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Encore Capital Group, Inc. (NASDAQ:ECPG)

Q4 2013 Earnings Conference Call

February 25, 2014 17:00 ET

Executives

Adam Sragovicz - Director, Finance and Treasury

Ken Vecchione - President and Chief Executive Officer

Paul Grinberg - Executive Vice President and Chief Financial Officer

Analysts

Robert Dodd - Raymond James

Bob Napoli - William Blair

David Scharf - JMP Securities

Sameer Gokhale - Janney Montgomery

Mark Hughes - SunTrust

Operator

Good day, ladies and gentlemen and welcome to the Encore Capital Group Fourth Quarter 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today’s conference, Adam Sragovicz. You may begin.

Adam Sragovicz

Thank you, Nicole. Good afternoon and welcome to Encore Capital Group’s fourth quarter and full year 2013 earnings call. With me on the call today are Ken Vecchione, our President and Chief Executive Officer; and Paul Grinberg, our Executive Vice President and Chief Financial Officer. Ken and Paul will make prepared remarks and then we will 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 full year of 2013 and the full year of 2012. 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. 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.

Ken Vecchione

Thank you, Adam and good afternoon. I appreciate everyone joining us for a discussion of our fourth quarter and full year results. For those of you who have been following our strong growth in 2013 and our activities in 2014, you know that we have been very busy. The fourth quarter concluded an outstanding year for Encore as our financial results for 2013 reflect the strength of our emerging global investments and servicing platform. This has been a time of significant change in our industry and today we will share with you how we are capitalizing on this change. We are building a diversified platform that will enable us to achieve our 15% earnings growth target. We will drive growth organically through our existing business and with new asset classes and geographies through strategic acquisitions. This approach positions us as one of the leading global specialty finance companies in the world.

Now, I’d like to take a few minutes or highlight some significant achievements for the quarter and the year. As you can see, Encore had a record core. Our GAAP EPS from continuing operations was $0.87 per share compared to $0.79 per share in 2012. EPS on an economic basis and excluding one-time expenses and convertible non-cash interest was $1.5 per share compared $0.80 in 2012, an increase of 31%. Cash collections increased 52% to $351 million. The significant increase was driven by our acquisitions of Asset Acceptance and Cabot, both of which we will address in more detail as we move through the presentation. Adjusted EBITDA was $206 million, an increase of 53%.

Our overall cost-to-collect decreased by 70 basis points from 2012 to 42.1%. With the acquisitions of Cabot and Asset Acceptance, our estimated remaining collections, or ERC at December 31 was approximately $4 billion. On a full year basis, GAAP EPS from continuing operations was $2.94. And after adjusting for one-time and certain non-cash items economic EPS was $3.86. And we are very proud and excited to report that we exceeded $1 billion in annual collections for the first time in our company’s history and we did it by more than $200 million.

Our adjusted EBITDA was $784 million and our cost-to-collect was 39.1% down 90 basis points from last year. These results reflect the disciplined and deliberate approach we have taken to deploying capital and building a very efficient operating platform as well as the exceptional work of the people of Encore. Today, our global workforce is more than 5,000 strong. We couldn’t have come this far or be so well-positioned for the future without their drive and determination.

Of late, we have made a number of strategic acquisitions that we expect to form the foundation of our long-term sustainable growth. Before I discuss these transactions, I’d like to share the operating formula we use to purchase and manage these acquisitions. One, Encore focuses on markets with attractive economic characteristics; two, Encore intelligently levers the acquired companies as appropriate; three, we increased margins through low operating expenses or improving cash collections; four, the companies we acquire are platforms, which we can create organic growth or growth through consolidation; and lastly, each acquisition needs to be accompanies by strong talented management.

With Refinancia, a Colombian company operating in the fast growing markets of Peru and Colombia, we gained a foothold in Latin America and a platform for further expansion into that region. On financial services which we spoke of – excuse me, as we spoke about it two weeks ago has been combined with Cabot, creating the market leader in the attractive UK debt buying market. Grove Capital is a leader in the UK in the deployment and management of IVAs, or individual voluntary arrangements, which are roughly equivalent to Chapter 13 bankruptcies. All of these companies are in markets with solid opportunities to deploy capital at good returns. They also give us optionality, which is another major advantage for our business going forward. Optionality insulates Encore from temporary pricing pressures in one asset class or geography as we are now able to allocate capital in multiple asset classes and in multiple geographies to bring our shareholders the best returns.

Before we get into the specifics of these acquisitions, I want to put them into context of our value creation model. When we look at expansion and diversification, we look for opportunities that align with our four pillars of value creation. The most recent acquisitions of Refinancia, Marlin and Grove, along with our earlier acquisitions of Propel, Asset Acceptance and Cabot do just that. These acquisitions allow us to leverage our analytic strength, operational scale and cost leadership to increase liquidation and operate more efficiently. They allow us to be strong stewards of capital giving us the ability to deploy capital globally in search of the best returns. And they allow us to capitalize on what we do well and leverage our strength in other geographies and asset classes. The ultimate goal of these acquisitions and quite frankly everything else we do is to drive growth, margin expansion, free cash flow and PE expansion and ultimately delver top quartile shareholder returns.

The acquisitions of Cabot, Marlin, Refinancia, Grove and Propel, all have several similarities. They are all respected brand names and growing companies and they occupy the number one or two position in their markets. These are investments with involvement. Upon acquisition, we secure a sizable majority interest, board control, direct influence over management and operations, and the right to increase our ownership stake over time. This value creation model is also the lens we look through when we develop and execute our corporate growth strategy. We are focused on three key areas, growing our existing businesses including our subsidiaries, expanding our geographic footprint and diversifying into new asset classes. As you can see, this corporate strategy aligns with our value creation model and is demonstrated in the acquisitions we have made.

Now I’d like to take a little more time in detail to talk about our recent additions to the Encore family. In December, we closed on our acquisition of our controlling stake in Refinancia, a leading debt purchaser in Colombia and Peru. These two markets are growing quickly with the expansion of the middle class and significant increases in consumer credit, while we initially focus on working with the Refinancia team to transfer our knowledge of the financially distressed consumer to their market and to help put in place operational efficiencies over time, Refinancia will serve as our platform for expansion throughout Latin America.

We first began discussions with Refinancia’s Founder and CEO nearly two years ago. We were attracted to the quality of its management team and its shared vision around using data to make decisions. We are also aligned culturally in our focus on operating ethically and treating consumers with the respect they deserve. As we learn more about Latin America credit markets and did our due diligence, we realized that this would be an exciting market to invest in. With the combined market size of almost 80 million consumers, these fast growing economies provide great opportunities for growth. And importantly, the investment returns in both of these markets are strong at levels in excess to what we are experiencing in the U.S. and the UK.

The deal structure with Refinancia was similar to Cabot’s and one that we expect to replicate in other geographies. We acquired our controlling interest in Refinancia initially at just over 50% and expect over time to acquire a larger stake in the business. Unlike Cabot, the majority of the $13.5 million of capital we invested in Refinancia, was used as a primary equities – excuse me was used as primary equity and will remain in the business to fund future growth. The Founders of Refinancia and the current management team took no money off the table in connection with our investment. While all of our purchases in Colombia and Peru, Encore deploys a 100% of the capital directly through Latin American special purpose and then places the accounts with Refinancia for servicing.

Refinancia’s core business is to service distressed consumer debt including debt that Encore purchases and debt that it service on behalf of large financial institutions and others on a contingency basis. It also provides us with a level of diversification by providing merchant guarantee services, factoring as well a small credit card product in Colombia. The credit card product extends our relationship with consumers as they recover and enables them to reenter the financial system. As we spend more time with Refinancia and learn its business we expect that there will be a number of opportunities that implement some of these leading products across other parts of our organization.

Refinancia will not be a large contributor to EPS in 2014. Initially we expect annual capital deployment opportunities to be in the $40 million range, over time as we build up our book and implement some of the synergies we have identified, we expect Refinancia to represent a more meaningful part of our earnings. Last week we entered into an agreement to acquire 68% of Grove Capital Management in the UK, a purchaser and servicer of the solvency consisting primarily of Individual Voluntary Arrangements or IVAs. An IVA is roughly equivalent to a Chapter 13 bankruptcy in the U.S.

As with Refinancia, we will deploy capital in a separate vehicle and place the accounts with Grove to service. We began discussions with Grove more than a year ago, but put those discussions on hold so that we can focus on Cabot and then Marlin. Once those acquisitions were completed we are able to reengage with Grove and its shareholders to finalize our deal. Grove allows us to expand our footprint in the UK for another asset class and brings a full suite of offerings to issuers in the UK market. We are very optimistic about the pipeline for insolvency assets in the UK and expect to be able to deploy $50 million in IVAs on an annual basis.

As with Refinancia, EPS related to Grove should be modest in 2014, but we expect this to grow in 2015 as more and more capital is deployed. Although we expect to close the acquisition of Grove later this quarter or early next quarter pending regulatory approval, we will begin deploying capital immediately. We also recently announced Cabot acquisition of Marlin Financial Services. Marlin brings to Cabot estimated remaining collections or ERC of more than £350 million or approximately $570 million. Marlin specializes in litigation enhanced collections similar to Encore legal collection capabilities in the U.S. With this platform Marlin has the right rate of success in collecting on non-performing debt and compliments Cabot’s strength in semi-performing debt. Marlin also provides the necessary legal collection capabilities that would otherwise be time consuming and costly to develop internally.

We expect these capabilities to increase liquidation on Cabot’s current and future portfolios and enables us to expand our capital deployment to non-performing debt. The acquisition establishes Cabot’s presence in the secondary and tertiary markets where we see additional opportunity to grow. Cabot will also add value to Marlin’s business and ERC with its expertise in the recovery of semi-performing debt. We expect the combined company to be much more competitive in the market than either would have been on a standalone basis. And finally Marlin adds value for management depth with extensive industry experience. The combination these two businesses gives us a great platform to be a leader in what we believe will be upcoming industry consolidation in the UK debt purchase market.

Encore’s global footprint represents a deliberate and thoughtful approach to exploring new markets to deploy capital. The state of debt buying industry and its future in the United States is a topic of much discussion and debate these days. On one hand we are seeing a period of industry consolidation which is a product of intense regulatory pressure and the need to have significant scale to compete effectively. We believe we will not only survive this consolidation, but emerge strong as one of the clear industry leaders. On the other hand we are in a period of lower supply as charge-offs were at record lows and a couple of issuers have temporarily pulled back from the market. This has resulted in elevated pricing despite the market consolidation. With our ability to deploy capital in multiple geographies the U.S., Latin American, the UK and later this year India, we can channel our capital to those markets with the greatest returns to help us achieve our 15% annual EPS target.

At our Investor Day on Thursday June 5 in New York, we will introduce you to the new management teams and share more details with you about each of our new businesses and the opportunities they present for Encore. We are confident in our ability to execute on these acquisitions following the success of our two large acquisitions in 2013. We have now collected over $175 million from our Asset Acceptance acquisition ahead of our plan and are nearing the full rationalization of support functions and call centers. The complexity of moving over 2 million accounts, were handled skillfully by our dedicated integration team and the acquisition allowed us to be more flexible and selective throughout 2013 in our portfolio purchasing.

We are also proud of the performance of our acquisition of Cabot which added $100 million of adjusted EBITDA, ERC of $1.5 billion and economic EPS of $0.36 to Encore 2013. I would like to mention Cabot India went live on January 20th nearly two months earlier than our expectations. We are collecting and servicing accounts in India while we continue to learn and modify our collection approaches to fit the nuances of the UK market. In order to ensure our success in executing on these transactions, we made some changes within our executive management team and promoted three new Executive Vice Presidents Ashish Masih, who have previously run our legal collections channel now will be responsible for all U.S. based collections. Ashish has done a great job in applying analytic rigor to our legal collections which has significantly lowered our cost to collect in that channel. He also has been instrumental in building our internal legal channel.

Jim Syran, who has responsible for all of our call centers, our marketing channel and operational analytics over the last few years will now take on the responsibility for integrating our international acquisitions as well as new domestic business opportunities. His initial focus will be to work with the leaders of Cabot, Refinancia and Grove to ensure that the synergies are implemented. With his intimate knowledge of Encore’s analytics and operations, he will ensure that we leverage Encore’s best practices throughout all of our international operations and bring the appropriate resources to bear as needed.

And lastly, Manu Rikhye who has built our India operations from a handful of people to nearly 2,000 strong today will now take on the responsibility to develop and grow the Indian debt purchasing market, which is scheduled to launch at the end of this year. I am excited to see Ashish, Jim and Manu in these roles and proud of the breadth and depth of our leadership of team.

Turning to the regulatory environment I would like to provide a quick update on the CFPB’s Advance Notice of Proposed Rulemaking that began last November. We are just now wrapping up the first phase filing comments with the CFPB later this week. This begins what we expect to be a year long process with an anticipated final rule in late 2014 or early 2015 with a subsequent effective date. Overall, we are pleased that the CFPB has initiated this rulemaking as it will give much needed guidance to the collection industry. We believe however, that until it completes its rulemaking over the next 18 months, the bureau will continue to shape the industry standards through supervision and enforcement.

Before I pass it over to Paul who will review the numbers with you in more detail, I would like to take this opportunity to publicly thank our outgoing Executive Chairman, George Lund for his many years of service. George has been very supportive of Encore’s vision and strategy over the years and we all benefited in countless ways from his counsel. I am also pleased that the Board has chosen long time member Will Mesdag to become Chairman. And we look forward to his guidance and leadership.

Finally, we are pleased to welcome to our Board, Laura Olle, Capital One’s former Chief Enterprise Risk Officer and former Senior Vice President of IT at Freddie Mac, and Rich Srednicki, the former CEO of Chase Card Services and former president of AT&T Universal Card and Citi Credit Cards. Laura and Rich have already been through extensive sessions with the Encore management team concerning our current business environment and future plans and we are eager to work with them. These are extraordinarily talented and experienced leaders in the management team and our shareholders are very fortunate to have them join the Board. The management changes and the Board additions are designed to reflect the growing global footprint of Encore Capital.

And now I will turn it over to Paul.

Paul Grinberg

Thank you, Ken. As Ken discussed, we had a very strong fourth quarter and year reflecting strong performance from our core business and our recent acquisitions. Before I go into our financial results in detail, I would just like to remind you that as required by U.S. GAAP, we are showing 100% of Cabot’s results in our financial statements. Where indicated, we will adjust the numbers to account for our non-controlling interest. The Asset and Cabot acquisitions led to strong capital deployment in 2013. We invested $1.4 billion across all geographies in asset classes with $380 million associated with the Asset deal and $621 million attributable to Cabot. In the fourth quarter, we deployed $150 million across all business lines, with $97 million in the U.S., $35 million in the UK and Ireland and $18 million in Latin America.

As we mentioned earlier this year, the Asset acquisition provided us with nearly $1 billion in ERC that returns much higher than we would have achieved have we been purchasing directly from issuers. This allowed us to be more strategic in our domestic purchases for the rest of 2013 and will allow us similar flexibility in 2014. That said we expect a solid purchasing year in 2014, but we anticipate then those issuers will return to the market this year, we also expect elevated pricing will continue. One of the reasons we have invested so heavily in other geographies and asset classes is to have the flexibility to deploy our capital, where we see the best returns or when warranted to buy strategically in the U.S.

With elevated pricing, we also anticipate that 2014 will be a year of further industry consolidation as smaller players are unable to make the compliance and regulatory investments required by leading issuers. It is our belief that smaller buyers without the same operational cost advantages as leaders in the industry will be unable to effectively compete and will ultimately decide to sell their portfolios and exit the business. As these players exit the market, the supply demand equation will be more favorable for purchasers and pricing will not be under as much pressure.

Propel had a very strong quarter for capital deployment with $45 million invested in tax claims. In December of last year, Propel acquired one of its competitors in Texas for $35 million. Like in our core business, companies with the lower cost of capital and analytical approach to understanding the consumer in a cost efficient platform will generate the best returns. Propel has all of these and as such we expect Propel to grow its business both organically and through industry consolidation.

We generated nearly $1.3 billion of collections in 2013 and just over $315 million in the seasonally slow fourth quarter. $67 million of collections in the quarter came from Cabot. For the year, our call centers contributed 41% of total U.S. collections or $466 million compared to $442 million in 2012. Legal channel collections grew to $565 million in 2013 compared to $448 million and accounted for 49% of total U.S. collections.

Finally, 10% of U.S. collections came from third-party collection agencies. As a result of the Asset acquisition, we expected to see an increase in third-party collections as many of those accounts had already been placed with third-party agencies at the time of acquisition. We continue to shift much of this work to our internal channels over time as part of our integration efforts. Also for some of Cabot’s purchasers, we are contractually required to keep accounts with certain agencies for a period of time after purchase.

For the quarter, revenue from receivable portfolios was $227 million, an increase of 62% over the $140 million in the fourth quarter of 2012. As a percentage of collections and excluding the effects of allowances, our revenue recognition rate was 63.3% compared to 59.4% in 2012. For the quarter, we had $4.5 million of allowance reversals compared to $2.7 million of net reversals in 2012.

Looking at the breakdown by year, we had $218,000 of allowance reversals in the 2006 vintage, $1.4 million in the 2007 vintage, and $2.9 million in DDA allowance reversals. We had no allowance charges for the 2009 through 2013 vintages as has been the case since we acquired these portfolios. As many of you know, we account for the business on a quarterly pool basis rather than overall. When pools under-perform, we take allowance charges, which are reflected as an immediate reduction in revenue. We measure underperformance against the current yield that is assigned to a pool not its original expectation. This pool-by-pool accounting treatment may lead to non-cash allowance charges in certain periods even when we are over performing a pool’s initial expectations. In contrast, when pools over perform, that over performance is not reflected immediately. Once we have evidenced a sustained over performance in a pool, we will increase that pool’s yield. Consistent with this practice and as a result of continued over performance primarily in the 2009, ‘10, ‘11 and ‘12 vintages, we increased yields in those pool groups this quarter.

Turning to cost-to-collect, excluding acquisition-related and other one-time costs, our overall cost-to-collect for the year decreased 90 basis points to 39.1%. Breaking the overall cost-to-collect into its components, Cabot’s cost-to-collect is comparatively low in the mid to high 20s due to the fact that Cabot’s portfolio primarily consist of consumers, who are already on payment plans and involves very little litigation. With the Marlin acquisition and its new litigation platform, Cabot’s cost-to-collect may increase, so with that increase will come incremental net collections and a higher overall return.

For our U.S. business, direct cost per dollar collected in our call centers rose to 7.2% in 2013 versus 6.2% in 2012. This was the result of the increased cost associated with the asset business. Our business also exhibits some seasonality with lower collections in the fourth quarter leading to a higher cost-to-collect. As we mentioned, when we acquired Asset, we expected our call center cost-to-collect to remain elevated for three to four quarter as we adjusted our combined workforce to the appropriate levels.

Direct cost per dollar collected in the legal channel was 37.8%, down from 39.8% in 2012. While cost-to-collect is an important metric, we don’t focus on it in isolation. Overall success in our business is driven by generating the greatest net return for dollar invested. We accomplished that by generating more gross dollars collected per investment dollar at what we believe to be the lowest cost per dollar collected in the industry.

Our legal channel, which includes both legal outsourcing and our internal legal operation in the United States, continues to be a strong contributor to the business both in terms of dollars collected and cost-to-collect. Total dollars collected in our legal outsourcing channel was $469 million at a cost-to-collect of 35.9%, down from 37.8%. This decrease was primarily related to improvements in our ability to more accurately and consistently identify those consumers with the financial means to repay their obligations.

Total dollars collected in our internal legal channel were $96 million at a cost-to-collect of 47.3%. In 2011, our cost-to-collect in internal legal was over 200% as we were investing in our technology platform, hiring staff and opening new sites. As our volume in the channel increased our cost-to-collect came down. In 2012, our cost-to-collect was over 80% and this year it dropped significantly. In our 10-K, which we filed earlier today, we have broken out our legal cost-to-collect between our external and internal legal channels. This provides you with more visibility to our progress in reducing cost-to-collect in our internal legal channel.

I’d 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 what is owed to us. 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.

As mentioned earlier, collections reached an all-time high for quarter and continued investments in our operating platform expanded the operating leverage in the quarter. This growth in collections and cost improvement led to improved cash flows with 2013 adjusted EBITDA increasing 36% over last year to $784 million.

As investors, we are familiar with Encore know, 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 and gives investors a clear picture of the strong cash flow generated by our business.

Our estimated remaining collections, or ERC, at year end doubled compared with the fourth quarter of 2012 driven by the acquisitions of Asset Acceptance and Cabot. We believe that our ERC, which reflects the value of portfolios that we have already acquired is conservatively stated, because of our cautious approached to setting initial curves and our practice of only increasing future expectations after a sustained period of over performance.

Turning to Cabot for the year, the business contributed $9 million to Encore’s 2013 results, which is the equivalent of $0.36 of economic earnings per share. Remember that, we own our interest in Cabot together with out partner, J.C. Flowers. Cabot’s contribution to Encore’s profit is calculated by backing out J.C. Flowers and management’s interest and the preferred equity certificates attributable to Encore, which eliminate in consolidation.

Propel continues to grow and mature as a business. As I mentioned earlier, Propel completed a $35 million acquisition of a competitor in Texas. Like Encore, we believe that Propel will be a consolidator in its market. The other competitors in the Texas tax lien space are privately held and so precise numbers are not available, but we estimate that after this acquisition, Propel has just under a 50% market share in the Texas tax lien market. Propel continues to deploy capital in other states acquiring tax liens, and at the end of the year, Propel is deploying capital in 10 states. As you can see, Propel is an increasingly more important contributor to Encore and we expect this trend to continue in 2014.

Before we understand our overall results, there were certain one-time and non-cash items, which affected our results this year. We had $0.04 related to the non-cash interest cost associated with our convertible notes and $0.10 of one-time acquisition related and advisory fees, which amounted to $0.14 per share. After adjusting for these, we ended up with $1.01 per share fully diluted on a GAAP basis and a $1.05 on a non-GAAP economic basis.

As you recall in 2012, we issued $115 million in convertible notes at 3% with a conversion premium of $31.56. At the time of this issuance, we entered into a call spread transaction, which increased that conversion premium to $44.19. For accounting purposes, if our share price exceeds $31.56, we are required to include the shares that will be issued pursuant to the convert in our diluted share count. But since we entered into the call spread, we will only issue shares when our stock price exceeds $44.19.

Our average stock price during the quarter was $47.57, which resulted in 1.041 million shares used to calculate EPS that together with the re-pricing of the call spread which I will discuss in a minute will never be issued. As such, in calculating economic EPS, we have not included those shares in our calculations, which increases the EPS by $0.04 to $1.05 per share for the quarter. We paid $11.6 million for the call spread, which protected us from economic dilution from $31.56 to $44.19. This represents about 1 million shares that we would have had to issued, had we not entered into the call spread. Late last year recognizing that our stock price was in excess of the $44.19 and expecting it to increase beyond that prior to the maturity of the convertible note we evaluated alternatives to protect our shareholders from dilution as stock price is above $44.19.

We concluded that the best alternative was to enter into equity derivative transactions that effectively protect us from dilution of the $60 per share. We completed these transactions a couple of weeks ago at a total cost of $28 million that investment would save almost 700,000 additional shares and the value of shares that would not be outstanding at a stock price of $60 per share. As stewards of your capital and with our strong views about the strength of our business and our future share price, we thought it prudent to protect from the dilution of the convert, so we entered into the amended call spread resulting in savings significantly greater than the costs.

I want to remind you that with our 2013 convert of $172.5 million, we entered into a capped call transaction, which increased the economic conversion from $45.72 to $61.55. There were also similar one-time and non-cash items that affected our results for the full year. We had $0.12 related to the non-cash interest costs associated with our convertible notes and $0.71 of one-time acquisition related and advisory fees, which together amounted to $0.83 per share. After adjusting for these we ended up the year with $3.77 per share on a GAAP basis and $3.86 on an economic non-GAAP basis. I would also like to note that during 2013 we saw the resolution of outstanding items in our discontinued operations of Ascension Capital Group. We recognized cost of $0.07 per share to resolve some legacy contractual claims and for costs related to the Ascension lease.

In order to support our future growth, we made a number of important modifications to our credit agreement. We increased our commitments by approximately $100 million, which bring our facility to more than $840 million, with the ability to add another $250 million through an accordion feature. We extended the term of the facility to February 2019, replenished our ability to issue junior debt and increased many of our baskets to reflect our recent growth. Specifically, we increased our ability to raise debt at Propel for $400 million so that we can continue the strong growth we are experiencing there and increased our ability to acquire foreign portfolios to $200 million, which will enable us to capitalize on the opportunities we are seeing at Refinancia and Grove. We value the trust that our banking partners have placed in our company and our growth strategy and cannot continue to grow without their support.

At this time I would like to hand the call back to Ken for some closing comments.

Ken Vecchione

Thanks Paul. As you can see 2013 and the first quarter of 2014 have been a very busy times at our company, we continue to position Encore to be successful on a go forward basis. Looking ahead, we are confident in Encore’s long-term prospects, our culture of continuous improvement which drives ever improving performance as demonstrated by our strong operating results and capital deployment. We continued to enhance our ability to take advantage of new opportunities as a result of our strong liquidity and solid access to capital. This quarter and the full year’s results demonstrate our acquisition activities continue to drive strong growth in cash flow, ERC and profit. Lastly with our recent geographic and asset diversification we are now truly a global company with investments in several asset classes and geographies which positions us for a strong earnings growth in 2014 and beyond.

And with that operator please open up the lines and we will be happy to answer any questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from the line of Robert Dodd of Raymond James. Your line is now open.

Robert Dodd - Raymond James

Hi, guys. Congratulations on the (whole) acquisitions that you have been very busy. Could you give us anymore color on just the reporting that we are going to see obviously you have just – when we bought in Marlin, Grove and Refinancia particularly you said Encore will be purchasing those assets into services, so how are those going to be – are they going to be held by the U.S. entity and are you going separate out an international segment or break it up by geography anymore color you can give us there will be very helpful at this point?

Ken Vecchione

So Grove and Refinancia will be held by the U.S. company but through Luxembourg subsidiary. In Grove’s case and a Colombian subsidiary in Refinancia’s case we will be consolidating the operations of both Grove and Refinancia. And we will show a non-controlling interest for that portion of those businesses, which we don’t own. The portfolio that we acquire for both of those entities will again be held in SPVs. So we won’t be doing capital deployment through either Grove or Refinancia, but they will be done through SPVs Encore will be deploying all of the capital associated with Refinancia and the bulk of the capital associated with Grove although Grove’s minority shareholders will participate in some of those purchases with us. From a reporting perspective we are likely to show UK operations will show as it gets material separating between bankruptcy and non-bankruptcy as we do in the United States. For Refinancia until it becomes material it will likely be just included within our core operations, but at a point in time where it becomes larger as a percentage of our business then we would break it out.

Robert Dodd - Raymond James

Okay. Great, thank you. On Refinancia is kind of you made some comments about de-factoring a little bit of credit cards product etcetera and maybe that could be expanded to your other geographies, any color on timing? Obviously, it’s very early days, its own business and there is a lot of work to be done, but I mean that’s obviously could be some significant and incremental products added to either UK or the U.S. market, give us more color there?

Ken Vecchione

Yes, you are right, there is great opportunity to deploy their knowledge base throughout the rest of our companies and geographies. We just closed on Refinancia December 1. So we are in the infancy of understanding what they are doing, their credit card book of business literally is under 2,000 accounts. What we see is, we love it, but that’s just 2,000 accounts. We like what they are doing with their factoring and check guaranteeing business for merchants in Colombia. My guess is as we look to move out of Colombia and Peru into Brazil that will be some of the first places you will see us take those products and extend them out into Latin America first. Lending is always something we chat about here and we will probably have little more comments about that as we get closer to our Investor Day. But I think you are going to see a slow rollout of most of the services of Refinancia at first.

Robert Dodd - Raymond James

Okay, prefect. I will hop back in the queue. Thanks.

Ken Vecchione

Okay, thank you.

Operator

Thank you. Our next question comes from the line of Bob Napoli of William Blair. Your line is now open.

Bob Napoli - William Blair

Thank you. Gee, not much to ask questions about this quarter. Did I hear you say you did a Propel deal as well that Propel bought a competitor?

Ken Vecchione

Yes, they bought a small competitor $35 million which while small in size really moves Propel’s EPS contribution in 2014 for the company. So – but Propel whether it be Propel or whether it be Cabot, Refinancia, Grove, we buy these deals, we buy these companies with the ability to grow organically and have the right platform that we can consolidate upon and Propel is a good example of that as we see consolidation in the Texas tax lien transfer business.

Bob Napoli - William Blair

So you bought an account of $35 million portfolio?

Paul Grinberg

Largely it was a portfolio there is – the bulk of that $35 million was allocated to portfolio. There is a few million dollars that were allocated on that, but it was largely the portfolio.

Bob Napoli - William Blair

Then the IVA deal with Grove what did they, what did Grove have before what kind of history do you have and what kind of volume do you expect, I mean you have already started purchasing out of Grove you said, so what kind of purchase volume do you expect out of Grove?

Ken Vecchione

Let me just clear, we started purchasing with Refinancia. With Grove, they – we expect them to deploy $50 million going forward on an annual basis, could be a little more depending on the market size and…

Bob Napoli - William Blair

What did they do in the past, how long have they been doing it?

Ken Vecchione

They have been doing it for several years about three years, they have deployed over £100 million to-date and we will put it in other SPVs. So on day one when we buy the management company, we will be getting 68% of the management fees that support the servicing of those SPVs, but going forward as we do deals, we will get the bulk of earnings from those deals. The Grove existing shareholders have the right to tag along with us and invest if they wish.

Bob Napoli - William Blair

And just to get a feeling, your target to grow earnings by 15%, you said I mean this year your adjusted earnings per share was $3.86 and that’s the number you would expect to grow – you would hope to grow by 15% in 2014?

Ken Vecchione

That’s correct.

Bob Napoli - William Blair

What gives you confidence that in the U.S. that you are going to see JPMorgan, Bank of America, Wells back in the market?

Ken Vecchione

Well, I will say two out of those three I don’t think are coming back into the market in 2014. And if they do, it will be the end of the ‘14, most probably early ‘15. One of those three has been rumored to be coming back for some time, but is yet to show up. So a couple of reasons why we are confident? Number one, we saw this trend early on. And hence we got ahead of it by buying Asset with a very strong multiple and Asset continues to be a strong contributor to our earnings as we move throughout 2014. Second, Cabot was another reason. Another reason, we purchased Cabot was to get ahead of sort of the slowdown that we saw in the U.S. in terms of supply. So supply is contracting, there is some scarcity value, pricing is being elevated, returns are coming down, but between Asset and Cabot, we saw better returns and better opportunities to deploy our monies there. And then as we said about two weeks ago, now it seems almost of a lifetime, but when we announced the Marlin deal that we are going to use some of the Marlin EPS that we are going to generate to ensure that we grow 15% this year. So we will be a little less dependent on the U.S. It doesn’t mean we are going to be absent the U.S. market at all. We have been actually very active so far, but it gives us, as I said earlier optionality to move into different markets in different geographies.

Bob Napoli - William Blair

And then the last question on the deal for Refinancia, how long have they been in business and what kind of history database, do you have? What’s the market like there, what are the returns like, what kind of database you have, so how long they have been in business, what do you see as the IRRs there versus the other places in the world and how confident are you? How much history it gives you how much confidence I guess?

Ken Vecchione

Yes. We will put this question up between Paul and I, but on the return side, we have been investing with them for the last year plus and what I will say is the IRR returns are far in excess of what we are seeing in the U.S. and the UK. The best way I could describe them is they are juicy, okay. And that’s why we like being in the market. They have today I think have deployed about $165 million in different SPVs, so much like growth. We are buying the management company in which we will get 50% of the income from a management company, but we get 100% of the deployment of the capital. Do you want to do some…

Paul Grinberg

Yes, I think they have around Bob for about 7 or 8 years or so and have been ramping up the deployment of capital in both of those markets. So they have got a very long history of deploying capital. And similar to our approach, they are valuing portfolios at the consumer level. They are making decisions around how to collect at the consumer levels. They share a lot of our perspective on both analytics, on cost efficiencies and on treating consumers fairly. So there were lot of things that aligned as we started having discussions nearly two years ago with them about potentially doing something together.

Ken Vecchione

I just want to bring on one thing with Refinancia, what’s different is with acquisitions sometimes there is always a short period to get to know them. So basically you get married and then you learn to fall in love with acquisitions. With Refinancia since we have been working with them for over a year, maybe closer to a year and a half working with them and valuing portfolios and working with them, their investment committee working with our investment committee, we really have a long lead time here to get to know them and understand how they think and to trade best practices and understand markets between Encore and Refinancia. So what I like about the transaction is that we really had a long look into their business for a little over a year, maybe year and a half.

Bob Napoli - William Blair

And how do you think you will buy out of Refinancia this year, I mean just…

Paul Grinberg

I think we will do about $40 million and they own the market share position in Colombia is about 39% and the market share position in Peru because they also do business in Peru is 56%, I think I will have to give you a quote on that, but I think it’s 56% in Peru – I am sorry 54% for Peru.

Bob Napoli - William Blair

Great, thank you very much.

Ken Vecchione

Thank you.

Operator

Thank you. Our next question comes from the line of David Scharf of JMP Securities. Your line is now open.

David Scharf - JMP Securities

Hi, good afternoon. Once again where to start, Ken or Paul, I wonder if you can comment on actually the UK pricing environment, because obviously, not just Encore, but along with your other public competitor, you have seen five acquisitions entering that market in a short period of time, plus you have got Arrow as a newly invented public company there, so a lot of capital flowing into that market. Have you yet to see that manifest itself in any of the kind of pricing pressures that you have seen in the U.S. admittedly for different reasons?

Ken Vecchione

Yes. So far mix, certain bids not much pressure, certain bids you are beginning to see pressure. But I would suggest that much like the U.S. market over time, you will see elevated pricing as new entries into the market and people that are public or companies that expect to go public there is a pipeline of rumors of who is going to be coming. We will look to all feed there, multiples or projected multiples and it would not surprise me if pricing would continue to stay elevated and returns will come down somewhat. Offsetting that is that there is a greater supply in the UK coming out today and there is a greater stock of supply that has to be released as well, as UK banks try to come under the new capital levels. So that should offset some of the pricing pressure, but I think you should expect over time that the market will follow something of the model to U.S. I don’t think it’s going to move as quickly as the U.S., but over time I think it will look a little bit more like the U.S.

Paul Grinberg

And David, one of the reasons that we were focused on executing on the Marlin acquisition was so that we had a full suite of collection strategies that we could bring to bear. So we have the call center and the expertise of Cabot in the semi-performing states, Encore brings to that, India which enables us to collect older portfolio, lower balanced portfolio and semi-performing portfolio at a lower cost. Marlin brings the litigation platform, which allows us to collect on a significant volume of accounts that frankly prior to the acquisition of Marlin we wouldn’t be able to generate any net liquidation from. So Marlin adds both a lot to our existing ERC, but also as we go forward and bid, we are going to have the benefit of all of the strategies for generating liquidation and that will result in what we believe to be better yields than others will be able to sustain in that market.

Ken Vecchione

I should say that it’s an interesting question and let me just add one last thing, the difference between the UK market and the U.S., at least for us we are buying a lot of semi-performing paper in the UK. So once you get that paper, you have it for the next 10 years and it’s paying over time. So we kind of anticipated that a little bit and wanted to be one of the first to move in the market in order to take advantage of that and then look to use our Cabot operations – sorry, India Cabot operations is the way we are describing it to continue to lower our cost base, so that we can remain competitive.

David Scharf - JMP Securities

Got it, got it. And you gave the expected capital deployment for Refinancia and Grove and I know Cabot had been putting about £100 million to use per year, I guess, leading up to the acquisition, what kind of figure from Marlin should we be thinking about this year?

Ken Vecchione

What we will do as we do every year, Dave, is give you a sense of total deployment and we will split it by geographies at our Investor Day on June 5.

David Scharf - JMP Securities

Got it.

Ken Vecchione

And we will share and talk about Propel, talk about Cabot, Marlin and also have some more color on where Grove and Refinancia will be.

David Scharf - JMP Securities

Okay. And switching to the U.S. back to the question Bob asked about whether we see some big sellers return to the market. I have been talking to a number of collection companies and debt buyers and it seems like some are insinuating that the banks are more focused on getting CFPB rulemaking out of the way once there is some clarity, there is a roadmap for hopefully a quick return to the market. Others are saying that now it’s really the OCC guidelines dating back to last year that they are still vague enough and open ended enough that the banks just seem to be kind of caught in some inertia. Do you have an opinion are you getting feedback from the banks, are they all different, are they all focused on kind of one thing more than the other, because I am trying to get a sense of ultimately what might be the catalyst for a return of the market?

Ken Vecchione

Yes, so I will say right now things are quiet, which is nice. We have had about 11 issuer audits in the last quarter. We did very well with them and we seem to be – and all the issuers seem to be saying that there is only going to be a handful of people they are going to sell to and we are one of them. So that’s our good news. What comes first CFPB or the OCC, a little hard to say and it’s almost sort of on a point by point basis, but if I had to make a generalization I would say that the banks are being driven a little more by the OCC, but the OCC is probably taking some input or taking some suggestions from the CFPB. But hard for me to see it fully sitting here, what we do is, we respond to the risk metrics and the compliance questions and issues that they have for us and we respond for it that way and we are really not asking who is asking this ultimate question. But my guess is the OCC is probably taking a little bit more of a lead there. But that’s just a former banker taking a guess.

Paul Grinberg

And then our focus is to make sure that whenever the issuers that are on the sideline do come back to the market we have done everything that we need to up to that point so that there is no question that Encore is on the very short list to sell to. So when they are ready to come back we will be positioned to buy from them.

David Scharf - JMP Securities

Got it. And since the latest round of audits, these 11 that occurred in the last quarter, I know this was a hot topic a quarter ago, but I will kind of have to throw it out again. Have any of them taken a hard look at the off-shoring commentary any way in the guidelines?

Ken Vecchione

No, I think we gave you guidance last time that there were two banks that wanted to do on-shoring and we are going to accommodate them. One of those two hasn’t really come to the market, so there hasn’t been much accommodation yet. But we will accommodate them. And I think some of that is just temporary for them. And eventually once they get through a couple of rounds with buying with us, we will get them comfortable. Hopefully, we will get them comfortable with India and this won’t be an issue. So there hasn’t been any more conversation really since the last time we have discussed this.

David Scharf - JMP Securities

Great. And then speaking to India, is it too early Ken to gauge whether or not the Indian based collection efforts for Cabot are running as expected, I know it’s very early in the process and when the company first moved to India, there was a long period of trail and error, but any observation so far?

Ken Vecchione

Yes, we had our morning meeting about it today. So it’s been three weeks up and running, and so I will give you some general facts because percentages will move too quickly in the early stages. But we are – we Cabot India, they are performing better than the standard Cabot has set for both collections and quality. Now, we are trying to determine was it because we have had some of our best collectors or is it that we have really got some of the nuances down and we are really beginning to make a lot of progress. So we are proud that what was going to happen – getting Cabot in the up and running at the end of Q1 was moved to January 20. And we will have a little more to say about that as time goes on, but right now all the initial indications are pretty positive. But as I said still small sample group and we are learning our way through this, but I like what I am hearing.

David Scharf - JMP Securities

Got it. And Paul just to confirm when asked about kind of how things are going to be reported going forward in the Qs that come out this year, are we just going to see vintage analysis by country, I mean is there basically going to be a U.S. core and bankruptcy and then kind of UK consolidated?

Paul Grinberg

Well, as it becomes materially our UK core and bankruptcy as well, but that we can show the differences between the two.

David Scharf - JMP Securities

But as the – but would we expect Cabot, Marlin and Grove all to be kind of consolidate initially?

Paul Grinberg

Initially, it will be when Grove when IVAs become more material then we will break it out.

David Scharf - JMP Securities

Okay. And then it sounds like Refinancia over you – will actually be captured in the U.S.?

Ken Vecchione

That’s right and that’s where it has been captured since we started acquiring portfolios in Colombia and Peru, which the first one we did was over a year ago.

Paul Grinberg

And I will just I will just correct on one thing Cabot and Marlin is just one company, so we are not differentiating what’s coming from Marlin now, what was coming from Cabot. We will be out there in two weeks from now or three weeks from now out to do the Board meeting, our first combined Board meeting to set new budgets and we are happy that there will be just one number that we are going to be looking for. So we are not going to be dividing this between Marlin and Cabot. We are going to talk about it as just one company.

David Scharf - JMP Securities

Got it, got it. Thanks very much.

Ken Vecchione

Okay, thanks. You’re welcome.

Operator

Thank you. Your next question comes from line of Sameer Gokhale of Janney Montgomery. Your line is now open.

Sameer Gokhale - Janney Montgomery

Thank you. I just got a question about how much you gave for Grove and Refinancia I apologize if it’s in the slide, but I missed that and I was just trying to get a sense for the multiple as a percentage of ERC, I don’t have that handy, but I just want to calculate some of the metrics there, if you are able to share those?

Paul Grinberg

We talked about the purchase price for Refinancia which was about $15 million little bit less, but that was, that’s effectively primary equity going into the business, so the owners of that of Refinancia did not take any money off the table, so that went directly into the business. Grove is largely a servicer though there is about $10 million or so of ERC that will get with that transaction, but it's largely the acquisition of a servicing platform. With Grove we didn’t disclose specifically what their purchase price was for that, it’s less than Refinancia. But again we are just acquiring a servicing platform, but we are not getting portfolio because Grove the capital invested in acquiring IVAs were done through SPVs and then serviced by Grove which is how we will be doing it going forward.

Sameer Gokhale - Janney Montgomery

Okay, that’s helpful. And then in terms of the operations in Peru and Colombia, I mean is their thinking that with the acquisition of Refinancia maybe there is some things that you could take from those two markets and then apply them to the India market, you said you will start purchasing April or I think earlier this year, do you find those markets to be fairly similar where or are those quite different?

Ken Vecchione

Interesting question, I don’t think we have any answer to that yet. We are still in the process of setting up the Indian business, its complicated rules there. And we probably won’t know anything for certain, if there is any cross learnings to be shared until some time into 2015. We won’t probably, it would be good to go with the Indian business until the very, very back part of the end of the year. So if we buy a few dollars at the end of the year, great, buts it’s really you will see most of our buying happening in 2015 and that market is slightly different. And we will explain what that market looks like again on Investor Day, but I don’t necessarily know that there is going to be any initial learnings that we are going to be able to swap. I think maybe over time its going to be interesting to see the analytic group of Marlin, Cabot, Encore and Refinancia begin to share stuff. We are hoping that there is going to be knowledge transfer there but we will wait and see on that and we will give more color as we go along.

Paul Grinberg

As Ken mentioned earlier, I think the learnings are likely to come from the three lending businesses that Refinancia has and as we continued to learn more about that seeing how we can apply those products and offerings to other parts of our business.

Sameer Gokhale - Janney Montgomery

Okay, thank you. And then just to think about the purchasing, I think Paul in the U.S. I think I believe you said you deployed what was it $97 million in the fourth quarter for purchases, is that right?

Paul Grinberg

Yes, that’s for our core business and for Propel.

Sameer Gokhale - Janney Montgomery

And for Propel, so should we expect that to be roughly kind of the run rate going forward, because I guess Propel also had been an acquisition that you made in Texas, so let’s say ex-Propel if you were to just look at the core kind of purchases you see in this market, would you expect that to go down in 2014, just given the pricing environment or stable offset by Grove and Propel and some of the other acquisitions. I mean I am just trying to get a handle how to think about of course this is in the core U.S. market in 2014?

Ken Vecchione

But what we have done every year is provide more detailed guidance on purchasing at the Investor Day in June, because we do see opportunities from issuers. We also see a lot of consolidation in the market and some of the smaller competitors are making decisions to exit the market. We are able to execute on the Asset deal last year, which was a large competitor exiting the market, but getting clarity on a specific number will depend on how many of those come to market, whether we are successful at any of those, we will have some good clarity on our U.S. deployment at our Investor Day. I think for now we did give some general guidance on what should be a typical year for capital deployment in each one of our markets. We gave that last June what it should be on an ongoing basis and nothing has changed since then, but to get specific on where it will be this year, I think we will give you more guidance in June.

Sameer Gokhale - Janney Montgomery

Okay, fair enough. And then in terms of capital management, I mean you have made these acquisitions diversify and sort of view the optionality of your largest competitors is doing the same thing, but at what point do you feel, because you have got these partial stakes in companies and it seems like buying out the remaining stakes also at some point could make sense where you could deliver maybe some sort of EPS benefit depending on how those acquisitions are funded, but on the flip side, you also have with all this cash coming in the opportunity to buyback stock. So again as we look out the next year or two is the assumption essentially that you will probably exercise your option to pull the trigger on some of the other remaining stake that you have if you haven’t already acquired and that we still buyback stock is still kind of maybe off the table for the foreseeable future, is that the way you think about that?

Ken Vecchione

I think you have that right. Right now, the acquisitions perform the way we expected. We would expect over the next couple of years to be buying up our positions in Cabot and in Refinancia and Grove. And as long as those returns are far better than the returns of buying back our stock, I think that’s the path we are going to go down.

Sameer Gokhale - Janney Montgomery

Okay. Alright, well thank you very much.

Ken Vecchione

Thank you.

Paul Grinberg

Thanks, Sameer.

Operator

Thank you. And our next question comes from the line of Mark Hughes of SunTrust. Your line is now open.

Mark Hughes - SunTrust

Thank you very much. What should we expect in the non-controlling interest line off of the tax rate going forward?

Paul Grinberg

So I don’t know if there is anything we can expect from the non-controlling interest line. What I would say Mark is that we have shown what the contribution is from Cabot for the last two quarters of this year and I think that will continue into 2014. Our goal is with the acquisition of Marlin that should improve from where it was at the back half of this year. From a tax rate perspective, it’s going to be in the 39% range give or take as things move from quarter-to-quarter, but it will be somewhere in that ballpark.

Mark Hughes - SunTrust

Give little more specifics on the degree of the inflation in the cost of the portfolios in the fourth quarter, was it a continuation of the trend that you have seen, was it a significant acceleration, how would you characterize it?

Ken Vecchione

I would just say continuation of the trend. I think you guys all know the influences they are all complaining together, less supply, two major issuers early out of the market, another one not coming back to the market yet. And you still have some smaller guys hanging around the hoop, as I would call it, trying to put some bids in and pushing the price up somewhat. So I think those are all the things that are happening in the market and the pricing hasn’t come down, it continues to move up.

Mark Hughes - SunTrust

If I am clear you said that the Refinancia had I guess collected on a $165 million in different SPVs, is that right?

Paul Grinberg

Collecting on, that’s so much capital they deployed over the years.

Mark Hughes - SunTrust

Right. And…

Ken Vecchione

We don’t get any of that distribution.

Mark Hughes - SunTrust

Right.

Ken Vecchione

This is the income from the servicing fees.

Mark Hughes - SunTrust

But because of the depth of experience I guess?

Ken Vecchione

Yes, that’s correct.

Mark Hughes - SunTrust

And then did you give a similar number for growth?

Paul Grinberg

They have deployed about £100 million in over our three-year period.

Mark Hughes - SunTrust

Great. Talk about supply, could you be a little bit more specific about the supply in the fourth quarter, what you saw, you obviously didn’t buy that much in the domestic core market, was that because it just wasn’t there or you were anticipating other capital deployment, how was the 4Q specifically and do you think the market overall in 2014 what’s – what do you anticipate in terms of supply compared to 2013?

Ken Vecchione

Yes. I would say that supply was down somewhat compared to fourth quarter of 2012. And for us, the story that we told you guys in middle of the year with Asset, which is we’d be selective about what we wanted to bid on all during the course of the year continue to play out in Q4. Having said that, there were portfolios that we lost for some irrational pricing that we did not follow with, but we were I will say protected with the purchase that we made with Asset and then with the purchase of Cabot. So going forward, if I might, supply is the hardest thing to gauge, I will just say that, but my guess is supply would probably be constant to – equal to 2013 as we go forward.

Mark Hughes - SunTrust

And to be clear that’s in the U.S. market?

Ken Vecchione

U.S. market, that was your question right?

Mark Hughes - SunTrust

That’s right. And then growing in other markets?

Ken Vecchione

We think there is a faster – certainly a faster growth rate in the UK and in Colombia and Peru.

Mark Hughes - SunTrust

Thank you.

Ken Vecchione

Thank you.

Operator

Thank you. (Operator Instructions) Our next question comes from the line of Bob Napoli of William Blair. Your line is now open.

Bob Napoli - William Blair

Just quickly, what is the economic share count?

Paul Grinberg

Let me look that up and I will…

Bob Napoli - William Blair

Again, while you are looking that up, a question on the IVA market and the returns on IVA, what kind – I mean if the IVA is it I mean it’s the bankruptcy market is at a very, very similar to the U.S. bankruptcy market in the way that it works?

Paul Grinberg

It’s actually a little bit different in the way that it works there, I guess similar to trustees, but there are IPs or insolvency practitioners that look at the consumers’ overall debt and then negotiate with the creditors around that. So it’s relatively similar to a ‘13, but it’s not as formalized through a court system like the U.S. market is. And then 27.1 million is your economic share count.

Bob Napoli - William Blair

Okay. And the returns on the IVAs?

Paul Grinberg

The returns on the IVAs are our belief is better than the returns on ‘13’s are in the U.S. market.

Bob Napoli - William Blair

But not as high of a return as the core business in UK, I guess?

Paul Grinberg

That’s correct.

Bob Napoli - William Blair

Okay. And then what is the other revenue $6 million this quarter and $6 million last quarter, where did that come from?

Paul Grinberg

That’s largely going to be servicing revenues.

Ken Vecchione

So Cabot has services portfolios for other banks. Refinancia does some of that as well. So you will see that show up in that number.

Bob Napoli - William Blair

Okay. And then just last question in the U.S. competitive environment, so what you are seeing, are you seeing 10 competitors that you are bidding against with is that compared to a year ago? And I mean are there some players do you feel like are just hanging on that are still buying paper or I mean are there some bigger private companies that are out there, that are being more aggressive that you feel like might go away?

Paul Grinberg

Yes. It’s interesting we have seen some deals where it’s been open to as many as 10 folks and we have seen some deals where it’s just come down to two or three folks. So I think over a longer trend, the issuers as they get more comfortable – well, I’ll just say this way, the issuers have said to us over a longer period of time, it will be just three or four players that are going to basically bid. Today, there are few players that can still speak in there as I said is still hanging around the hoop and make some bids that get them to the party.

Ken Vecchione

So we did believe, Bob, that there will be continued consolidation and we do believe that there are companies that are bidding to negative returns and that can’t be sustained for a long period of time and similar to the last time we saw this in the cycle, I think we were pretty vocal about the fact that there are certain players out there that’s lumpy around for the long-haul and that was the case then and that will probably be the case again now.

Bob Napoli - William Blair

Okay, thank you very much.

Ken Vecchione

Sure. You’re welcome.

Operator

Thank you. And our next question comes from the line of David Scharf of JMP Securities. Your line is now open.

David Scharf - JMP Securities

Hi, just a few added ones, one just to clarify the capital deployment of Propel, the $45 million that included the acquisition, correct?

Ken Vecchione

Yes.

David Scharf - JMP Securities

I mean, okay, that was effectively sort of $10 million core plus $35 million by much of competitors?

Ken Vecchione

Of the $35 million, $29 million or so was allocated to the portfolio, so it’s $15 million and $29 million.

David Scharf - JMP Securities

Got it, got it. And could you just kind of run through remind us, I mean with returns of the investment with Flowers and Cabot, which is now Marlin as well as Refinancia and Grove, I mean what are the triggers or the options for you to take up your ownership stake from the current maturity, but not full interest or are there any?

Ken Vecchione

Yes. Each deal is little bit different, the one we talked about at length because of the size of it was the Cabot deal with Flowers at a certain point in time, they are obligated to offer us to acquire their interest and then their various mechanisms to what the appropriate price would be, but the goal is that it would be at fair market value. So there are trigger points at various times, which would ultimately in our view result in us owning 100% of that business. With Grove again, it will be similar probably on a faster timeframe than Cabot at least contractually on a faster timeframe than Cabot that would enable us to own 100% of the business. Refinancia is a little bit different, where we would increase our ownership stake, but not get to – potentially not get to 100% as quickly as we would with the others, but we would increase beyond the 50% over a couple – after a couple of years. So it’s different for each one and all those agreements, David are filed as part of our 10-K, so that you can go in and look at the specific mechanisms for each one.

David Scharf - JMP Securities

Got it, got it. Lastly, just on the U.S. market once again, where are all the charge-offs now? I mean are the banks still outsourcing as much to collection agencies? Are they picking up the amount of placements since they are selling less or are they still just kind or are they working more and more of it in-house?

Ken Vecchione

I think it’s a little bit of all three of that’s happening, but the charge-offs are coming just from handful of players, major players.

Paul Grinberg

And like the regulatory pressure on our business, there is also similar regulatory pressure on the agencies that service the debt, so many of the issuers are culling their agency network from many, many contingent agencies to just a handful of contingent agencies. So that’s shrinking as well. So there is definitely contraction across the system.

David Scharf - JMP Securities

And just thinking ahead strategically, I mean, the agency business has just been exceptionally tougher and tougher one for the last 10, 15 years, but if this new regulatory regime is such that suddenly the number of agencies that are permitted, if you will, shrinks, is that a business you would ever get back into?

Ken Vecchione

I think there are other businesses that we see that have far better returns that are more exciting to us and the agency business is not one that’s on the top of our list at this time.

David Scharf - JMP Securities

That’s good to hear. Thank you.

Operator

Thank you. And our next question comes from the line of Mark Hughes of SunTrust. Your line is now open.

Mark Hughes - SunTrust

Any updates on how much of the Marlin purchase price will be allocated to the portfolios versus other?

Paul Grinberg

We will report that in our Q1, 10-Q, so early May, stay tuned till early May.

Mark Hughes - SunTrust

Why didn’t you do sort of a simple ERC-based calculation with the portfolios becoming two times something less, something more?

Paul Grinberg

I think if you did what we did for Cabot, it’s a good enough swag for our purposes of modeling.

Mark Hughes - SunTrust

And what was that?

Paul Grinberg

We actually published that in the Q that we did – it’s in the K and it’s also published in the Q that we – our third quarter Q. So we have the allocation of the purchase price. So it will be, I mean it’s complicated market as of the tax situation and deferred taxes, which have an impact on goodwill and in allocations of the portfolio. So it’s I think if you put that – the best way to do it is to look at the ERC assume a cost to collect, assume that return associated with that and you can sort of reengineer Cabot’s that way and then apply that percentage to Marlin’s ERC and you will come up with something that won’t be too far out of the ballpark.

Mark Hughes - SunTrust

Thank you.

Operator

Thank you. And I am showing no further questions at this time. I would like to hand the call back over to Ken Vecchione.

Ken Vecchione

Thank you. Listen thanks a lot for joining us today. A little longer call than normal. Well, we had a lot to report on good questions and we look forward to our next conference call with you guys. Thanks again.

Operator

Ladies and gentlemen, thank you for your participating in today’s conference. This does conclude today’s program, you may all disconnect. Have a great day everyone.

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