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Asta Funding Inc. Reports Operating Results (10-Q)

February 12, 2010 | About:
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10qk

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Asta Funding Inc. (ASFI) filed Quarterly Report for the period ended 2009-12-31.

Asta Funding Inc. has a market cap of $104.8 million; its shares were traded at around $7.35 with and P/S ratio of 1.4. The dividend yield of Asta Funding Inc. stocks is 1.1%. Asta Funding Inc. had an annual average earning growth of 42.6% over the past 5 years. GuruFocus rated Asta Funding Inc. the business predictability rank of 2.5-star.

Highlight of Business Operations:

Finance income. For the three months ended December 31, 2009, finance income decreased $7.4 million or 40.4% to $11.0 million from $18.4 million for the three months ended December 31, 2008. Finance income has decreased primarily due to the lower level of portfolio purchases over the last year and a half and, as a result, the increased number of our portfolios that are in the later stages of their yield curves. The average balance of consumer receivables acquired for liquidation decreased from $427.7 million for the three month period ended December 31, 2008 to $200.2 million for the three month period ended December 31, 2009. The decrease in the average balance was attributable to the impairments recorded in the fourth quarter of fiscal year 2009. The Company purchased $2.3 million in new portfolios in the first quarter of fiscal year 2010 as compared to $1.2 million in the first quarter of fiscal year 2009.

Net collections for the three months ended December 31, 2009 decreased 30.0% to $29.4 million from $42.0 million for the same prior year period. Net collections are lower due to the lower level of purchases over the last year and a half and the general slow down of the economy. During the first quarter of fiscal year 2010, gross collections decreased 33.6% to $43.7 million from $65.8 million for the three months ended December 31, 2008. Commissions and fees associated with gross collections from our third party collection agencies and attorneys decreased $9.5million, or 39.9%, to $14.3 million from $23.8 million for the three months ended December 31, 2009 as compared to the same prior year period, consistent with the decrease in gross collections. Commissions and fees amounted to 32.7% of gross collections for the three month period ended December 31, 2009, compared to 36.1% in the same period of the prior year.

General and Administrative Expenses. During the three-month period ended December 31, 2009, general and administrative expenses decreased $1.4 million or 19.9% to $5.6 million from $7.0 million for the three-months ended December 31, 2008. The decrease is attributable to the closure of the Pennsylvania call center in February 2009, lower collection expenses, primarily the discontinuation of the $275,000 monthly management fee in May 2009, paid to a significant servicer relative to the purchase of a $6.9 billion face value portfolio in March 2007 (the Portfolio Purchase), and lower professional fees.

Interest Expense. During the three-month period ended December 31, 2009, interest expense decreased $1.9 million or 60.3% from $3.2 million to $1.3 million for the same period in the prior year. The lower interest expense in the 2009 fiscal quarter is primarily a reflection of decreased borrowings. In addition to the continuing paydown of the Bank of Montreal (BMO) loan (the Receivables Financing Agreement), the Company paid off the IDB credit facility (the IDB Credit Facility) with a consortium of banks (the Bank Group) on December 14, 2009, making the final payment by borrowing approximately $3.6 million from the new revolving credit agreement with Bank Leumi (the Leumi Credit Agreement). The Companys average debt obligation (excluding the subordinated debt related party) dropped from $195.1 million during the three-month period ending December 31, 2008 to $111.2 million during the corresponding 2009 period. Additionally, interest rates on total average debt were lower in the current fiscal quarter compared to that in the same prior year quarter (a 3.90% average rate on total debt, excluding the subordinated debt related party as compared to a 5.98% average rate last year).

The aggregate minimum repayment obligations required under the Fourth Amendment to the Receivables Financing Agreement entered into on February 20, 2009 with Palisades XVI including interest and principal for fiscal years ending September 30, 2010 and September 30, 2011 (seven months), are $12.0 million and $7.0 million, respectively, plus monthly interest and fees. There is an additional requirement that the balance of the facility be reduced to $25 million by April 30, 2011. While the Company believes it will be able to make all payments due under the new payment schedule, it is likely we will not be able to reduce the balance of the facility to $25 million by April 30, 2011, and there is no assurance the loan will be extended. We anticipate working with BMO to extend the facility by the expiration date.

Net cash provided by operating activities was $5.0 million during the three months ended December 31, 2009, compared to net cash provided by operating activities of $3.5 million during the three months ended December 31, 2008. The increase in net cash provided by operating activities was primarily due to an increase in net income an increase in income taxes payable. Net cash provided by investing activities was $16.1 million during the three months ended December 31, 2009 as compared to $23.9 million net cash provided by investing activities for the same prior year period. The primary reason for the decrease in cash provided by investing activities is the lower net collections in the fiscal 2010 quarter, $29.4 million, compared to $42.0 million in the fiscal 2009 quarter. Net cash used in financing activities was $21.2 million during the three-months ended December 31, 2009, compared to $29.4 million during the three-months ended December 31, 2008. The change in cash flows from financing activities is primarily due to the increased repayments of debt, $29.7 million, during the three month period ended December 31, 2008, as compared to repayments of $21.4 million during the three month period ended December 31, 2009. Our cash requirements have been and will continue to be significant. Our primary uses of cash include repayments of our credit

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