufficient amount of nonperforming loans to generate revenue that exceeds our expenses. Costs such as salaries and other compensation expense constitute a significant portion of our overhead and, if we do not replace the nonperforming loan portfolios we service with additional portfolios, we may have to reduce the number of our collection personnel. We would then, have to rehire collection staff if we subsequently obtain additional portfolios. These practices could lead to negative consequences including the following:

•low employee morale;

•fewer experienced employees;

•higher training costs;

•disruptions in our operations;

•loss of efficiency; and

•excess costs associated with unused space in our facilities.

The availability of nonperforming loan portfolios at prices that generate an appropriate return on our investment depends on a number of factors, including the following:

•the continuation of high levels of consumer debt obligations;

•sales of nonperforming loan portfolios by credit originators; and

•competitive factors affecting potential purchasers and credit originators of receivables.

Furthermore, heightened regulation of the credit card and consumer lending industry or changing credit origination strategies may result in decreased availability of credit to consumers, potentially leading to a future reduction in nonperforming loans available for purchase from credit originators. We cannot predict how our ability to identify and purchase nonperforming loans and the quality of those nonperforming loans would be affected if there were a shift in lending practices, whether caused by changes in the regulations or accounting practices applicable to credit originators or purchasers, a sustained economic downturn or otherwise.

Moreover, there can be no assurance that credit originators will continue to sell their nonperforming loans consistent with historical levels or at all, or that we will be able to bid competitively for those portfolios. Because of the length of time involved in collecting on acquired portfolios and the variability in the timing of our collections, we may not be able to identify trends and make changes in our purchasing strategies in a timely manner. If we are unable to maintain our business or adapt to changing market needs as well as our current or future competitors, we may experience reduced access to nonperforming loan portfolios at appropriate prices and, therefore, reduced profitability.

We may not be able to collect sufficient amounts on our nonperforming loans to fund our operations.

Our principal business consists of purchasing and collecting nonperforming loans that consumers or others have failed to pay. The credit originators have typically made numerous attempts to recover on their receivables, often using a combination of in-house recovery efforts and third-party collection agencies. These nonperforming loans are difficult to collect, and we may not collect a sufficient amount to cover our investment and the costs of running our business.

Our collections may decrease if certain types of insolvency proceedings and bankruptcy filings involving liquidations increase.

Various economic trends and potential changes to existing legislation may contribute to an increase in the amount of personal bankruptcy and insolvency filings. Under certain of these filings, a debtor's assets may be sold to repay creditors, but because most of the receivables we collect through our collections operations are unsecured, we typically would not be able to collect on those receivables. Although our insolvency collections business could benefit from an increase in personal bankruptcies and insolvencies, we cannot ensure that our collections operations business would not decline with an increase in personal insolvencies or bankruptcy filings or changes in related regulations or practices. If our actual collection experience

with respect to a nonperforming or insolvent bankrupt receivables portfolio is significantly lower than the total amount we projected when we acquired the portfolio, our financial condition and results of operations could be adversely impacted.

Goodwill impairment charges could negatively impact our net income and stockholders' equity.

We have recorded a significant amount of goodwill as a result of our business acquisitions. Goodwill is not amortized, but is tested for impairment at the reporting unit level. Goodwill is required to be tested for impairment annually and between annual tests if events or circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. There are numerous risks that may cause the fair value of a reporting unit to fall below its carrying amount, which could lead to the recognition of a goodwill impairment charge. These risks include:

•adverse changes in macroeconomic conditions, the business climate, or the market for the entity's products or services;

•significant variances between actual and expected financial results;

•negative or declining cash flows;

•lowered expectations of future results;

•failure to realize anticipated synergies from acquisitions;

•significant expense increases;

•a more likely-than-not expectation of selling or disposing all, or a portion of, a reporting unit;

•the loss of key personnel;

•an adverse action or assessment by a regulator;

•significant increase in discount rates; or

•a sustained decrease in the price per share of our common stock.

Our goodwill impairment testing involves the use of estimates and the exercise of judgment, including judgments regarding expected future business performance and market conditions. Significant changes in our assessment of such factors, including the deterioration of market conditions, could affect our assessment of the fair value of one or more of our reporting units and could result in a goodwill impairment charge in a future period.

Our loss contingency accruals may not be adequate to cover actual losses.

We are involved in judicial, regulatory and arbitration proceedings or investigations concerning matters arising from our business activities. We establish accruals for potential liability arising from legal proceedings when it is probable that such liability has been incurred and the amount of the loss can be reasonably estimated. However, there can be no assurance as to the ultimate outcome. We may still incur legal costs for a matter even if we have not accrued a liability. In addition, actual losses may be higher than the amount accrued for a certain matter, or in the aggregate. An unfavorable resolution of a legal proceeding or claim could adversely impact our business, financial condition, results of operations, or liquidity. For more information, refer to the "Litigation and Regulatory Matters" section of Note 15 to our Consolidated Financial Statements included in Item 8 of this Form 10-K ("Note 15").

International Operations Risks

Our international operations expose us to risks which could harm our business, results of operations and financial condition.

A significant portion of our operations is conducted outside the U.S. This could expose us to adverse economic, industry and political conditions that may have a negative impact on our ability to manage our existing operations or pursue alternative strategic transactions, which could have a negative effect on our business, results of operations and financial condition.

The global nature of our operations expands the risks and uncertainties described elsewhere in this section, including the following:

•changes in local political, economic, social and labor conditions in the markets in which we operate;

•foreign exchange controls on currency conversion and the transfer of funds that might prevent us from repatriating cash earned in countries outside the U.S. in a tax-efficient manner;

•currency exchange rate fluctuations, currency restructurings, inflation or deflation and our ability to manage these fluctuations through a foreign exchange risk management program;

•different employee/employer relationships, laws and regulations, union recognition and the existence of employment tribunals and works councils;

•laws and regulations imposed by international governments, including those governing data security, sharing and transfer;

•potentially adverse tax consequences resulting from changes in tax laws in the jurisdictions in which we operate or challenges to our interpretations and application of complex international tax laws;

•logistical, communications and other challenges caused by distance and cultural and language differences, each making it harder to do business in certain jurisdictions;

•volatility of global credit markets and the availability of consumer credit and financing in our international markets;

•uncertainty as to the enforceability of contract rights under local laws;

•the potential of forced nationalization of certain industries, or the impact on creditors' rights, consumer disposable income levels, flexibility and availability of consumer credit and the ability to enforce and collect aged or charged-off debts stemming from international governmental actions, whether through austerity or stimulus measures or initiatives, intended to control or influence macroeconomic factors such as wages, unemployment, national output or consumption, inflation, investment, credit, finance, taxation or other economic drivers;

•the presence of varying levels of business corruption in international markets and the effect of various anti-corruption and other laws on our international operations;

•the impact on our day-to-day operations and our ability to staff our international operations given our changing labor conditions and long-term trends towards higher wages in developed and emerging international markets as well as the potential impact of union organizing efforts;

•potential damage to our reputation due to non-compliance with international and local laws; and

•the complexity and necessity of using non-U.S. representatives, consultants and other third-party vendors.

Any one of these factors could adversely affect our business, results of operations and financial condition.

Compliance with complex and evolving international and U.S. laws and regulations that apply to our international operations could increase our cost of doing business in international jurisdictions.

We operate on a global basis with offices and activities in a number of jurisdictions throughout the Americas, Europe and Australia. We face increased exposure to risks inherent in conducting business internationally, including compliance with complex international and U.S. laws and regulations that apply to our international operations, which could increase our cost of doing business in international jurisdictions. These laws and regulations include those related to taxation and anti-corruption laws such as the FCPA and the UK Bribery Act. Given the complexity of these laws, there is a risk that we may inadvertently breach certain provisions of these laws, such as through the negligent behavior of an employee or our failure to comply with certain formal documentation requirements. Violations of these laws and regulations by us, any of our employees or our third-party vendors, either inadvertently or intentionally, could result in fines and penalties, criminal sanctions, restrictions on our operations and ability to offer our products and services in one or more countries. Violations of these laws could also adversely affect our business, brand, international expansion efforts, ability to attract and retain employees and results of operations.

The UK's exit from the EU could adversely impact our business, results of operations and financial condition.

The UK exited the EU effective January 31, 2020 ("Brexit"). Although the parties have agreed on several terms governing their continuing relationship, matters such as data sharing and financial services remain unresolved. As a result of the recency of the agreement and the failure to reach agreement on significant matters, there remains uncertainty about Brexit’s impact on taxes, foreign currency, political stability, economic, regulatory and financial market conditions in the UK, the EU and globally, the movement of goods, services, people and capital between the UK and EU.

As of December 31, 2020, the total estimated remaining collections ("ERC") of our UK portfolios constituted approximately 26% of our consolidated ERC. Our British pound assets are predominantly funded by British pound liabilities. However, British pound net income and retained earnings could be affected when translated to the U.S. dollar, positively or negatively, by foreign currency exchange volatility in the short term resulting from the uncertainty of Brexit. In the longer term, Brexit could adversely impact our business, results of operations and financial condition depending on the terms negotiated by the UK and the EU concerning data sharing, taxes, financial services regulation and other matters that impact our operations.

Legal and Regulatory Risks

Our ability to collect and enforce our nonperforming loans may be limited under federal, state and international laws, regulations and policies.

Our operations are subject to licensing and regulation by governmental and regulatory bodies in the many jurisdictions in which we operate. U.S. federal and state laws, and the laws and regulations of the international countries in which we operate, may limit our ability to collect on and enforce our rights with respect to our nonperforming loans regardless of any act or omission on our part. Some laws and regulations applicable to credit issuers may preclude us from collecting on nonperforming loans we acquire if the credit issuer previously failed to comply with applicable laws in generating or servicing those receivables. Collection laws and regulations also directly apply to our business. Such laws and regulations are extensive and subject to change. A variety of state, federal and international laws and regulations govern the collection, use, retention, transmission, sharing and security of consumer data. Consumer protection and privacy protection laws, changes in the ways that existing rules or laws are interpreted or enforced and any procedures that may be implemented as a result of regulatory consent orders may adversely affect our ability to collect on our nonperforming loans and adversely affect our business. Our failure to comply with laws or regulations applicable to us could limit our ability to collect on our receivables, which could reduce our profitability and adversely affect our business.

Failure to comply with government regulation of the collections industry could result in penalties, fines, litigation, damage to our reputation or the suspension or termination of our ability to conduct our business.

The collections industry throughout the markets in which we operate is governed by various laws and regulations, many of which require us to be a licensed debt collector. Our industry is also at times investigated by regulators and offices of state attorneys general, and subpoenas and other requests or demands for information may be issued by governmental authorities who are investigating debt collection activities. These investigations may result in enforcement actions, fines and penalties, or the assertion of private claims and lawsuits. If any such investigations result in findings that we or our vendors have failed to comply with applicable laws and regulations, we could be subject to penalties, litigation losses and expenses, damage to our reputation, or the suspension or termination of, or required modification to, our ability to conduct collections, which would adversely affect our business, results of operations and financial condition.

In a number of jurisdictions, we must maintain licenses to purchase or own debt, and/or to perform debt recovery services and must satisfy related bonding requirements. Our failure to comply with existing licensing requirements, changing interpretations of existing requirements, or adoption of new licensing requirements, could restrict our ability to collect in certain jurisdictions, subject us to increased regulation, increase our costs or adversely affect our ability to purchase, own and/or collect our receivables.

Some laws, among other things, also may limit the interest rate and the fees that a credit originator may impose on our consumers, limit the time in which we may file legal actions to enforce consumer accounts and require specific account information for certain collection activities. In addition, local requirements and court rulings in various jurisdictions may affect our ability to collect.

Regulations and statutes applicable to our industry further provide that, in some cases, consumers cannot be held liable for, or their liability may be limited with respect to, charges to their debit or credit card accounts that resulted from unauthorized use of their credit. These laws, among others, may limit our ability to recover amounts owing with respect to the receivables, whether or not we committed any wrongful act or omission in connection with the account.

If we fail to comply with any applicable laws and regulations discussed above, such failure could result in penalties, litigation losses and expenses, damage to our reputation, or otherwise impact our ability to conduct collections efforts, which could adversely affect our business, results of operations and financial condition.

Investigations, reviews or enforcement actions by governmental authorities may result in changes to our business practices; negatively impact our receivables portfolio acquisition volume; make collection of receivables more difficult; or expose us to the risk of fines, penalties, restitution payments and litigation.

Our debt collection activities and business practices are subject to review from time to time by various governmental authorities and regulators, including the CFPB, which may commence investigations, reviews or enforcement actions targeted at businesses in the financial services industry. These investigations or reviews may involve individual consumer complaints or our debt collection policies and practices generally. Such investigations or reviews could lead to assertions by governmental authorities that we are not complying with applicable laws or regulations. In such circumstances, authorities may request or seek to impose a range of remedies that could involve potential compensatory or punitive damage claims, fines, restitution payments, sanctions or injunctive relief, that if agreed to or granted, could require us to make payments or incur other

expenditures that could have an adverse effect on our financial position. The CFPB has the authority to obtain cease and desist orders (which can include orders for restitution or rescission of contracts, as well as other kinds of affirmative relief), recover costs, and impose monetary penalties (ranging from $5,000 per day to over $1 million per day, depending on the nature and gravity of the violation). In addition, where a company has violated Title X of the Dodd-Frank Act or CFPB regulations implemented thereunder, the Dodd-Frank Act empowers state attorneys general and other state regulators to bring civil actions to remedy violations under state law. Governmental authorities could also request or seek to require us to cease certain practices or institute new practices. Negative publicity relating to investigations or proceedings brought by governmental authorities could have an adverse impact on our reputation, harm our ability to conduct business with industry participants, and result in financial institutions reducing or eliminating sales of receivables portfolios to us which would harm our business and negatively impact our results of operations. Moreover, changing or modifying our internal policies or procedures, responding to governmental inquiries and investigations and defending lawsuits or other proceedings could require significant efforts on the part of management and result in increased costs to our business. In addition, such efforts could divert management's full attention from our business operations. All of these factors could have an adverse effect on our business, results of operations and financial condition.

The CFPB has issued civil investigative demands to many companies that it regulates and periodically examines practices regarding the collection of consumer debt. As previously reported in our Current Report on Form 8-K filed on September 9, 2015, Portfolio Associates, LLC ("PRA"), our wholly owned subsidiary, entered into a consent order with the CFPB effective September 9, 2015 settling a previously disclosed investigation of certain debt collection practices of PRA (the "Consent Order"). Although we have implemented the requirements of the Consent Order, there can be no assurance that additional litigation or new industry regulations currently under consideration by the CFPB would not have an adverse effect on our business, results of operations and financial condition. In fact, the CFPB has recently made civil investigative demands and advised the Company of the CFPB’s belief that we may have violated certain provisions of the Consent Order and applicable law. Refer to Note 15 to our Consolidated Financial Statements included in Item 8 of this Form 10-K for more information.

The regulation of data privacy in the U.S and globally could have an adverse effect on our business, results of operations and financial condition by increasing our compliance costs.

The regulation of data privacy, including interpretations and determinations by regulatory authorities in the U.S. and in the countries in which we operate, continues to evolve. It is not possible to predict the effect of such rigorous data protection regulations over time. For example, GDPR impacts our European operations and required us to adapt our business practices accordingly. Financial penalties for noncompliance with the GDPR can be significant. It is also the case that the U.S. federal government and states within the U.S. have enacted or are considering legislation to enact data privacy protections. Data privacy regulations could result in increased costs of conducting business to maintain compliance with such regulations. Although we take significant steps to protect the security of our data and the personal data of our customers, we may be required to expend significant resources to comply with regulations if third parties improperly obtain and use such data.

Changes in tax provisions or exposures to additional tax liabilities could have an adverse tax effect on our financial condition.

We record reserves for uncertain tax positions based on our assessment of the probability of successfully sustaining tax filing positions. Management exercises significant judgment when assessing the probability of successfully sustaining tax filing positions, in determining whether a tax liability should be recorded and, if so, estimating that amount. Our tax filings are subject to audit by domestic and international tax authorities. If our tax filing positions are successfully challenged, payments could be required that are in excess of reserved amounts or we may be required to reduce the carrying amount of our net deferred tax asset, either of which could be significant to our financial condition or results of operations. Although we believe our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our financial statements and may adversely or beneficially affect our financial results in the period(s) for which such determination is made.

Financial and Liquidity Risks

We expect to use leverage in executing our business strategy, which may adversely affect the return on our assets.

We may incur a substantial amount of debt in the future. Our existing indebtedness is recourse to us, and we anticipate that future indebtedness will likewise be recourse. As of December 31, 2020, we had total consolidated indebtedness of approximately $2.7 billion, all of which, except for $345.0 million outstanding principal amount of our 3.50% Convertible Notes due 2023 (the "2023 Notes") and $300.0 million outstanding principal amount of our 7.375% Senior Notes due 2025 (the "2025 Notes"), was secured indebtedness. In addition, as of December 31, 2020, we had total committed revolving borrowing capacity of $843.2 million available under our credit facilities, all of which if borrowed would be secured indebtedness. Considering borrowing base restrictions and other covenants, the amount available to be borrowed under our credit facilities would have been $408.0 million. Our management team will consider a number of factors when evaluating our level of

indebtedness and when making decisions regarding the incurrence of any new indebtedness, including the purchase price of assets to be acquired with debt financing, the estimated market value of our assets and the ability of particular assets and the Company as a whole, to generate cash flow to cover the expected debt service.

Incurring a substantial amount of debt could have important consequences for our business, including:

•making it more difficult for us to satisfy our obligations with respect to our debt, to our trade or other creditors;

•increasing our vulnerability to adverse economic or industry conditions;

•limiting our ability to obtain additional financing to fund capital expenditures and acquisitions, particularly when the availability of financing in the capital markets is constrained;

•requiring a substantial portion of our cash flows from operations and reducing our ability to use our cash flows to fund working capital, capital expenditures, acquisitions and general corporate requirements;

•increasing the amount of interest expense because most of the indebtedness under our credit facilities bear interest at floating rates, which, if interest rates increase, will result in higher interest expense;

•limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and

•placing us at a competitive disadvantage to less leveraged competitors.

We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us through capital markets financings, under credit facilities or otherwise, in an amount sufficient to enable us to repay our indebtedness, repurchase our 2023 Notes upon a fundamental change or settle conversions in cash, repurchase our 2025 Notes upon a change of control or fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness, at or before its scheduled maturity. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all. In addition, we may incur additional indebtedness in order to finance our operations or to repay existing indebtedness. If we cannot service our indebtedness, we may have to take actions such as selling assets, seeking additional debt or equity or reducing or delaying capital expenditures, strategic acquisitions, investments and alliances. We cannot assure you that any such actions, if necessary, could be effected on commercially reasonable terms or at all, or on terms that would be advantageous to our stockholders or on terms that would not require us to breach the terms and conditions of our existing or future debt agreements. Our ability to access additional future borrowings could be negatively impacted as a result of the impact of the COVID-19 pandemic on the global debt and capital markets.

We may not be able to generate sufficient cash flow to meet our debt service obligations.

Our ability to generate sufficient cash flow from operations to make scheduled payments on our debt obligations will depend on our current and future financial performance, which is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. In the future, we may fail to generate sufficient cash flow from the collection of nonperforming loans to meet our cash requirements. Further, our capital requirements may vary materially from those currently planned if, for example, our revenues do not reach expected levels, we have to incur unforeseen expenses, we invest in acquisitions or make other investments that we believe will benefit our competitive position. If we do not generate sufficient cash flow from operations to satisfy our debt obligations, including interest payments and the payment of principal at maturity, we may have to undertake alternative financing plans, such as refinancing or restructuring our debt, selling assets or seeking to raise additional capital. We cannot provide assurance that any refinancing would be possible, that any assets could be sold, or, if sold, of the timeliness and amount of proceeds realized from those sales, that additional financing could be obtained on acceptable terms, if at all, or that additional financing would be permitted under the terms of our various debt instruments then in effect. Furthermore, our ability to refinance would depend upon the condition of the finance and credit markets. Our inability to generate sufficient cash flow to satisfy our debt obligations, or to refinance our obligations on commercially reasonable terms or on a timely basis, would materially affect our business, financial condition or results of operations and may delay or prevent the expansion of our business.

The agreements governing our indebtedness include provisions that may restrict our financial and business operations.

Our credit facilities and the indentures that govern our 2023 Notes and our 2025 Notes contain financial and other restrictive covenants, including restrictions on how we operate our business and our ability to pay dividends to our stockholders. These restrictions may interfere with our ability to engage in other necessary or desirable business activities, which could materially affect our business, financial condition or results of operations.

Failure to satisfy any one of these covenants could result in negative consequences, including the following:

•acceleration of outstanding indebtedness;

•exercise by our lenders of rights with respect to the collateral pledged under certain of our outstanding indebtedness;

•our inability to continue to purchase nonperforming loans needed to operate our business; or

•our inability to secure alternative financing on favorable terms, if at all.

Uncertainty about the future of the LIBOR may adversely affect our business.

It is possible that beginning in 2022 LIBOR will be discontinued as a reference rate. It is unknown whether any proposed alternative reference rates will attain market acceptance as replacements or whether the outstanding issues related to them will be satisfactorily resolved. The availability of our borrowings and the operation of our derivative hedging agreements could be adversely impacted if LIBOR is discontinued and an agreement cannot be reached on an appropriate replacement benchmark rate between us and our lenders and counterparties.

Cybersecurity and Technology Risks

A cybersecurity incident could disrupt our operations, compromise or corrupt our confidential information or damage our reputation, all of which could negatively impact our business and financial results.

Our business is highly dependent on our ability to process and monitor a large number of transactions across markets and in multiple currencies. As we expand geographically, maintaining the security of our information technology systems and infrastructure becomes more significant and challenging. The three primary risks we face from a cybersecurity incident are operational disruption, the exposure of private data including, customer information, our employees' personally identifiable information, or proprietary business information such as underwriting and collections methodologies and reputational damage. As our reliance on technology has increased, so have the risks posed to our systems, some of which are internal, some hosted in the cloud and others we have outsourced.

Although we take preventive steps, including patching our systems and infrastructure, monitoring and blocking malicious traffic with intrusion and detection prevention systems, monitoring firewalls to safeguard critical business applications, conducting regular external and internal security penetrations testing and supervising third party providers that have access to our systems, our computer systems, software and network, may still be vulnerable to unauthorized access, computer viruses or other malicious code, and other events that could have a security impact. To date, interruptions of our systems and infrastructure have been infrequent and have not had a material impact on operations. However, these measures, as well as our organization's increased awareness of our risk of a cybersecurity incident, do not guarantee that our business, reputation or financial results will not be impacted in a material adverse manner by such an incident. Should such a cybersecurity incident occur, we may be required to expend significant additional resources to notify affected consumers, modify our protective measures or to investigate and remediate vulnerabilities or other exposures. Additionally, we may be subject to fines, penalties, litigation costs and settlements and financial losses that may not be fully covered by our cybersecurity insurance.

The underperformance or failure of our information technology infrastructure, networks or communication systems could result in loss in productivity, loss of competitive advantage and business disruption.

We depend on effective information and communication systems to operate our business. We have also acquired and expect to acquire additional systems as a result of business acquisitions. Significant resources are required to maintain or enhance our existing information and telephone systems and to replace obsolete systems. Although we periodically upgrade, streamline, and integrate our systems and have invested in strategies to prevent a failure, our systems are susceptible to outages due to natural disasters, power loss, computer viruses, security breaches, hardware or software vulnerabilities, disruptions, and similar events. Failure to adequately implement or maintain effective and efficient information systems with sufficiently advanced technological capabilities, or our failure to efficiently and effectively consolidate our information systems to eliminate redundant or obsolete applications, could cause us to lose our competitive advantage, divert management’s time, result in a loss of productivity or disrupt business operations, which could have a material adverse effect on our business, financial condition and results of operations.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Our corporate headquarters and primary domestic operations facilities are located in Norfolk, Virginia. In addition, at December 31, 2020, we had operational centers in the Americas (12 leased and three owned), Europe (11 leased) and Australia (one leased).

Item 3. Legal Proceedings.

We and our subsidiaries are from time to time subject to a variety of routine legal and regulatory claims, inquiries and proceedings, most of which are incidental to the ordinary course of our business. We initiate lawsuits against customers and are occasionally countersued by them in such actions. Also, customers, either individually, as members of a class action, or through a governmental entity on behalf of customers, may initiate litigation against us in which they allege that we have violated a state or federal law in the process of collecting on an account. From time to time, other types of lawsuits are brought against us.

Refer to Note 15 to our Consolidated Financial Statements included in Item 8 of this Form 10-K for information regarding legal proceedings in which we are involved.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Common Stock

Our common stock is traded on Nasdaq Global Select Market under the symbol "PRAA." Based on information provided by our transfer agent and registrar, as of February 15, 2021, there were 46 holders of record.

Stock Performance

The following graph and subsequent table compare from December 31, 2015 to December 31, 2020, the cumulative stockholder returns assuming an initial investment of $100 in our common stock (PRAA), the stocks comprising the Nasdaq Financial 100 (IXF) and the stocks comprising the Nasdaq Global Market Composite Index (NQGM) at the beginning of the period. Any dividends paid during the five-year period are assumed to be reinvested.

The comparisons of stock performance shown above are not intended to forecast or be indicative of possible future performance of our common stock. We do not make or endorse any predictions as to our future stock performance.

Dividend Policy

Our board of directors sets our dividend policy. We do not currently pay regular dividends on our common stock and did not pay dividends in the three years ended December 31, 2020; however, our board of directors may determine in the future to declare or pay dividends on our common stock. Our credit facilities and the indentures that govern our 2023 Notes and our 2025 Notes contain financial and other restrictive covenants, including restrictions on how we operate our business and our ability to pay dividends to our stockholders. Any future determination as to the declaration and payment of dividends will be at the discretion of our Board of Directors and will depend on conditions then existing, including our results of operations, financial condition, contractual restrictions, capital requirements, business prospects and other factors that our Board of Directors may consider relevant.

Recent Sales of Unregistered Securities

None.

Securities Authorized for Issuance Under Equity Compensation Plans

For information regarding securities authorized for issuance under equity compensation plans see Note 12 to our Consolidated Financial Statements included in Item 8 of this Form 10-K.

Share Repurchase Programs

None.

Item 6. Selected Financial Data.

None.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Overview

We are a global financial and business services company with operations in the Americas, Europe and Australia. Our primary business is the purchase, collection and management of portfolios of nonperforming loans.

COVID-19

The COVID-19 outbreak, which was first reported in December 2019 and declared a global pandemic by the World Health Organization in March 2020, has impacted all countries in which we operate. In an effort to address the spread of COVID-19, the countries in which we operate have restricted travel, closed country borders, banned gatherings of unrelated individuals, quarantined and isolated infected individuals, closed schools and non-essential businesses and established criteria that must be met before businesses reopen. The global spread of COVID-19 has disrupted normal business operations and resulted in significant unemployment, recessionary economic trends and overall volatility, uncertainty and economic disruption.

To date, we have continued to operate our business considering governmental, legal and regulatory actions in response to the COVID-19 pandemic. We are able to monitor on a daily basis the impacts of COVID-19 on our business, operations and financial results and to take steps to mitigate adverse effects wherever possible. These include communicating with regulators and government officials concerning legislation and regulations, enabling employees to work remotely and implementing social distancing in the workplaces that remain open.

Specific impacts on our business, results of operations and financial condition during the year ended December 31, 2020 included:

•a reduction in U.S. staffing in mid-March 2020, which returned to almost normal levels by the end of April and remains at these levels;

•an increase in U.S. Core cash collections, which we believe was due to our increased ability to contact customers and customers choosing to use additional discretionary funds to voluntarily resolve their debts;

•a decrease in legal collection costs during the second quarter of 2020, as a result of the following, both of which have returned to normal levels to varying degrees over the remainder of 2020;

–a decrease in the volume of U.S. accounts sent through the legal channel, due to our decision to temporarily pause transitioning U.S. accounts into a legal eligible status; and

–a decrease in the volume of European accounts sent through the legal channel due to the closure of courts in many of the European countries in which we operate;

•a decrease in certain expenses such as communication expenses due to mailing decisions made as a result of the COVID-19 pandemic and interruptions in postal mailings and deliveries; and

•a decrease in portfolio purchases due to deferrals by sellers and lower levels of bankruptcy filings and charge-offs.

Funds generated from operations, cash collections on finance receivables, existing cash, available borrowings under our revolving credit facilities (including recent modifications to the terms of those facilities) and the addition of our senior notes, have been sufficient to finance our operations, planned capital expenditures, forward flow purchase commitments, debt maturities and portfolio purchases during the pandemic. We continue to monitor the need to expand our access to credit to fund the aforementioned business activities.

Our analysis of the current and future impact of COVID-19 on our operations is based on management’s constant monitoring of key data and information, including (1) changes in laws, regulations and governmental actions, (2) trends in the macroeconomic environment, consumer behavior and key operational metrics such as cash collections and (3) conditions in the nonperforming loan market. However, we cannot predict the full extent to which COVID-19 will impact our business, results of operations and financial condition due to the numerous evolving factors associated with the pandemic. See the "Risk Factors" in Item 1A of this Form 10-K.

Frequently Used Terms

We may use the following terminology throughout this Form 10-K:

•"Amortization rate" refers to cash collections applied to principal on finance receivables as a percentage of total cash collections (prior to the adoption of Accounting Standards Update ("ASU") ASU 2016-13, "Financial Instruments-Credit Losses" and ASU 2019-19, "Codification Improvements to Topic 326, Financial Instrument Credit Losses, collectively referred to as "ASC 326").

•"Buybacks" refers to purchase price refunded by the seller due to the return of ineligible accounts.

•"Cash collections" refers to collections on our owned finance receivables portfolios.

•"Cash receipts" refers to cash collections on our owned finance receivables portfolios plus fee income.

•"Change in expected recoveries" refers to the differences of actual recoveries received when compared to expected recoveries and the net present value of changes in estimated remaining collections.

•"Core" accounts or portfolios refer to accounts or portfolios that are nonperforming loans and are not in an insolvent status upon acquisition. These accounts are aggregated separately from insolvency accounts.

•"Estimated remaining collections" or "ERC" refers to the sum of all future projected cash collections on our owned finance receivables portfolios.

•"Insolvency" accounts or portfolios refer to accounts or portfolios of receivables that are in an insolvent status when we purchase them and as such are purchased as a pool of insolvent accounts. These accounts include IVAs, Trust Deeds in the UK, Consumer Proposals in Canada and bankruptcy accounts in the U.S., Canada, Germany and the UK.

•"Negative Allowance" refers to the present value of cash flows expected to be collected on our finance receivables, classified as an asset on the balance sheet.

•"Portfolio acquisitions" refers to all portfolios acquired as a result of a purchase, but also includes portfolios added as a result of a business acquisition.

•"Portfolio purchases" refers to all portfolios purchased in the normal course of business and excludes those added as a result of business acquisitions.

•"Portfolio income" reflects revenue recorded due to the passage of time using the effective interest rate calculated based on the purchase price of portfolios and estimated remaining collections.

•"Principal amortization" refers to cash collections applied to principal on finance receivables prior to the adoption of ASC 326.

•"Purchase price" refers to the cash paid to a seller to acquire nonperforming loans. Prior to the adoption of ASC 326 purchase price also included certain capitalized costs and adjustments for buybacks.

•"Purchase price multiple" refers to the total estimated collections (as defined below) on owned finance receivables portfolios divided by purchase price.

•"Recoveries" refers to cash collections plus buybacks and other adjustments.

•"Total estimated collections" or "TEC" refers to actual cash collections plus estimated remaining collections on our finance receivables portfolios.

Unless otherwise specified, references to 2020, 2019 and 2018 are for the years ended December 31, 2020, December 31, 2019 and December 31, 2018, respectively.

Results of Operations

The results of operations include the financial results of the Company and all of our subsidiaries. As of January 1, 2020 we adopted ASC 326 on a prospective basis. Prior period amounts were accounted for under ASC Topic 310-30 "Loans and Debt Securities Acquired with Deteriorated Credit Quality" ("ASC 310-30"). For further information refer to Note 2 to our Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K. The following table sets forth Consolidated Income Statement amounts as a percentage of total revenues for the periods indicated (dollars in thousands):

Revenues:

Portfolio income $ 984,036 92.4 % $ — — % $ — — %

Changes in expected recoveries 69,297 6.5 — — — —

Operating expenses:

Other income and (expense):

Gain on sale of subsidiaries — — — — 26,575 2.9

Year ended December 31, 2020 compared with year ended December 31, 2019

Cash Collections

Cash collections for the periods indicated were as follows (amounts in millions):

(1) Cash collections adjusted refers to 2019 cash collections translated using 2020 exchange rates.

Cash collections were $2,005.8 million in 2020, an increase of $164.5 million, or 8.9%, compared to $1,841.3 million in 2019. The increase was largely due to our U.S. call center and other collections, including a higher level of collections through our digital platforms, increasing $144.4 million, or 23.3%, primarily due to what we believe to be various economic circumstances that have provided U.S. consumers with additional discretionary funds and a willingness to voluntarily resolve their debts. This was partially offset by a $14.6 million, or 3.8%, decrease in U.S. legal collections due to a shift in collections from the legal channel to the call centers and digital platforms. Additionally, Europe cash collections increased $59.7 million, or 11.5%, reflecting the impact of record 2019 purchases as well as strong 2020 purchases. Furthermore, Americas Insolvency cash collections decreased by $25.6 million, or 14.2%, mainly reflectinginvestment levels not offsetting the runoff of older portfolios.

Revenues

Revenue for the years indicated were as follows (amounts in thousands):

Changes in expected recoveries 69,297 —

Income recognized on finance receivables — 998,361

Total revenues were $1,065.4 million in 2020, an increase of $48.3 million, or 4.7%, compared to $1,017.1 million in 2019. The increase is largely due to record portfolio purchases in 2019 and significant cash collections overperformance primarily in the last three quarters of 2020 recorded as a component of Changes in expected recoveries. This overperformance was partially offset by adjustments to our ERCs to reflect our assumption that the overperformance was primarily due to acceleration in the timing of cash collections rather than an increase to total expected collections. We believe this to be an appropriate assumption as we have continued to generate unprecedented cash collections, primarily in the Americas call centers and digital platforms, with two consecutive record cash collections quarters following the record first quarter of 2020, deviating from typical seasonal patterns. We have assumed that these collections are accelerated due to economic circumstances providing consumers with additional discretionary funds and a willingness to voluntarily repay their debts. If we observe sustained performance over time supporting an increase in our total expected collections, there would be additional revenue in the future. Additionally, we made forecast adjustments deemed appropriate given the current environment.

Net Allowance Charges

In 2019, under ASC 310-30, net allowance charges were recorded for significant decreases in expected cash flows or a change in timing of cash flows which would otherwise require a reduction in the stated yield on a pool of accounts. Effective January 1, 2020, under ASC 326, changes to expected cash flows are recorded in changes in expected recoveries within revenues.

Operating Expenses

Total operating expenses were $715.7 million in 2020, a decrease of $29.7 million, or 4.0%, compared to $745.4 million in 2019.

Compensation and Employee Services

Compensation and employee service expenses were $295.2 million in 2020, a decrease of $15.2 million, or 4.9%, compared to $310.4 million in 2019. The decrease was primarily attributable to a reduction in the U.S. call center workforce due to efficiencies. Total full-time equivalents decreased 13.4% to 3,820 as of December 31, 2020 from 4,412 as of December 31, 2019. The decrease was slightly offset by a $3.7 million, or 34.2%, increase in share-based compensation expense due to improved actual performance compared to targets and a lower forfeiture rate.

Legal Collection Fees

Legal collection fees represent contingent fees incurred for the cash collections generated by our independent third-party attorney network. Legal collection fees were $53.8 million in 2020, a decrease of $1.5 million, or 2.7%, compared to $55.3 million in 2019 primarily due to a slight decrease in external legal cash collections in the U.S.

Legal Collection Costs

Legal collection costs primarily consist of costs paid to courts where a lawsuit is filed for the purpose of attempting to collect on an account. Legal collection costs were $101.6 million in 2020, a decrease of $32.6 million, or 24.3%, compared to $134.2 million in 2019. The decrease was primarily due to a reduced number of accounts placed into the U.S. legal channel as a result of a shift in collections from the legal channel to the call centers and digital platforms.

Agency Fees

Agency fees primarily represent third-party collection fees. Agency fees were $56.4 million in 2020 compared to $55.8 million in 2019.

Outside Fees and Services

Outside fees and services expenses were $84.1 million in 2020, an increase of $20.6 million, or 32.4%, compared to $63.5 million in 2019. The increase was primarily the result of higher consulting fees, corporate legal expenses and higher fees associated with processing an increased number of debit card transactions due to the increase in cash collections.

Communication

Communication expenses primarily represent postage and telephone related expenses incurred as a result of our collection efforts. Communication expenses were $40.8 million in 2020, a decrease of $3.3 million, or 7.5%, compared to $44.1 million in 2019. The decrease mainly reflects lower postage costs due to mailing decisions made during the COVID-19 pandemic and, to a lesser extent, telephone expenses as a result of improvements in data and analytics that drove efficiencies. These decreases were slightly offset by an increase in digital spending.

Interest Expense, Net

Interest expense, net was $141.7 million in 2020 compared to $141.9 million in 2019 as slightly lower overall levels of outstanding borrowings and lower variable interest rates were offset by the addition of senior notes at higher fixed interest rates.

Interest expense, net consisted of the following in 2020 and 2019 (amounts in thousands):

Interest on debt obligations and unused line fees $ 96,979 $ 100,477 $ (3,498)

Amortization of loan fees and other loan costs 10,252 10,589 (337)

Net Foreign Currency Transaction Gains/(Losses)

Net foreign currency transaction gains were $2.0 million in 2020 compared to $12.0 million in 2019. The decrease was primarily related to lower foreign currency gains in Europe and U.S. dollar linked investments held in Brazil. In any given period, we may incur foreign currency transaction losses or gains from transactions in currencies other than the functional currency.

Income Tax Expense

Income tax expense was $41.2 million in 2020, an increase of $21.5 million, or 109.1%, compared to $19.7 million in 2019. The increase was primarily due to higher income before income taxes which increased $91.5 million, or 77.9% and some discrete items. The increase was partially offset by changes in foreign tax rates, return to provision adjustments and the mix of earnings among jurisdictions. In 2020 our effective tax rate was 19.7% compared to 16.8% in 2019.

Year Ended December 31, 2019 compared to year ended December 31, 2018

Refer to "Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations" of our 2019 Form 10-K for a discussion of our fiscal 2019 results compared to fiscal 2018.

Supplemental Performance Data

Finance Receivables Portfolio Performance

We purchase nonperforming loans from a variety of credit originators and segregate them into two main portfolio segments: Core or Insolvency, based on the status of the account upon acquisition. In addition, the accounts are further segregated into geographical regions based upon where the account was purchased. The accounts represented in the Insolvency tables below are those portfolios of accounts that were in an insolvency status at the time of purchase. This contrasts with accounts in our Core portfolios that file for bankruptcy/insolvency protection after we purchase them, which continue to be tracked in their corresponding Core portfolio. Core customers sometimes file for bankruptcy/insolvency protection subsequent to our purchase of the related Core portfolio. When this occurs, we adjust our collection practices to comply with bankruptcy/insolvency rules and procedures; however, for accounting purposes, these accounts remain in the original Core pool. Insolvency accounts may be dismissed voluntarily or involuntarily subsequent to our purchase of the Insolvency portfolio. Dismissal occurs when the terms of the bankruptcy are not met by the petitioner. When this occurs, we are typically free to pursue collection outside of bankruptcy procedures; however, for accounting purposes, these accounts remain in the original Insolvency pool.

Purchase price multiples can vary over time due to a variety of factors, including pricing competition, supply levels, age of the receivables acquired and changes in our operational efficiency. Purchase price multiples can also vary among types of finance receivables. For example, we generally incur lower collection costs on our Insolvency portfolio compared with our Core portfolio. This allows us, in general, to pay more for an Insolvency portfolio and experience lower purchase price multiples, while generating similar net income margins when compared with a Core portfolio.

When competition increases and/or supply decreases, pricing often becomes negatively impacted relative to expected collections, and the effective interest rates tend to trend lower. The opposite tends to occur when competition decreases and/or supply increases.

Within a given portfolio type, to the extent that lower purchase price multiples are the result of more competitive pricing and lower net yields, this will generally lead to lower profitability. As portfolio pricing becomes more favorable on a relative basis, our profitability will tend to increase. Profitability within given Core portfolio types may also be impacted by the age and quality of the receivables, which impact the cost to collect those accounts. Fresher accounts, for example, typically carry lower associated collection expenses, while older accounts and lower balance accounts typically carry higher costs and, as a result, require higher purchase price multiples to achieve the same net profitability as fresher paper.

Revenue recognition under ASC 310-10 and ASC 326 is driven by estimates of the amount and timing of collections. We record new portfolio acquisitions at the purchase price which reflects the amount we expect to collect discounted at an effective interest rate. As portfolios are purchased during the year, the annual pool is aggregated and the blended effective interest rate will change to reflect new purchasing and new cash flow estimates until the end of the year. At that time, the effective interest rate is fixed at the amount we expect to collect discounted at the rate to equate purchase price to the recovery estimate. During the first year of purchase, we typically do not reforecast the portfolios' initial recovery estimate. Subsequent to the initial year, as we gain collection experience and confidence with a pool of accounts, we regularly update ERC. As a result, our estimate of total collections has often increased as pools have aged. These processes have tended to cause the ratio of ERC to purchase price for any given year of purchasing to gradually increase over time. Thus, all factors being equal in terms of pricing, one would typically tend to see a higher collection to purchase price ratio from a pool of accounts that was six years from acquisition than a pool that was just two years from acquisition.

The numbers presented in the following tables represent gross cash collections and do not reflect any costs to collect; therefore, they may not represent relative profitability. Due to all the factors described above, readers should be cautious when making comparisons of purchase price multiples among periods and between types of receivables.

Purchase Price Multiplesas of December 31, 2020Amounts in thousands

Americas Core

Americas Insolvency

Europe Core

Europe Insolvency

(1)Includes the acquisition date finance receivables portfolios that were acquired through our business acquisitions.

(2)For our non-US amounts, purchase price is presented at the exchange rate at the end of the year in which the portfolio was purchased. In addition, any purchase price adjustments that occur throughout the life of the portfolio are presented at the year-end exchange rate for the respective year of purchase.

(3)For our non-US amounts, TEC is presented at the year-end exchange rate for the respective year of purchase.

(4)For our non-U.S. amounts, ERC is presented at the December 31, 2020 exchange rate.

(5)The Original Estimated Purchase Price Multiple represents the purchase price multiple at the end of the year of acquisition.

Americas Core

Americas Insolvency

Europe Core

Europe Insolvency

(1)For our non-U.S., amounts are presented using the average exchange rates during the current reporting period.

(2)Total Portfolio Revenue refers to Portfolio Income and Changes in Expected Recoveries combined.

(3)For our non-U.S. amounts, Net Finance Receivables are presented at the December 31, 2020 exchange rate.

Cash Collections

Americas Core

Americas Insolvency

Europe Core

Europe Insolvency

(1) For our non-U.S. amounts, cash collections are presented using the average exchange rates during the cash collection period.

(2) Includes the finance receivables portfolios that were acquired through our business acquisitions.

(3) For our non-U.S. amounts, Purchase Price is presented at the exchange rate at the end of the year in which the portfolio was purchased. In addition, any purchase price adjustments that occur throughout the life of the pool are presented at the year-end exchange rate for the respective year of purchase.

Estimated Remaining Collections

The following chart shows our ERC of $6,455.4 million at December 31, 2020 by geographical region (amounts in millions).

The following chart shows our ERC by year as of December 31, 2020. The annual forecast amounts reflect our current estimate of how much we expect to collect on our portfolios. These estimates are translated to U.S. dollar at the December 31, 2020 exchange rate (amounts in millions).

Seasonality

Although the year ended December 31, 2020 deviated from usual seasonal patterns due to the impact of COVID-19, typically cash collections in the Americas tend to be higher in the first half of the year due to the high volume of income tax refunds received by individuals in the U.S., and trend lower as the year progresses. Customer payment patterns in all of the countries in which we operate can be affected by seasonal employment trends, income tax refunds, and holiday spending habits.

Cash Collections

The following table displays our quarterly cash collections by geography and portfolio type, for the periods indicated (amounts in thousands).

Cash Collections by Geography and Type

The following table provides additional details on the composition of our Core cash collections for the periods indicated (amounts in thousands).

Cash Collections by Source - Core Portfolios Only

Collections Productivity (U.S. Portfolio)

The following table displays a collections productivity measure for our U.S. Portfolios.

Cash Collections per Collector Hour PaidU.S. Portfolio

Call center and other cash collections (1)

(1)Represents total cash collections less internal legal cash collections, external legal cash collections and Insolvency cash collections from trustee-administered accounts.

Cash Efficiency Ratio

The following table displays our cash efficiency for the periods indicated.

Cash Efficiency Ratio (1)

(1) Calculated by dividing cash receipts less operating expenses by cash receipts.

Portfolio Acquisitions

The following graph shows the purchase price of our portfolios by year since 2010. It also includes the acquisition date finance receivable portfolios that were acquired through our business acquisitions.

The following table displays our quarterly portfolio acquisitions for the periods indicated (amounts in thousands).

Portfolio Acquisitions by Geography and Type

Portfolio Acquisitions by Stratifications (U.S. Only)

The following table categorizes our quarterly U.S. portfolio acquisitions for the periods indicated into major asset type and delinquency category. Since our inception in 1996, we have acquired more than 57 million customer accounts in the U.S. (amounts in thousands).

U.S. Portfolio Acquisitions by Major Asset Type

U.S. Portfolio Acquisitions by Delinquency Category

(1)Fresh accounts are typically past due 120 to 270 days, charged-off by the credit originator and are either being sold prior to any post-charge-off collection activity or placement with a third-party for the first time.

(2)Primary accounts are typically 360 to 450 days past due and charged-off and have been previously placed with one contingent fee servicer.

(3)Secondary and tertiary accounts are typically more than 660 days past due and charged-off and have been placed with two and three contingent fee servicers, respectively.

(4)Other accounts are typically two to three years or more past due and charged-off and have previously been worked by four or more contingent fee servicers.

Non-GAAP Financial Measures

We report financial results in accordance with U.S. generally accepted accounting principles ("GAAP"). However, management uses certain non-GAAP financial measures including adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") to evaluate our operating and financial performance as well as to set performance goals. We present Adjusted EBITDA because we consider it an important supplemental measure of operations and financial performance. Management believes Adjusted EBITDA helps provide enhanced period-to-period comparability of operations and financial performance, as it excludes certain items whose fluctuations from period to period do not necessarily correspond to changes in the operations of our business, and is useful to investors as other companies in the industry report similar financial measures. Adjusted EBITDA should not be considered as an alternative to net income determined in accordance with GAAP. In addition, our calculation of Adjusted EBITDA may not be comparable to the calculation of similarly titled measures presented by other companies.

Adjusted EBITDA is calculated starting with our GAAP financial measure, net income attributable to PRA Group, Inc. and is adjusted for:

•income tax expense (or less income tax benefit);

•foreign exchange loss (or less foreign exchange gain);

•interest expense, net (or less interest income, net);

•other expense (or less other income);

•depreciation and amortization;

•net income attributable to noncontrolling interests;

•loss on sale of subsidiaries (or less gain on sale of subsidiaries);

•recoveries applied to negative allowance less changes in expected recoveries for the year ended December 31, 2020; and

•collections applied to principal on finance receivables for the years ended December 31, 2019 and 2018.

The following table is a reconciliation of net income attributable to PRA Group, Inc., as reported in accordance with GAAP, to Adjusted EBITDA for the years ended December 31, 2020, 2019 and 2018 (amounts in thousands):

Reconciliation of Non-GAAP Financial Measures

Adjustments:

Gain on sale of subsidiaries — — (26,575)

Collections applied to principal on finance receivables — 842,910 733,306

(1) Other expense reflects non-operating expenses.

Additionally, we evaluate our business using certain ratios that use Adjusted EBITDA. Debt to Adjusted EBITDA is calculated by dividing borrowings by Adjusted EBITDA.The following table reflects our Debt to Adjusted EBITDA at December 31 (amounts in thousands):

Debt to Adjusted EBITDA

Debt to Adjusted EBITDA 1.99 x 2.53 x

Liquidity and Capital Resources

We actively manage our liquidity to help provide access to sufficient funding to meet our business needs and financial obligations. As of December 31, 2020, cash and cash equivalents totaled $108.6 million. Of the cash and cash equivalent balance as of December 31, 2020, $97.0 million consisted of cash on hand related to international operations with indefinitely reinvested earnings. See the "Undistributed Earnings of International Subsidiaries" section below for more information.

At December 31, 2020, we had the following borrowings outstanding and availability under our credit facilities (amounts in thousands):

Outstanding Available without Restrictions Available with Restrictions (1)

Less: Debt discounts and issuance costs (31,307) — —

(1) Available borrowings after calculation of borrowing base and debt covenants as of December 31, 2020.

(2) Includes North American revolver and the Colombian revolver.

An additional funding source for our Europe operations is interest-bearing deposits. Per the terms of our European credit facility, we are permitted to obtain interest-bearing deposit funding of up to SEK 1.2 billion (approximately $146.3 million as of December 31, 2020). Interest-bearing deposits as of December 31, 2020 were $132.7 million.

We determined that we were in compliance with the covenants of our financing arrangements as of December 31, 2020.

We have the ability to slow the purchase of finance receivables if necessary, with low impact to current year cash collections. For example, we invested $905.1 million in portfolio acquisitions in 2020. The portfolios acquired in 2020 generated $178.1 million of cash collections, representing only 8.9% of 2020 cash collections.

Contractual obligations over the next year are primarily related to purchase commitments. As of December 31, 2020, we have forward flow commitments in place for the purchase of nonperforming loans with a maximum purchase price of $501.9 million, of which $449.5 million is due within the next 12 months. The $501.9 million includes $324.1 million for the Americas and $177.8 million for Europe. We may also enter into new or renewed forward flow commitments and close on spot transactions in addition to the aforementioned forward flow agreements.

Additionally, of our $2.7 billion borrowings at December 31, 2020, estimated interest, unused fees and principal payments for the next 12 months are approximately $119.6 million, of which, $11.1 million relates to principal. Our principal payment obligations related to debt maturities occur within three to five years as our European credit facility expires in February 2023, our Convertible Notes mature in June 2023, our North American credit facility expires in May 2024 and our Senior Notes mature in September 2025.

We continue to monitor the recent outbreak of COVID-19 on our operations and how that may impact our cash flows and our ability to settle debt. As a result of COVID-19, global financial markets have experienced overall volatility and disruptions to capital and credit markets. We believe that funds generated from operations and from cash collections on finance receivables, together with existing cash, available borrowings under our revolving credit facilities, including recent modifications to the terms of those facilities, and access to the capital markets will be sufficient to finance our operations, planned capital expenditures, forward flow purchase commitments, debt maturities and additional portfolio purchases during the next 12 months. We may, however, seek to access the debt or equity capital markets as we deem appropriate, market permitting. Business acquisitions or higher than expected levels of portfolio purchasing could require additional financing from other sources.

For more information, see Note 7 to our Consolidated Financial Statements included in Item 8 of this Form 10-K.

Cash Flows Analysis

The following table summarizes our cash flow activity for the years ended December 31, 2020 and 2019 (amounts in thousands):

Total cash provided by (used in):

Operating Activities

Cash provided by operating activities mainly reflects cash collections recognized as revenue partially offset by cash paid for operating expenses, interest and income taxes. Key drivers of operating activities were adjusted for (i) non-cash items included in net income such as provisions for unrealized gains and losses, changes in expected recoveries, depreciation and amortization, deferred taxes, fair value changes in equity securities and stock-based compensation as well as (ii) changes in the balances of operating assets and liabilities, which can vary significantly in the normal course of business due to the amount and timing of payments.

Net cash provided by operating activities increased $8.3 million, or 6.2%, during the year ended December 31, 2020 mainly driven by higher cash collections, lower operating expenses and the impact of unrealized foreign currency transactions.

Investing Activities

Cash provided by investing activities mainly reflects recoveries applied to our negative allowance. Cash used in investing activities mainly reflects acquisitions of nonperforming loans.

Net cash provided by investing activities increased $556.2 million during the year ended December 31, 2020, primarily from a $327.8 million decrease in purchases of nonperforming loans, a $194.8 million increase in recoveries applied to negative allowance in the current year versus collections applied to principal on finance receivables in the prior year and $57.6 million of cash used related to a business acquisition during the first quarter of 2019. These changes were partially offset by $31.2 million of cash received during the first quarter of 2019 related to the sale of a subsidiary in the fourth quarter of 2018.

Financing Activities

Cash provided by financing activities is normally provided by draws on our lines of credit and proceeds from debt offerings. Cash used in financing activities is primarily driven by principal payments on our lines of credit, long-term debt and other debt.

Cash used in financing activities increased $591.6 million during the year ended December 31, 2020, primarily from a $828.9 million increase in payments on our lines of credit, a $287.4 million payment related to the settlement of our 2020 Notes, a $47.0 million increase in distributions paid to noncontrolling interests, net of contributions received and a $17.8 million decrease in cash provided by interest-bearing deposits. These changes were partially offset by a $303.2 million decrease in payments on long-term debt and $300.0 million of proceeds related to our senior notes.

Undistributed Earnings of International Subsidiaries

We intend to use predominantly all of our accumulated and future undistributed earnings of international subsidiaries to expand operations outside the U.S.; therefore, such undistributed earnings of international subsidiaries are considered to be indefinitely reinvested outside the U.S. Accordingly, no provision for income tax or withholding tax has been provided thereon. If management's intentions change and eligible undistributed earnings of international subsidiaries are repatriated, we could be subject to additional income taxes and withholding taxes. This could result in a higher effective tax rate in the period in which such a decision is made to repatriate accumulated or future undistributed international earnings. The amount of cash on hand related to international operations with indefinitely reinvested earnings was $97.0 million and $109.7 million as of December 31, 2020 and 2019, respectively. Refer to the Note 14 to our Consolidated Financial Statements included in Item 8 of this Form 10-K for further information related to our income taxes and undistributed international earnings.

Off Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as of December 31, 2020 as defined by Item 303(a)(4) of Regulation S-K promulgated under the Exchange Act.

Contractual Obligations

Our contractual obligations as of December 31, 2020 were as follows (amounts in thousands):

Payments due by period

(1)Includes estimated interest and unused line fees due on our revolving credit facilities and assumes that the outstanding balances on the revolving credit facilities remain constant from the December 31, 2020 balances to maturity. See Note 7 to our Consolidated Financial Statements included in Item 8 of this Form 10-K.

(2)Includes scheduled interest and principal payments on our term loan, senior notes and convertible senior notes. See Note 7 to our Consolidated Financial Statements included in Item 8 of this Form 10-K.

(3)Reflects the maximum remaining amount to be purchased under forward flow and other contracts for the purchase of nonperforming loans.

(4)See Note 10 to our Consolidated Financial Statements included in Item 8 of this Form 10-K for further information.

(5)Amounts exclude unrecognized tax benefits, as the timing and amount of future cash payments are not determinable at this time. See Note 14 to our Consolidated Financial Statements included in Item 8 of this Form 10-K.

Critical Accounting Policies and Estimates

Our Consolidated Financial Statements have been prepared in accordance with GAAP. Our significant accounting policies are discussed in Note 1 to our Consolidated Financial Statements included in Item 8 of this Form 10-K. Our significant accounting policies are fundamental to understanding our results of operations and financial condition because they require that we use estimates, assumptions and judgments that affect the reported amounts of revenues, expenses, assets and liabilities.

Three of these policies are considered to be critical because they are important to the portrayal of our financial condition and results, and because they require management to make judgments and estimates that are difficult, subjective and complex regarding matters that are inherently uncertain.

We base our estimates on historical experience, current trends and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. If these estimates differ significantly from actual results, the impact on our Consolidated Financial Statements may be material.

Management has reviewed these critical accounting policies with the Audit Committee of our Board of Directors.

Revenue Recognition - Finance Receivables

We account for the majority of our investment in finance receivables under the guidance of ASC Topic 310 "Receivables" ("ASC 310") and ASC Topic 326-20 "Financial Instruments - Credit Losses - Measured at Amortized Cost" ("ASC 326-20"). Revenue recognition for finance receivables involves the use of estimates and the exercise of judgment on the part of management. These estimates include projections of the quantity and timing of future cash flows and economic lives of our pools of finance receivables. Significant changes in such estimates could result in increased or decreased revenue as we immediately recognize the discounted value of such changes using the constant effective interest rate of the pool.

We account for our finance receivables as follows:

We create each annual accounting pool using our projections of estimated cash flows and expected economic life. We then compute a constant effective interest rate based on the net carrying amount of the pool and reasonable projections of estimated cash flows and expectation of its economic life. As actual cash flow results are received we record the time value of

the expected cash as Portfolio income and over and under performance and changes in expected future cash flows from expected cash as Changes in expected recoveries. We review each pool watching for trends, actual performance versus projections and curve shape (a graphical depiction of the timing of cash flows). We then re-forecast future cash flows by applying discounted cash flow methodologies to our ERC and recognize income over the estimated life of the pool at the constant effective interest rate of the pool.

Significant judgment is used in evaluating expected recoveries using the discounted cash flow approach and the estimated life of the pool.

Valuation of Goodwill

In accordance with FASB ASC Topic 350, "Intangibles-Goodwill and Other" ("ASC 350"), we evaluate Goodwill for impairment annually and more frequently if indicators of potential impairment exist. Goodwill is reviewed for potential impairment at the reporting unit level.

Goodwill is evaluated for impairment either under the qualitative assessment option or using a quantitative forecast approach depending on facts and circumstances of a reporting unit, including the excess of fair value over carrying amount in the last valuation, changes in the business environment and changes of the reporting unit or its composition. If upon evaluation of the qualitative factors, we determine it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, there is no impairment loss to record and a quantitative assessment is not required. If the carrying amount exceeds the reporting unit’s fair value, then we are required to determine the reporting unit’s fair value and record as an impairment loss the amount the carrying value exceeds fair value, not to exceed the total amount of goodwill allocated to the respective reporting unit.

We determine the fair value of a reporting unit by applying the approaches prescribed under ASC Topic 820 "Fair Value Measurements and Disclosures": the income approach and the market approach. Depending on the availability of public data and suitable comparables, we may or may not use the market approach or we may emphasize the results from the approach differently. Under the income approach, we estimate the fair value of a reporting unit based on the present value of estimated future cash flows and a residual terminal value. Cash flow projections are based on management's estimates of revenue growth rates, operating margins, necessary working capital and capital expenditure requirements, taking into consideration industry and market conditions. The discount rate used is based on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the reporting unit's ability to execute on the projected cash flows. Under the market approach, we estimate fair value based on prices and other relevant market transactions involving comparable publicly-traded companies with operating and investment characteristics similar to the reporting unit.

Income Taxes

We are subject to income taxes throughout the U.S. and in numerous international jurisdictions. These tax laws are complex and are subject to different interpretations by the taxpayer and the relevant government taxing authorities. When determining our domestic and international income tax expense, we make judgments about the application of these inherently complex laws.

We follow the guidance of ASC Topic 740 "Income Taxes" ("ASC 740") as it relates to the provision for income taxes and uncertainty in income taxes. Accordingly, we record a tax provision for the anticipated tax consequences of the reported results of operations. The provision for income taxes is estimated using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, and for operating losses and tax credit carry-forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled.

We exercise significant judgment in estimating the potential exposure to unresolved tax matters and apply a more-likely-than-not criteria approach for recording tax benefits related to uncertain tax positions in the application of the complex tax laws. While actual results could vary, we believe we have adequate tax accruals with respect to the ultimate outcome of such unresolved tax matters. We record interest and penalties related to unresolved tax matters as a component of income tax expense when the more-likely-than-not standards are met.

Beginning with the 2017 tax year, we used a revised tax accounting method to recognize net finance receivables income. Under this method, a portion of the annual collections are amortized and the remaining portion is taxable income. The deferred tax liability related to the difference in timing between the new method and the cost recovery method was incorporated evenly into our tax filings over four years, ending in tax year 2020.

In the event that all or part of the deferred tax assets are determined not to be realizable in the future, we would establish a valuation allowance and charge to earnings the impact in the period such a determination is made. If we subsequently realize deferred tax assets that were previously determined to be unrealizable, the respective valuation allowance would be reversed, resulting in a positive adjustment to earnings. The establishment or release of a valuation allowance does not have an impact on cash, nor does such an allowance preclude the use of loss carryforwards or other deferred tax assets in future periods. The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our results of operations and financial position.

Recent Accounting Pronouncements

For a summary of recent accounting pronouncements and the anticipated effects on our Consolidated Financial Statements see Note 1 to our Consolidated Financial Statements included in Item 8 of this Form 10-K.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Our activities are subject to various financial risks including market risk, currency and interest rate risk, credit risk, liquidity risk and cash flow risk. Our financial risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on our financial performance. We may periodically enter into derivative financial instruments, typically interest rate and currency derivatives, to reduce our exposure to fluctuations in interest rates on variable-rate debt, fluctuations in currency rates and their impact on earnings and cash flows. We do not utilize derivative financial instruments with a level of complexity or with a risk greater than the exposure to be managed nor do we enter into or hold derivatives for trading or speculative purposes. Derivative instruments involve, to varying degrees, elements of non-performance, or credit risk. We do not believe that we currently face a significant risk of loss in the event of non-performance by the counterparties associated with these instruments as these transactions were executed with a diversified group of major financial institutions with an investment-grade credit rating. Our intention is to spread our counterparty credit risk across a number of counterparties so that exposure to a single counterparty is minimized.

Interest Rate Risk

We are subject to interest rate risk from outstanding borrowings on our variable rate credit facilities. As such, our consolidated financial results are subject to fluctuations due to changes in the market rate of interest. We assess this interest rate risk by estimating the increase or decrease in interest expense that would occur due to a change in short-term interest rates. The borrowings on our variable rate credit facilities were approximately $2.0 billion as of December 31, 2020. Based on our current debt structure, assuming a 50 basis point decrease in interest rates, for example, interest expense over the following 12 months would decrease by an estimated $2.7 million. Assuming a 50 basis point increase in interest rates, interest expense over the following 12 months would increase by an estimated $4.3 million.

To reduce the exposure to changes in the market rate of interest and to be in compliance with the terms of our European credit facility, we have entered into interest rate derivative contracts for a portion of our borrowings under our floating rate financing arrangements. We apply hedge accounting to certain of our interest rate derivative contracts. By applying hedge accounting, changes in market value are reflected as adjustments in other comprehensive income. All derivatives to which we have applied hedge accounting were evaluated and remain highly effective at December 31, 2020. Terms of the interest rate derivative contracts require us to receive a variable interest rate and pay a fixed interest rate. The sensitivity calculations above consider the impact of our interest rate derivative contracts.

Currency Exchange Risk

We operate internationally and enter into transactions denominated in various foreign currencies. In 2020, we generated $388.2 million of revenues from operations outside the U.S. and used 11 functional currencies, excluding the U.S. dollar. Weakness in one particular currency might be offset by strength in other currencies over time.

As a result of our international operations, fluctuations in foreign currencies could cause us to incur foreign currency exchange gains and losses, and could adversely affect our comprehensive income and stockholders' equity. Additionally, our reported financial results could change from period to period due solely to fluctuations between currencies.

Foreign currency gains and losses are primarily the result of the re-measurement of transactions in certain other currencies into an entity's functional currency. Foreign currency gains and losses are included as a component of other income and (expense) in our Consolidated Income Statements. From time to time we may elect to enter into foreign exchange derivative contracts to reduce these variations in our Consolidated Income Statements.

When an entity's functional currency is different than the reporting currency of its parent, foreign currency translation adjustments may occur. Foreign currency translation adjustments are included as a component of other comprehensive (loss)/income in our Consolidated Statements of Comprehensive Income and as a component of equity in our Consolidated Balance Sheets.

We have taken measures to mitigate the impact of foreign currency fluctuations. We have organized our European operations so that portfolio ownership and collections generally occur within the same entity. Our European credit facility is a multi-currency facility, allowing us to better match funding and portfolio acquisitions by currency. We actively monitor the value of our finance receivables by currency. In the event adjustments are required to our liability composition by currency we may, from time to time, execute re-balancing foreign exchange contracts to more closely align funding and portfolio acquisitions by currency.

Item 8. Financial Statements and Supplementary Data.

Index to Financial Statements

Report of Independent Registered Public Accounting Firm 42

Consolidated Balance Sheets 44

Consolidated Income Statements 45

Consolidated Statements of Comprehensive Income 46

Consolidated Statements of Changes in Equity 47

Consolidated Statements of Cash Flows 48

Notes to Consolidated Financial Statements 49

1 – General and Summary of Significant Accounting Policies 49

2 – Change in Accounting Principle 57

3 – Finance Receivables, net 58

4 – Investments 61

7 – Borrowings 64

8 – Property and Equipment, net 68

9 – Fair Value 68

11 – Accumulated Other Comprehensive Income 72

12 – Share-Based Compensation 72

13 – Earnings Per Share 74

15 – Commitments and Contingencies 77

16 – Retirement Plans 78

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

PRA Group, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of PRA Group, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated income statements, statements of comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 26, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Notes 1 and 2 to the consolidated financial statements, the Company has changed its method of accounting for expected credit losses for financial instruments as of January 1, 2020, due to the adoption of Accounting Standard Codification (ASC) Topic 326, Financial Instruments Credit Losses.

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019, due to the adoption of the ASC Topic 842, Leases.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Assessment of the estimate of expected recoveries on purchased credit deteriorated assets

As discussed in Notes 1 and 3 to the consolidated financial statements, the Company’s estimate of expected recoveries on purchased credit deteriorated assets as of December 31, 2020 was $3.5 billion, presented as finance receivables, net in the consolidated balance sheets, and the resulting changes in expected recoveries for the year ended December 31, 2020 were $69.3 million. The Company accounts for the estimate of expected recoveries and resulting changes in

expected recoveries under the guidance of ASC Topic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost. The Company develops its estimate of expected recoveries by applying a discounted cash flow methodology to its estimated remaining collections (“ERC”). Subsequent changes (favorable and unfavorable) in expected cash flows are recognized within changes in expected recoveries by adjusting the present value of increases or decreases in ERC at a constant effective interest rate. Factors that may contribute to the changes in expected cash flows include both external and internal factors such as trends in collections performance and operational activities. When the Company has an expectation of collecting cash flows at the portfolio level, a negative allowance is established for expected recoveries at an amount not to exceed the amount paid for the financial portfolios. The negative allowance is recorded as an asset and presented as finance receivables, net on the Company's consolidated balance sheets. The Company pools accounts with similar risk characteristics that are acquired in the same year.

We identified the assessment of the estimate of expected recoveries on purchased credit deteriorated assets as a critical audit matter. A high degree of audit effort, including specialized skills and knowledge, and complex auditor judgment was involved in the assessment of the expected recoveries due to significant measurement uncertainty. Specifically, the assessment encompassed the evaluation of the methodology used to estimate recoveries, including the inputs and significant assumptions related to estimating the expected recoveries. Such inputs and significant assumptions include historical trends and actual performance versus projections and certain qualitative factors. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company's process to develop (1) the methodology and estimate of expected recoveries, including controls over the inputs and significant assumptions, and (2) the performance monitoring of the expected recoveries and incorporation of qualitative factors into the estimate of expected recoveries. We evaluated the Company’s process to develop the estimates by testing certain sources of data, factors, and assumptions that the Company used, and considered the relevance and reliability of such data, factors and assumptions. In addition, we involved credit risk professionals with specialized industry knowledge and experience who assisted in evaluating the methodology for compliance with U.S. generally accepted accounting principles and assessing the Company's estimates of expected recoveries, including the inputs and significant assumptions, for a selection of pools of finance receivables by comparing to historical trends. We also assessed the sufficiency of the audit evidence obtained related to the Company’s expected recoveries by evaluating the cumulative results of the audit procedures and potential bias in the accounting estimate.

/s/ KPMG

We have served as the Company’s auditor since 2007.

Norfolk, Virginia

February 26, 2021

PRA Group, Inc.

Consolidated Balance Sheets

December 31, 2020 and 2019

(Amounts in thousands, except per share amounts)

Assets

Liabilities and Equity

Liabilities:

Equity:

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

PRA Group, Inc.

Consolidated Income Statements

For the years ended December 31, 2020, 2019 and 2018

(Amounts in thousands, except per share amounts)

Revenues:

Portfolio income $ 984,036 $ — $ —

Changes in expected recoveries 69,297 — —

Operating expenses:

Other income and (expense):

Gain on sale of subsidiaries — — 26,575

Net income per share attributable to PRA Group, Inc.:

Weighted average number of shares outstanding:

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

PRA Group, Inc.

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2020, 2019 and 2018

(Amounts in thousands)

Other comprehensive (loss)/income, net of tax:

Debt securities available-for-sale 171 39 (83)

Comprehensive income attributable to PRA Group, Inc. $ 164,567 $ 67,249 $ 2,061

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

PRA Group, Inc.

Consolidated Statements of Changes in Equity

For the years ended December 31, 2020, 2019 and 2018

(Amounts in thousands)

Shares Amount

Components of comprehensive income, net of tax:

Currency translation adjustment — — — — (63,463) (42) (63,505)

Cash flow hedges — — — — 44 — 44

Debt securities available-for-sale — — — — (83) — (83)

Distributions to noncontrolling interest — — — — — (33,271) (33,271)

Vesting of restricted stock 115 1 (1) — — — —

Share-based compensation expense — — 8,521 — — — 8,521

Employee stock relinquished for payment of taxes — — (2,087) — — — (2,087)

Purchase of noncontrolling interest — — — — — 1,829 1,829

Components of comprehensive income, net of tax:

Currency translation adjustment — — — — (5,816) (543) (6,359)

Debt securities available-for-sale — — — — 39 — 39

Distributions to noncontrolling interest — — — — — (6,877) (6,877)

Contributions from noncontrolling interest — — — — — 24,675 24,675

Vesting of restricted stock 112 1 (1) — — — —

Shared-based compensation expense — — 10,717 — — — 10,717

Employee stock relinquished for payment of taxes — — (1,609) — — — (1,609)

Components of comprehensive income, net of tax:

Debt securities available-for-sale — — — — 171 — 171

Distributions to noncontrolling interest — — — — — (30,276) (30,276)

Contributions from noncontrolling interest — — — — — 1,118 1,118

Vesting of restricted stock 169 2 (2) — — — —

Share-based compensation expense — — 14,387 — — — 14,387

Employee stock relinquished for payment of taxes — — (3,299) — — — (3,299)

(1) Reflects cumulative effect adjustment recorded to beginning retained earnings for the unrealized loss on investments in private equity funds.

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

PRA Group, Inc.

Consolidated Statements of Cash Flows

For the years ended December 31, 2020, 2019 and 2018

(Amounts in thousands)

Cash flows from operating activities:

Gain on sale of subsidiaries — — (26,575)

Changes in expected recoveries (69,297) — —

Fair value in earnings for equity securities 977 (5,826) (3,502)

Other operating activities (893) (234) —

Changes in operating assets and liabilities:

Right of use assets/lease liabilities (11) 731 —

Cash flows from investing activities:

Recoveries applied to negative allowance 1,037,659 — —

Collections applied to principal on finance receivables — 842,910 733,306

Business acquisition, net of cash acquired — (57,610) —

Proceeds from sale of subsidiaries, net — 31,177 4,905

Cash received upon consolidation of Polish investment fund — — 17,531

Cash flows from financing activities:

Payments on convertible senior notes (287,442) — —

Proceeds from senior notes 300,000 — —

Proceeds from long-term debt 55,000 — —

Payments of origination costs and fees (17,218) — (2,260)

Tax withholdings related to share-based payments (3,301) (1,609) (2,087)

Cash paid for purchase of portion of noncontrolling interest — (1,255) (1,664)

Distributions paid to noncontrolling interest (30,276) (6,877) (14,486)

Contributions from noncontrolling interest 1,118 24,675 —

Net increase/(decrease) in interest-bearing deposits 9,591 27,427 (8,693)

Other financing activities (3,185) (2,091) —

Supplemental disclosure of cash flow information:

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

PRA Group, Inc.

Notes to Consolidated Financial Statements

1. General and Summary of Significant Accounting Policies:

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 of consumer bankruptcy accounts in the United States ("U.S.").

On March 11, 2020, due to the global outbreak of the novel coronavirus ("COVID-19"), the World Health Organization declared a global pandemic. Since the initial outbreak was reported, COVID-19 has continued to adversely impact all countries in which the Company operates. As a result, the Company has taken steps to modify its operations to mitigate adverse effects where possible while conforming with various COVID-19 protocols within the countries in which it operates. These actions have allowed the Company to operate its business while minimizing disruption and complying with country-specific, federal, state and local laws, regulations and governmental actions related to the pandemic.

Basis of presentation: The Consolidated Financial Statements of the Company are prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). The preparation of the Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts and disclosures. Realized results could differ from those estimates and assumptions.

Beginning January 1, 2020, the Company implemented Accounting Standards Update ("ASU") ASU 2016-13, "Financial Instruments - Credit Losses" ("Topic 326") ("ASU 2016-13") and ASU 2019-11, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses" ("ASU 2019-11"), collectively referred to as "ASC 326", on a prospective basis. Prior to January 1, 2020, the vast majority of the Company's investment in finance receivables were accounted for under ASC 310-30 "Loans and Debt Securities Acquired with Deteriorated Credit Quality" ("ASC 310-30"). Refer to Note 2.

Reclassification of prior year presentation: Certain prior year amounts have been reclassified for consistency with the current year presentation. Specifically, restricted cash is now presented as a separate line item on the Consolidated Balance Sheets and was previously included within Other assets. Furthermore, intangible assets, net is now included within Other assets on the Consolidated Balance Sheets.

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 whether changes in the facts and circumstances regarding the Company’s involvement with an entity cause the Company’s consolidation conclusion to change.

Foreign currency: Assets and liabilities have been translated to the reporting currency using the exchange rates in effect on the Consolidated Balance Sheets dates. Equity accounts are translated at historical rates, except for the change in retained earnings during the year which is the result of the income statement translation process. Revenue and expense accounts are translated using the weighted average exchange rate during the period. The cumulative translation adjustments associated with the net assets of international subsidiaries are recorded in Accumulated other comprehensive loss in the accompanying Consolidated Statements of Changes in Equity.

Segments: Under the guidance of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") ASC Topic 280 "Segment Reporting" ("ASC 280"), the Company has determined that it has several operating segments that meet the aggregation criteria of 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,

PRA Group, Inc.

Notes to Consolidated Financial Statements

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.

Revenues and long-lived assets by geographical location: Revenue for the years ended December 31, 2020, 2019 and 2018, and long-lived assets held at December 31, 2020 and 2019, both for the U.S., the Company's country of domicile, and outside of the U.S. were (amounts in thousands):

Years Ended December 31, As of December 31,

Revenues (2) Long-Lived Assets

(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 4.

Cash and cash equivalents: The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Restricted cash:Cash that is subject to legal restrictions or is unavailable for general operating purposes is classified as restricted cash on the Company's Consolidated Balance Sheets.

Concentrations of credit risk: Financial instruments, which potentially expose the Company to concentrations of credit risk, consist primarily of cash and cash equivalents, investments, derivative instruments and finance receivables.

Accumulated other comprehensive loss: The Company records unrealized gains and losses on certain available-for-sale investments and foreign currency translation adjustments in other comprehensive income ("OCI"). Unrealized gains and losses on available for sale investments are reclassified to earnings as the gains or losses are realized upon sale of the securities. Translation gains or losses on foreign currency translation adjustments are reclassified to earnings upon the substantial sale or liquidation of investments in international operations. For the Company’s financial derivative instruments that are designated as hedging instruments, the change in fair value of the derivative is recorded in OCI.

Investments:

Debt Securities: The Company accounts for its investments in debt securities under the guidance of ASC Topic 320, "Investments-Debt Securities" ("ASC 320"). The Company determines the appropriate classification of its investments in debt securities at the time of purchase and reevaluates such determinations at each balance sheet date. Debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are carried at amortized cost. Debt securities for which the Company does not have the intent or ability to hold to maturity are classified as available-for-sale. Available-for-sale securities are carried at fair market value. Fair value is determined using quoted market prices. Unrealized gains and losses are included in comprehensive income and reported in stockholders' equity. If the fair value of the investment falls below its carrying amount and the decline is deemed to be other than temporary, the investment is written down, with a corresponding charge to earnings.

Equity Securities: The Company accounts for its investments in equity securities in accordance with ASC Topic 321, "Investments-Equity Securities" ("ASC 321"), which requires that investments in equity securities be measured at fair value with changes in unrealized gains and losses reported in earnings.

Equity Method Investments:Equity investments that are not consolidated, but over which the Company exercises significant influence, are accounted for in accordance with ASC Topic 323, "Investments—Equity Method and Joint Ventures" ("ASC 323"). Whether or not the Company exercises significant influence with respect to an investee company depends on an evaluation of several factors including, among others, representation on the investee company’s board of directors and ownership level, which is generally a 20% to 50% interest in the voting securities of the investee company. Under

PRA Group, Inc.

Notes to Consolidated Financial Statements

the equity method of accounting, an investee company’s accounts are not reflected within the Company’s Consolidated Balance Sheets and Income Statements; however, the Company’s share of the earnings or losses of the investee company is reflected in the caption ‘‘Other revenue’’ in the Consolidated Income Statements. The Company’s carrying value in an equity method investee company is reflected in the caption ‘‘Investments’’ in the Company’s Consolidated Balance Sheets.

When the Company’s carrying value in an equity method investee company is reduced to zero, no further losses are recorded in the Company’s Consolidated Financial Statements unless the Company guaranteed obligations of the investee company or has committed additional funding. When the investee company subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of losses not previously recognized.

PRAA US Equity

PRAA · 10-K · period ended 2020-12-31

Item 1A. Risk Factors.

Item 1B. Unresolved Staff Comments.

Item 2. Properties.

Item 3. Legal Proceedings.

Item 4. Mine Safety Disclosures.

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Item 6. Selected Financial Data.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Item 8. Financial Statements and Supplementary Data.

PRAA US Equity☆

PRAA · 10-K · period ended 2020-12-31

Item 1A. Risk Factors.

Item 1B. Unresolved Staff Comments.

Item 2. Properties.

Item 3. Legal Proceedings.

Item 4. Mine Safety Disclosures.

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Item 6. Selected Financial Data.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Item 8. Financial Statements and Supplementary Data.

PRAA US Equity