Encore Capital Group Inc (ECPG) 2015 Q3 法說會逐字稿

And good day, ladies and gentlemen, and welcome to the Encore Capital Group's third-quarter 2015 quarterly earnings call. (Operator Instructions.) As a reminder, this conference may be recorded.

I would now like to turn the conference over to our host of today's call, Mr. Bruce Thomas, Vice President of Investor Relations. You may begin.

Thank you, operator. Good afternoon, and welcome to Encore Capital Group's third-quarter 2015 earnings call. With me on the call today are Ken Vecchione, our President and Chief Executive Officer; Jonathan Clark, Executive Vice President and Chief Financial Officer; and Ashish Masih, Executive Vice President, US Debt Purchasing and Operations. Ken and Jon will make prepared remarks today, and then we'll be happy to take your questions.

Before we begin, we have a few housekeeping items. Unless otherwise noted, all comparisons made on this conference call will be between the third quarter of 2015 and the third quarter of 2014.

Today's discussion will include forward-looking statements subject to risks and uncertainties. Actual results could differ materially from these forward-looking statements. Please refer to our SEC filings for a detailed discussion of potential risks and uncertainties.

During this call, we will use rounding and abbreviations for the sake of brevity. We will also be discussing non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are included in our earnings release, which was filed on Form 8-K earlier today.

As a reminder, this conference call will also be made available for replay on the Investors section of our website, where we will also post our prepared remarks following the conclusion of this call.

With that, let me turn the call over to Ken Vecchione, our President and Chief Executive Officer.

Thanks, Bruce, and good afternoon, everyone. I appreciate everyone joining us this afternoon.

After the market closed, we posted our third-quarter 2015 financial results, and we are pleased with our performance. We once again established new records for adjusted income, non-GAAP economic EPS, and adjusted EBITDA on a trailing 12-month basis.

Our progress in the third quarter was driven primarily by three of our strategic initiatives within the Company. First, our international platform is delivering strong growth in collections, revenues, and earnings. Second, we continued to expand our global footprint by entering new markets and by strengthening and widening our presence in geographies where we are already established. And third, we are successfully sustaining our core US business through sizable capital deployments and commitments for 2016 forward flows.

Turning to our results, in the third quarter Encore recorded a GAAP loss of $0.43 per share, driven primarily by a one-time after-tax charge of $43 million related to our settlement with the CFPB. The corresponding net loss was $11 million. Non-GAAP economic EPS reached a record $1.34 per share compared to $1.17 per share, an increase of 15% from the third quarter of 2014. This is the ninth consecutive quarter that we've delivered double-digit economic EPS growth on a percentage basis.

Adjusted income grew 12% over the last year to a record $34 million. Cash collections increased 4% to $422 million. Adjusted EBITDA, one of our most important measures of underlying performance, grew to $268 million, an increase of 7%. On a trailing 12-month basis, adjusted EBITDA grew 9% to $1.053 billion compared to $963 million a year ago.

Our overall cost to collect this quarter was 39.2%, up slightly from 38.9% a year ago, reflecting a higher concentration of legal collections compared to a year ago. Our estimated remaining collections, or ERC, at September 30 was approximately $5.7 billion, an increase of 10%, or $526 million, compared to the end of the third quarter of 2014.

Deployments totaled $215 million in the quarter. In the US, the majority of our deployments represented charged-off credit card paper, mostly comprised of fresh accounts. This purchasing level reflects our substantial domestic market share and reinforces the fact that the US core market still provides us with solid opportunities to deploy capital. Our Propel subsidiary also purchased $28 million in tax liens during the third quarter. Our operations in Cabot and Grove deployed $42 million in Europe during the quarter. In Latin America, we deployed $13 million.

Approaching year end, we expect to deploy capital in 2015 at a level that is consistent with previous years' deployments to the US, and we remain on track to deploy capital globally within the $1.2 billion to $1.4 billion target range for the full year.

As we take a view towards 2016, committed contractual flows have positioned us well for the upcoming year. Issuers have become more comfortable lengthening their forward-flow contracts with us as the ambiguity surrounding the regulatory environment has been resolved. We are now more convinced than ever that as the increased emphasis on compliance is felt by the others in the industry, the moat around our business, built upon best compliance and risk management practices, will only get wider and deeper, enhancing the barriers to entry and competition within the US market.

A primary driver of our collections performance in Q3 was the continued growth of our international business. Over the past two years, our acquisitions around the world have expanded our footprint and provided Encore with greater optionality when we make capital allocation decisions. Establishing leadership positions in the markets outside of the United States has been a primary goal of Encore's overall growth strategy.

In the third quarter, collections from our international business grew 23% compared to last year and now comprise 33% of our total collections, reflecting our continued growth outside of the United States. Most notably, collections in Europe grew 26% in the third quarter compared to last year.

Our collections performance in the third quarter led to strong cash flows. We generated $268 million of adjusted EBITDA, an increase of 7% over the third quarter of 2014. Adjusted EBITDA is one of the most important ways that we measure our Company's operating performance. It helps us determine amounts available for future purchases, capital expenditures, debt service, and taxes. It gives the investors a clear picture of the strong cash flow generated by our business. On a trailing 12-month basis, adjusted EBITDA grew 9% to over $1 billion.

Cabot continues to improve its position in the growing UK market and delivered solid performance in the third quarter. Cabot's revenues grew 22% year over year, while Cabot generated $123 million of collections in the third quarter, reflecting more than 20% growth in collections compared to the same period a year ago. Through the end of the third quarter, Cabot has deployed approximately $335 million in 2015, including the portfolio purchased as part of the DLC acquisition. Cabot's economic EPS contribution to Encore results rose to $0.30 in the third quarter of 2015, up 43% compared to the $0.21 contribution from the same quarter a year ago. Cabot continues to enhance their collections through Marlin's litigation-focused capabilities.

In October we completed the acquisition of a controlling interest in Baycorp, a leader in the debt recovery solutions throughout Australia and New Zealand. Baycorp is well recognized by consumers in the region and is well respected by the issuers there. Baycorp holds a top-four position in Australia and is the clear number one in New Zealand. These are two markets for Encore that are showing solid growth and possesses promising opportunities to continue to diversify geographically while growing and consolidating market share.

Approximately one-third of Baycorp's current business is in contingency collections. We expect to leverage Encore's resources in India and the US to support Baycorp becoming the leading debt specialist in their markets.

In September we announced the settlement agreement with the CFPB that removes uncertainty that was associated with the Bureau's investigation of the debt-buying industry. Importantly, through our settlement the industry received much-needed clarity regarding the Bureau's operational expectations in advance of their anticipated rulemaking due in 2016.

In our discussions with the CFPB, we provided many detailed examples of our current collection practices, believing that they should become the industry's new standards. Indications are that the issuers are adopting some of these same standards and will require mid-tier competitors to comply with these enhanced expectations. This is what we wanted and what we have worked towards for the past several years as the market leader in driving initiatives that protect consumers' rights in the debt recovery space.

We introduced our Consumer Bill of Rights in 2011, and since then, we have grown our business and improved our procedures, with the ultimate goal of providing economic relief and empowerment to consumers so they can restore their personal financial health. This principal intent remains an important footing upon which we've built our Company.

I want to take a moment to address the events of the past couple of days. First, we welcome and fully support the FTC and their new initiative to crack down on abusive debt collectors who continue to give our important industry a poor reputation. We also applaud the FTC and their partners' efforts in establishing a clear, reasonable basis to collect. This is a cause that we have worked diligently towards so that we can assure the consumer really owes what we're trying to collect.

While announcements like the one made on Tuesday can cause a temporary dislocation of our stock price, we want to emphasize that we continue to differentiate ourselves within our industry by the level of investment that we've made in compliance and risk management. Alongside of our strong data analytics, these investments represent a true competitive advantage. The stark truth is that companies who want to compete with us, going forward, must also invest heavily in their own compliance capabilities. We have made this an intense area of focus for ourselves. The issuers appreciate our diligent approach and have begun to require it from our competitors, and the regulators now demand it. This is the standard we've set in the industry, cemented in place by our settlement with the CFPB.

I'll turn it over to Jon, who'll go through the financial results, and then I'll answer some of your questions.

Thank you, Ken. Before I go into our financial results in detail, I'd like to remind you that as required by US GAAP, we are showing 100% of Cabot, Grove, and Refinancia's results in our financial statements. Where indicated, we will adjust the numbers to account for non-controlling interests.

Ken covered some of the information about our third-quarter collections during his remarks. Worldwide collections grew 4% to $422 million compared to $407 million in the third quarter of 2014. For the quarter, our call centers contributed 44% of our total collections, or approximately $188 million compared to 46% of total collections, or $189 million, in the same quarter a year ago. Legal channel collections accounted for 42% of total collections and grew to $179 million in the third quarter compared to $166 million and 41% of collections a year ago. Agency collections in the third quarter remained at 13% of total collections, the same percentage as last year. In the past, as we have transitioned accounts away from collection agencies and onto our own platform, the portion of collections from agencies has declined. However, in Q3 this impact was offset by the growth of Grove's businesses, which employs agencies for collections.

Revenue in the quarter was $288 million, an increase of 5% over the $273 million in the third quarter of 2014. Excluding the allowance charge related to the CFPB, revenues would have grown 8% in the quarter. International revenues grew 30% in Q3, driven by European revenues, which grew 26%, and Latin American revenues, which nearly doubled when compared to the same quarter a year ago.

Once again this quarter, we had no performance-related portfolio allowances. But as Ken mentioned earlier, as part of the one-time charge related to the CFPB settlement, we did take an allowance of $8 million in Q3, reflecting the impact to revenues related to the consent order.

Our overall revenue recognition rate, excluding the effects of allowances and allowance reversals, was 63.7% compared to 60.4% in the third quarter of 2014. We recorded $3 million of net portfolio allowances in the quarter compared to $6 million of net portfolio reversals in the third quarter of 2014. Excluding the allowance related to the settlement, we recorded $5 million of net allowance reversals in Q3.

As many of you know, once we have evidence of sustained overperformance in a pool, we will increase that pool's yield. Consistent with this practice and as a result of continued overperformance, we increased yields in the third quarter, primarily in the 2010 through 2014 vintages.

Turning to cost to collect, excluding acquisition-related and other one-time costs, our overall cost to collect for the third quarter was 39.2% compared to 38.9% in the same quarter a year ago, reflecting a higher concentration of legal collections occurring within our international business. While cost to collect is an important metric, we don't focus on it in isolation. Overall, financial success in our business is driven by generating the greatest net return per dollar invested. In some instances, it makes sense to spend more to collect more.

I'd also like to reiterate that our long-stated preference is to work with our consumers to negotiate a mutually acceptable payment plan tailored to their personal financial situation. These plans almost always involve substantial discounts from whatever the consumer owes. We not only believe that this is the right thing to do for our consumers, but the right thing to do for our business. For Encore, legal action is always a last resort and is pursued only after numerous attempts to communicate and reach an acceptable agreement with the consumer.

Our estimated remaining collections, or ERC, at the end of the quarter was $5.7 billion, an increase of 10% over last year. ERC related to our international business has grown 27% over the last year, driven primarily by the acquisition of DLC and the further application of Marlin's scorecard to Cabot's back book. We believe that our ERC, which reflects the value of portfolios that we have already acquired, is conservatively stated because of our cautious approach to setting initial curves and our practice of only increasing future expectations after a sustained period of overperformance.

In the third quarter, Cabot contributed $7.8 million of income to Encore's Q3 results, which equates to $0.30 of economic earnings per share. This compares to $0.21 of economic EPS contribution in the third quarter a year ago, an increase of 43%. Because we own our interest in Cabot together with our partner, JC Flowers, Cabot's contribution to Encore's profit is calculated by backing out JC Flowers' interest and management's interest along with the preferred equity certificates attributable to Encore, which eliminate in consolidation.

For Encore as a whole, there were certain one-time and non-cash items that affected our results this quarter. In particular, the one-time $42.6 million charge related to our settlement with the CFPB and other state regulatory matters equates to $1.61 per share. $0.07 were related to the non-cash interest and issuance costs associated with our convertible notes, and $0.04 were related to one-time acquisition integration and restructuring costs. Additionally, $0.01 is related to excluding diluted potential shares from the GAAP loss-per-share calculation due to their anti-dilutive effect. After these adjustments, we end up with $1.30 per fully diluted share and $1.34 on a non-GAAP economic basis.

In calculating our EPS on a non-GAAP economic basis, we exclude those shares associated with our convertible debt that are reflected in our EPS denominator from an accounting perspective, but which will not be issued as a result of the call spread we entered into at the time we issued the convert. For the third quarter, we excluded approximately 800,000 shares from the calculation as a result of the call spread.

With that, I'd like to turn it back over to Ken.

Thanks, Jon. Before we wrap up our prepared comments, I'd like to summarize our third-quarter progress and provide our outlook going forward. First, we grew economic EPS by 15% in Q3. Our competitive position in the US is excellent. We made solid progress during Q3 regarding our domestic deployments and are on track to satisfy our full-year purchasing goals in the US. In addition, we have already secured significant commitments towards our US deployments for 2016.

We also remain on track to deploy capital globally within the $1.2 billion to $1.4 billion target range for the full year of 2015. Our recent purchase of Baycorp has provided us with access to Australia and New Zealand, two new, attractive growth markets for us with promising opportunities for growth, market consolidation, and asset diversification.

And lastly, as we look at our roster of companies, our brands, and our top market share positions and the growing list of countries in which we operate, we sense a growing momentum as we head into 2016.

With that, operator, we're happy to answer some questions.

Certainly. (Operator Instructions.) David Scharf, JMP Securities.

I guess a couple of things. One, just focusing on the US environment, Ken, first on the purchasing side, it looks like -- did I hear the US deployment was $160 million? Is that correct?

That's yes, but I'll tell you, $28 million of that is Propel. So you're looking at about $131 million to $132 million which is in the US.

Got it, got it. Still a very healthy figure, and obviously, we've still got some banks on the sidelines. I'm just curious, anecdotally, is it just lumpy quarter to quarter when portfolios are coming to you? Or do you get a sense that the banks that have been active all year are starting to sell more and perhaps benefiting from a little bit of pickup in receivables growth at the issuers?

So those banks that have been selling have been pretty consistent throughout the year. What varies at times is sometimes they'll do lump sales, bulk sales, and sometimes they'll do forward-flow arrangements. So, for example, we buy from an issuer at the end of Q2, but we may be buying for Q4 deployment. So that's been very consistent for us. And we've seen enough of that forward-flow commitment that we've purchased a reasonable amount as we move into 2016, which is giving us some enthusiasm as we move out of 2015 into 2016.

Got it. And shifting to the collection side, you noted a few times the channel mix shift more weighted towards legal this particular quarter. Is this the kind of mix we should count on, near term, as we try to forecast? Just curious, given that the consumer is a little healthier these days, why you are finding less call center versus legal in the near term.

So we've been doing a lot of consumer-centric programs that have allowed us to go back into older vintages and to harvest those vintages. And at this moment, we see investing more in the legal channel that's generating more collections. And I'll tell you, recently -- and this is just a very recent trend -- we actually see our call center collections picking up and our legal collections beginning to slow down a little bit.

So, David, the simple answer is wherever there's MPV, and positive MPV, we will go and we will harvest that in all our vintages. And you could see some move between call centers and legal, but we said in the beginning of the year that we were going to be a little bit more legal heavy, and we have been. But that doesn't mean that as we move into 2016 it will be the same way. And in fact, one would think that as more portfolios come to market and a lot of that is fresh portfolios, we tend to put that into the call center, and we tend to do better in the call center with fresher paper. The more seasoned paper, we tend to do a little bit better through the legal channel.

Got it, and then just one last one and I'll get back in the queue. As it relates to the UK pricing and competitive environment, can you provide us a little bit of an update? I know it's obviously gotten a little more crowded field over there in the last year.

Yes. So it clearly has gotten a little bit -- well, actually, it's gotten more competitive. I won't say it's gotten crowded, because we've seen some of the mid-tier competitors begin to disappear, such as the DLC acquisition that we made. But we see a strong or robust pipeline in the UK, and we've already closed several portfolios early into Q4.

Pricing is certainly higher than when we first entered the market, so you could say it's somewhat elevated. It's also competitive. But we like where we sit in the marketplace, we like our relationships with the issuers, and I think we'll close out the year in rather good fashion as I talk about Cabot overall, inclusive of the DLC acquisition.

Got it. Thank you.

Hugh Miller, Macquarie.

Just following up a little bit more on the European business, I think you guys just noted that you guys closed several portfolios early in the quarter. Can you talk about, obviously, in that area, 4Q is the seasonally strongest period for supply? How is supply trending relative to prior years for 4Q? Is it similar, greater, fewer?

So in the UK, I would say it looks like it's trending a little bit more heavier this year than it was in previous years. I think you still see the benefits of financial institutions delevering. You see credit and consumer lending is certainly improving in the UK, which means that charge-offs will also begin to rise. But this year there have been larger, bigger deals that have been available than in prior years. And those larger, bigger deals have usually invited a lot of competition and fierce pricing. We have side-stepped some of those larger deals. We bought DLC for very attractive returns, and by having bought DLC, we've been able to go after some more of the smaller and medium-term deals, which maybe are not as sexy in terms of leading a league table in how much you've deployed, but are very sexy in terms of the returns that we're getting.

And then the other thing about the UK market, and I've said this before, it's not unlike UK issuers to decide and pause and all of a sudden, at the last moment, not sell in a particular half of the year and move it to the back half, or the back half into the next year.

Okay, that's certainly helpful. And so it seems like it's more the improvement in buying returns is more a function of the mix of the portfolio in Europe. We were hearing about one larger peer that might be more selective with capital deployment in 4Q. And I was wondering in general, would you say that the buying returns for the normalized paper is still up despite that reduction in competition in 4Q?

I would say returns are up. I would say that pricing has been up from the day we entered the market, and our return expectation is down somewhat. But we're finding pockets of opportunities in smaller and mid-sized deals. And that's where we've been looking, and having the DLC acquisition done in the middle of the year has given us more opportunity to pick out better returns in the UK. Okay?

Okay, that's helpful. Sure, sure. And shifting to the US market, can you give us an update on the timing we should think about for the two sidelined issuers and their potential return to the market?

Yes. I'll say one of the two, to me, is far along in doing all the due diligence it needs to do and setting up its processes and reaching out to issuers and doing everything one would have to do to come back to the market. I also think that with some of the recent clarity in the debt-buying industry, with the two settlements that were recently announced, I think with a little bit more clarity, maybe, to a particular institution's own flows and processes, I think those things are all good that they get it behind them, they know what is expected of them, and then they could prepare themselves, test what they need to test of their processes, and then they'll roll out selling.

So how long that, what that means is some time in 2016. We'll be ready for them when they come.

Okay, so your feeling now would be some time in 2016 as opposed to maybe it happening before year end?

Yes, I think that's fair right now. Plus, once you see Thanksgiving, things begin to slow down.

Okay, that's helpful. And you commented about firms getting more comfortable on forward-flow commitments. You guys have been relatively stable for capital deployment in the US. Aside from the potential for issuers maybe to return to the market, as we just consider the ones that you're working with now, given their willingness to extend forward flows, would you anticipate that you'd continue to see, excluding the other two issuers, relatively flat deployment in the US? Or would you anticipate that we could see an uptick there?

I'm sorry. You mean an uptick to the entire industry? Is that what you're referencing?

The industry or your capital deployment in 2016, just excluding the impact of those two issuers sidelined. You had mentioned that you were seeing banks that are getting more comfortable extending longer forward-flow commitments. Would you anticipate that you'd continue to see consistent capital deployment in the US, or you could potentially see that head higher next year?

Yes, so I think this year, based on our calculation, there will be about $1.1 billion to $1.2 billion that will be deployed. We'll be very close to 45% to 50% of that for 2015. In the deck that we just showed you, if you go back, we've been very consistent in what we've deployed over the last three or four years, and that's been without a couple of the large sidelined issuers. And from what I can see from the issuers that are active, they are selling sooner. They're selling more fresh paper, which is right into our sweet spot. It's why we bought ACF, and we're doing very well with that fresh paper.

So I see all those things happening, so at a minimum, I see the market staying at least the same size. And when the sidelined issuers come, I think they're going to raise that level of capital deployment.

The other thing that's interesting is we always talk about compliance and risk management. And even I sometimes, inside the Company, wonder, "What am I getting for it? What do I see from it?" And now, recently, we've seen some of the mid-tier players be excluded from the issuers' deployment cycle because they don't have the appropriate compliance and risk management processes or features in their program. So I think that's also going to help us. Even though we do have 45-ish percent of the market, there's still a little bit more to get. And I think some of those smaller, more mid-tier players will not participate.

Okay, that's helpful. And then last for me is just on India. You guys are on the cusp of looking at that venture. Are you buying in the JV and how are things setting up there? How should we think about capital deployment in that area next year?

Yes, I don't think there will be any capital deployment this year. The regulatory process, we're still going through it. We've gotten some of our approvals. We're waiting for, I think, basically the last big one. We'll see when that comes in. We're working with the government. That always is a little bit slower.

But I'll say this until I'm blue in the face. The opportunity in India is so big that it won't matter if we're three or six months late versus our projected start date. There will be plenty of opportunities to buy paper there. So we would hope that we'll deploy money through our India SPV during 2016, but I'm going to not give you any guidance as to when I think that is. I've proven to be wrong on how to handicap regulatory approval from other governments.

Thank you very much. Appreciate the time.

(Operator Instructions.) Robert Dodd, Raymond James.

The regulatory impact potentially on the market. If we look back to last year, if I remember the timing right, a regulator made some statements, actually terrifying issues in the third quarter. But it made some banks skittish at the end of the year as to selling into that until they had double-checked or triple-checked or quadruple-checked at that point where they stood. Do you think the comments such as yesterday -- which have no implications on how you collect, I don't think -- but do you think they have any risk of causing some hesitation in the short term for some sellers as we get to the end of the year?

By the way, I think most of the deployment has occurred for this year already. I would say about 90% of what's going to be sold has been sold. So I don't see an impact at all for this year.

You opened up -- it was a little choppy on our side -- but I think you're referring to what the OCC put out the other day?

Yes, yes.

Okay, great, yes. And actually, that plays into exactly where we're positioned. They talked about operational risk and reputational risk and compliance risk and strategic risk. Those were their four buckets. They had come out last year and said basically the same thing, which is make sure your debt purchaser has the appropriate systems and controls, that they're treating customers fairly, and that you, the issuer, are assessing the collection practices of the debt purchaser, and make sure that you do your due diligence.

Well, in those things, I can tell you the due diligence from the issuers is more thorough, deeper, longer, and comprehensive than it's ever been before. And that's good news for us, because we tend to show very well in all of that. And the more they are concerned about these particular issues, the happier we are, because that's our strength. And as I said, this compliance and risk management is not going away, and I just tried to give you a visual. It's the moat around our Company. It's getting wider, it's getting deeper, and if you don't invest in it and stay consistently invested in it, you can't compete in this market.

So I think, as the issuers come to us, they look at what we're doing and take it back to all their risk committees, they've been very pleased at what they've seen, and they're now preparing themselves for, I think, most of the 2016 issuance. And that's why the fourth quarter, or parts of the fourth quarter, have been very busy for us as the deployment has occurred, and they're getting ready for next year. Hopefully, that answered your question.

Yes, it did. It did. Perfect.

Brian Hogan, William Blair.

Can I get a little more commentary on the competitive environment? Can you just mention the mid-tier players that are being excluded from the sales at the current moment? I assume it's the US. But give a little more commentary on the competitive environment, both in the US and the UK and your other geographies, please.

So on the competitive environment, really, two significant players collectively have 90% of the market from direct-from-issuer market, okay? I don't see much of that changing. I think the fact that a couple of the mid-tier players are not in the rotation of the issuers is good. It just reinforces our position where we are today.

Pricing is still elevated, and it's still competitive. That hasn't changed yet. I believe, when more supply comes back to the market, I think it will revert to more pricing power for the debt purchasers, and we're well positioned for that. So I don't really think much has changed in terms of the competitive environment from the previous couple of quarters to where we are today, other than the issuers are getting tighter and tighter on who they're doing business with.

All right. Your conversations -- obviously, you settled with the CFPB earlier in this past quarter. Do you continue to have conversations with the CFPB?

No. Actually, what we are doing now is just preparing our remediation plans that we'll need to submit to them and they'll need to review and then sign off on. But it's all quiet on that front, and we just expect -- as we said when we made the announcement, we see more of it as fine-tuning as to what we're currently doing. But we do have to submit plans on how we're going to fine-tune our operations going forward and make restitution to the customers that we agreed to. But we haven't been talking to them.

All right. Do you expect final rules from the CFPB for the industry? I know that you said to look at the settlements with you and your peer and JPMorgan Chase as the broader example, but do you still expect them to put out final rules?

I read what you read, which is they're supposed to come out at the end of 2015 and early 2016. They'll take it to the Small Business Council for commentary. I don't think they finalize the rules until the end of 2016, and this is my guess now. Maybe at the end of 2016 they become effective, but I could see them becoming effective in 2017. Quite frankly, from our vantage point, what we're seeing, they got their rulemaking through the settlements, and it doesn't seem to be an emphasis for them at this moment.

All right. And then you're doing a lot of things, a lot of interesting things globally -- Mexico, I believe, I think you're going there, and India and Australia, Latin America. I guess my question is getting to be -- and all of these things are through JVs -- from a management perspective, do you have enough capacity? Do you need to add to the team?

Yes, interesting. I'll just break it down for you. In the UK, we've got a very, very strong Cabot team that is able to run Cabot and also look at other European countries for acquisitions going forward. So we have a very strong team there.

We have been building up a second team, if you will, in India, such that the first team, led by Manu Rikhye, our senior executive there, and Jaison Thomas, our number-two there, are now able to focus on Encore's asset reconstruction company that they're purchasing in India and also focus overseeing Baycorp. So we feel very comfortable about the investment that we made there was well worth it in terms of human capital.

And right now in Latin America, we're just making a few purchases of debt, and we are working and looking at different servicers to determine which servicer we'd want to align ourselves with.

The other thing that works in our model is remember that we're owning a majority position, usually 50% -- maybe in the Grove case it's 68% -- but we've got existing shareholders that were there before us who are also very involved in running the business. And they get to see management, say, more on a day-to-day basis.

The way we run the companies is that we have a structured viewpoint on what we need to do with them every week, and we have monthly business reviews, but we don't run day-to-day operations. But where we do get very, very involved is the distribution of capital. And we look at capital around the Company -- as we've said before, we're asset managers and capital allocators. And whatever has the highest return gets our first pound, euro, Colombian peso, Mexican peso, Aussie dollar, you name it. And that's where we get far more involved.

But the key to all these acquisitions is having a very, very strong management team and a good board or corporate governance which we put in place.

All right, thanks, Ken.

I'm showing no further questions at this time. I would now like to turn the conference back to Ken Vecchione.

Thank you all for joining us today, and we look forward to talking to you after the new year, and everyone have a good holiday season coming up. Thanks again.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day.