This excerpt taken from the ECPG 10-Q filed Aug 4, 2008.
Note 12: Subsequent Events
Effective July 3, 2008, the Company amended its Revolving Credit Facility to expand the $230.0 million senior secured revolving credit facility by increasing the accordion feature to provide for an additional $105.0 million in availability, resulting in capacity of $335.0 million. This amendment also added three additional lenders and increased the applicable margin under certain circumstances between 25 and 75 basis points.
On July 15, 2008, the Company gave Jefferson Capital Group and its parent Company, CompuCredit Corporation, notice of breach by Jefferson Capital and CompuCredit of the Asset Purchase and Forward Flow Agreement dated June 2, 2005, as amended, as well as a related Collection Agreement dated the same date. On July 16, 2008, the Company initiated arbitration as a result of the breach, pursuant to the arbitration provisions of the Agreements. The Company asserts that the litigation initiated by the Federal Trade Commission (the FTC) on June 11, 2008, wherein the FTC alleges that Jefferson Capital and CompuCredit have violated the FTC Act with deceptive marketing practices in selling credit cards, among other allegations, violates the Asset Purchase and Forward Flow Agreement and Collection Agreement. The Company seeks an arbitral award that (i) Jefferson Capital and CompuCredit are in material breach of the Agreements, (ii) declares the Companys obligations to purchase forward flow accounts under the Agreements is thereby excused or discharged, (iii) confirms the Companys rights to cause Jefferson Capital to repurchase certain accounts previously sold to the Company under the Agreements, and other appropriate relief, including return of prepaid amounts relating to forward flow purchases, (iv) confirms the Companys rights to indemnity by Jefferson Capital and CompuCredit and (v) awards compensatory damages, attorney fees, interest, arbitration costs and other appropriate relief.
The Company has just commenced the Arbitration proceedings and no Arbitrator(s) have as yet been identified. In the interim, the Company has ceased forward flow purchases of accounts from Jefferson Capital, the sale of bankrupt accounts to Jefferson Capital and participation in a balance transfer program with CompuCredit. In response to the Notice of Breach from the Company, Jefferson Capital and CompuCredit delivered its own Notice of Default to the Company alleging the breach by the Company of the Companys forward flow purchase, bankruptcy sale and balance transfer obligations.
This matter is in the early stages of development and any impact on the recoverability of the Companys forward flow asset, currently stated at $10.3 million, is uncertain. The consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty.