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Portfolio Recovery Associates, Inc Acquisition Adds Secured Bankruptcy Capabilities,

On Friday, December 21, after the markets closed, Portfolio Recovery Associates announced the acquisition of $115.3 million of secured and unsecured bankruptcy accounts from National Capital Management LLC (NCM). The deal includes assets associated with underwriting and collection of secured bankruptcy accounts. It also includes the hiring of NCM employees. Portfolio Recovery Associates is a leader in unsecured bankruptcy claims collection, and this acquisition opens a potentially large new market for the company. We believe this acquisition should be nicely accretive to earnings, although the entrance into a new market adds some complexity and will likely not have the same scale benefits.

The $115.3 million acquired portfolio increases our estimated year‐end portfolio by 12%. This deal follows on the announcement from a day earlier that Portfolio Recovery Associates increased its credit facility to $600 million, with an accordion feature that could take it to $850 million, an increase from a little over $400 million. The interest rate is Libor plus 250 basis points, down from Libor plus 275 basis points in the old facility. Portfolio Recovery Associates had about $250 million outstanding on its credit line at September 30. We believed the increased facility could be to take advantage of consolidation opportunities in the industry, and we were not disappointed a day later.

We are maintaining our estimates for now but expect upward pressure with this deal. We expect to get a lot more color on this deal and growth strategies in the secured bankruptcy business when Portfolio Recovery Associates reports fourth‐quarter earnings. We are incrementally encouraged on the Portfolio Recovery Associates story with the combined increase in the credit line and new growth market. Shares have appreciated 54% in 2012 (versus 15% for the S&P 500), but are still valued at attractive levels of only 6.5 times projected 2013 EBITDA and 5.5 times estimated 2014 EBITDA. We reiterate our Outperform rating

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