Company: ATLCL
Filing Date: 2025-03-10
Form Type: CORRESP
Source: 0001437749-25-006744
Chunk: 7

Company: Atlanticus Holdings Corp
Filing Date: 2025-03-10
Form: CORRESP
Chunk 7
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 the behavior associated with an installment lending product. While it seems counterintuitive that the fair value would go up by removing subsequent purchases, thus indicating that the fair value ascribed to subsequent purchases and payments would be less than zero, this is the result of converting a revolving credit receivable to an installment loan while continuing to apply historical performance metrics when calculating expected cash flows. In particular, historical payment rates and charge off rates of a revolving credit product benefit from the ongoing utility consumers have. When applying these same rates to a liquidating receivable balance it produces a more favorable return than one would expect from a typical closed installment lending product.

Similar to the General Purpose Credit Card discussion above, in order to remove the impact of cash flows associated with subsequent purchases and merchant fees in our fair value model, we changed the expected purchase rate utilized in the model to indicate that no subsequent purchases would occur. By doing this, subsequent merchant fees (and associated cash flows thereon) are also removed, as merchant fees are calculated as a percentage of purchase amounts. Also, as discussed above, as our models are dynamic, a change to one input rate has multiple impacts on the cash flows generated by the model. In this case, by changing the purchase rate (to 0%), a consumer’s outstanding balance would no longer include subsequent purchase amounts and in turn would pay down similar to an installment loan. This change has reduced impact on the Private Label Credit Fair Value Model as subsequent purchases represented a much smaller component of the overall analysis. Regardless, this accelerated paydown and removal of cash associated with subsequent merchant fees negatively impacted cash flows used in our analysis in the following ways: 1) slightly reduces the amount of gross payments received (which is calculated when the payment rate is applied to the now diminishing consumer receivable balance), 2) removes all cash flows associated with merchant fees that may have been associated with subsequent purchases, and 3) reduces the amount of billed yield, and subsequent cash flows thereon, as the estimated yield is based on the diminished outstanding consumer receivables balance. Offsetting these negative impacts are the following positive impacts: 1) reduces the estimated paydown period for outstanding receivables as the recalculated cash payments are no longer reduced by subsequent purchases, and 2) reduces the expected servicing cost as the outstanding consumer receivable starts to decline at an accelerated rate. Given the lower subsequent purchases associated with Private Label credit receivables and existing consumer behavior that historically demonstrates that Private Label Credit consumer behavior is more similar to an installment loan (in