Good afternoon, and welcome to the PRA Group conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Ms. Lauren Partin, Senior Vice President of Finance and Investor Relations for PRA Group. Please go ahead.
Thank you. Good evening, everyone, and thank you for joining us. With me today are Kevin Stevenson, President and Chief Executive Officer, and Pete Graham, Executive Vice President and Chief Financial Officer. We will make forward-looking statements during this call, which are based on management's current beliefs, projections, assumptions, and expectations. We assume no obligation to revise or update these statements. We caution listeners that these forward-looking statements are subject to risks, uncertainties, assumptions, and other factors that could cause our actual results to differ materially from our expectations. Please refer to the earnings press release and our SEC filings for a detailed discussion of these factors. The earnings release, the slide presentation that we will use during today's call, and our SEC filings can be found on the investor section of our website at www.pragroup.com.
Additionally, a replay of this call will be available shortly after its conclusion, and the information needed to listen is in the earnings press release. All comparisons mentioned today will be between Q4 2020 and Q4 2021, unless otherwise noted, and our Americas results include Australia. During our call, we will discuss Adjusted EBITDA and debt to Adjusted EBITDA for the 12 months ended December 31st, 2021 and December 31st, 2020. Please refer to today's earnings release and the appendix of the slide presentation on our website used during this call for a reconciliation of these non-GAAP financial measures to the most directly comparable U.S. GAAP financial measure. I'd now like to turn the call over to Kevin Stevenson, our President and Chief Executive Officer.
Well, thank you, Lauren. Thank you everyone for joining us this evening. I do have two comments to make, however, before we begin. You know, over the past few days, we've all watched the situation unfolding in the Ukraine with great concern. My thoughts are not only with the people of the Ukraine, but also with our team members across Europe and especially Poland. To those members of the PRA family, I am deeply sorry for what you're going through and how you must be feeling right now. We're determined to support you. While this is happening, we can't forget that we're two years into a pandemic, and it's ever-changing. The beginning of the fourth quarter, we were discussing vaccination rates and returning to office in many of our areas, and then Omicron hit.
We continue to keep many of our employees in a work-from-home status while maintaining a strong workplace safety standards in our in-office employees. I'm certainly proud of how our team continues to adapt as the pandemic progresses. While the pandemic has proven challenging to everyone from a financial perspective, 2021 has been very successful for the company. We achieved record cash collections, record revenue, record cash efficiency, and record net income. In Q4, we collected $474 million globally. This is driven by strong European cash collections, which increased $20 million compared to the fourth quarter of 2020. This brings our year-to-date global cash collections to a record $2.1 billion, 3% ahead of our previous record from 2020.
Net income attributable to PRA Group for the quarter was $34 million and a record $183 million for full year 2021, which was an increase of 23% over last year. Quarterly portfolio purchases were $202 million, bringing the total purchases for the year to $972 million. Our investments in 2021 reflect the importance of our geographic diversification as the investments were split nearly evenly between Europe and the Americas. Reflecting on that just for a moment, in 2017, Europe represented about 25% of our global buying. Additionally, we've continued to focus on growing our market share and our European purchases were less weighted towards the U.K. as compared to prior years. Then finally, during the quarter, we repurchased $139 million of our common stock.
The $139 million deployment equated to 3 million shares at an average price of around $46. In total, over the past 2Q , we've returned $213 million to shareholders while repurchasing 11% of our outstanding shares. In previous quarters, I've shared the five strategic objectives that guide our company. Throughout 2021, we built upon our prior success in each of these areas, and these objectives will continue to guide our efforts throughout 2022 and beyond. First, we continue to expand products and market share. It's been a long-term goal of ours to be geographically diversified. During 2021, we increased the presence, our presence in Northern Europe and South America. Our greenfield operation in Australia continues to grow as we've built out our team, locked in forward flows and successfully collected on the portfolios we purchased.
Throughout 2021, we purchased test portfolios of new products in selected markets. We've gained valuable data in this process, which we believe will allow us to make more substantial purchases in the future, thus expanding our addressable market and providing opportunities for growth. As a further driver to expand market share in 2022 and beyond, we will continue to selectively evaluate M&A opportunities. We'll focus on companies that either enhance our existing footprint, give us new skills or capabilities, provide access to new credit originator relationships and data, or allow us to enter a new market. The next two strategic objectives both focus on optimizing our business. We've made great strides to modernize collections with our investments in both digital and data and analytics. These improvements allow customers to interact with us using the medium in which they prefer, while at the same time driving efficiency.
Operationally, 2021 was a great year for us, as evidenced by our record cash efficiency ratio. In the U.S., our digital platform continued to drive collections that are a significant part of total collections. Since the first quarter of 2019, our digital collections are up 83%. Domestic call center productivity remained high throughout the year as we recognized the benefits of recent improvements in scoring and analytics, allowing us to maximize the value of each collector hour. Cash collected per collector hour in Q4 2021 increased 14% over Q4 of 2020. Additionally, as more customers have paid digitally, we've had fewer accounts in our legal inventory. In the U.S., we've been executing a multi-year initiative to build out our internal legal capabilities, hiring the necessary attorneys and implementing software to help maximize efficiency.
For example, in 2019, internal legal placements represented less than a third of our legal placements. In 2021, it represented over half of our placements. This represents a significant savings because we don't have to pay commission to the external attorneys on every dollar collected. In Europe, we continue to benefit from investments in technology. These include investments in digital platforms, cloud-based dialers, infrastructure, robotic process automation, and integration into supporting systems. We now have digital platforms in all countries where we have operations, enabling Q4 digital or European digital cash collections to grow nearly five times since the first quarter of 2019. Globally, we continue to invest in data analytics to support our operational objectives. During 2021, we further improved our predictive scoring models used in underwriting.
We tested new data sources, developed new machine learning solutions that added efficiency and improved our legal and outbound calling strategies. The fourth strategic objective is to be recognized as a trusted brand. Over the last few years, we've significantly increased our interactions with regulators and elected officials, making sure that we are in control of our narrative. We've seen tangible success in our work here, allowing us to build relationships, impact legislation, and become valued partners to our industry and trade association colleagues. We've now taken this recipe for success to Europe, where we just hired our first head of government relations to lead our legislative work there. Our fifth strategic objective is fostering a high-performing workforce. I've always valued our employees and always recognized that they are the reason for our success, but I believe this objective is particularly important in today's job market.
No company is immune from the great resignation. While our turnover has increased since 2020, I'm proud to say that our 2021 statistics were better than our pre-pandemic levels. I think this is a tribute to our strong brand and company culture. In 2021, we continued to embrace our DE&I strategy and launched our Be Yourself and Be Your Best campaign. We aspire to create an environment where every employee feels comfortable doing their best work and being themselves. We also introduced an employee staff diversity and inclusion steering committee. We launched our first-ever company-wide diversity and engagement survey, and we held our first global inclusion week. Also, we established three new employee resource groups: Women in Business, Mental and Emotional Wellbeing, and Caregiver Allies. On the ESG front, I'm happy to announce we've hired a dedicated internal resource to manage our ESG efforts.
During the fourth quarter, we announced a new operational hub at the HALO Enterprise and Innovation Center in Kilmarnock, Scotland. This is the first net zero carbon energy development project in Scotland. It's powered by renewable energy. This 15-year commitment reinforces PRA's dedication to enduring sustainability as we build career opportunities and prioritize energy efficiency. Onto a personal passion of mine, charitable giving. I'm happy to say that PRA donated a record amount in 2021, and that included nearly 100 different nonprofits. We ran programs to keep employees engaged and allowed them to support the nonprofit of their choosing.
Most notably, our $250,000 for 25-year campaign allowed employees to nominate the charity of their choice, which resulted in 10 nonprofits around the world being awarded $25,000 each. For those who haven't looked at our ESG tear sheet, please visit our website and view it. ESG will continue to be an important focus for us. I think it's evidenced by our hire of our first Director of ESG. Additionally, in the coming months, we'll be updating our tear sheet, and we look forward to some enhanced disclosures as well. From an investment perspective, we deployed $202 million in the fourth quarter. Throughout 2021, we invested broadly across the globe, allowing us to deploy $972 million in portfolio purchases, which is an increase of $67 million in 2020.
This achievement clearly demonstrates the power of operating a geographically diverse enterprise. Combine that with our strong cash flows, our excellent underwriting, our balance sheet, and ample access to funding, we believe we're in a great position to shift capital broadly across our markets where it can be best deployed. In the Americas, we invested $111 million during the quarter. In the U.S., we continue to see similar levels of marketed deals the first 3Q of the year. Many economic indicators are pointing to higher volumes on the horizon. For example, according to Federal Reserve Bank of New York, credit card balances at the end of 2021 increased $52 billion from Q3. This marks the largest quarterly increase observed in the New York Fed's 22-year data history.
This, coupled with decreased household savings rates and increased consumer spending, leads us to believe we are moving through a trough in supply in the U.S. We believe the volumes will build by the end of 2022. As we indicated earlier this year, the pipeline in Europe has been healthy. However, we did see competition increase during Q4. Certain markets are experiencing more competitive pricing than others. Should this continue into 2022, we'll stick to our long-term track record of remaining disciplined and only deploy capital returns where returns make sense. In Europe, we invested $90 million during the quarter, bringing the full year investment to $477 million. 2021 was the second highest year for European portfolio investment since entering the European markets broadly in 2014.
We also believe that inflation, rising energy prices, and rising interest rates could possibly be a catalyst for increased supply. Our maximum committed forward flow volume was $651 million at December 31st, 2021. This is a meaningful year-end record for the company. It's also a substantial increase over last year. Looking back, we set our prior record of flow under contract as we entered 2021, but the current volume entering 2022 represents an increase of $149 million, or nearly 30%. This includes $247 million in the Americas and $404 million in Europe. While this number will fluctuate throughout the year, based on a number of factors, the thing to focus on is the increase over prior Q4 number. We believe we are well-positioned heading into 2022.
I'd now like to turn things over to Pete to go through the financial results.
Thanks, Kevin. We continued strong performance with total revenues of $257 million for the fourth quarter and a record $1.1 billion year to date, which represents 3% growth on top of last year's record revenue. Total portfolio revenue was $252 million, with portfolio income of $212 million and changes in expected recoveries of $40 million. During the quarter, we collected $36 million in excess of our expected recoveries, bringing the year-to-date total to $251 million. Operating expenses were $174 million, a $10 million decrease from the fourth quarter of 2020. This was driven primarily by decreases in legal collection costs and compensation and employee services.
The effective tax rate for the year was 22%, and we expect 2022 to be in the low to mid-20s. Net income was $34 million, which generated $0.79 in diluted earnings per share for the fourth quarter, and net income for the full year was $183 million, generating $4.04 in diluted earnings per share, an increase of 24%. For the quarter, cash collections were $474 million. For the full year of 2021, the Americas collections were $1.4 billion and were ahead of our expectations. We continue to see solid operating metrics in our digital collections as more customers utilize these platforms during this period of increased consumer liquidity. As a result, compared to 2020, America's digital collections increased while call center and legal collections decreased.
European cash collections grew almost $20 million or 12% in the quarter. For the full year of 2021, European cash collections grew $129 million or 22%, which was a record for Europe. The strength of our Pan-European operation has allowed us to invest at favorable levels over the last few years, and this is driving the growth in our European business. For reference, our investment levels in 2017 were split about 75% in the Americas and 25% in Europe. Over the next few years, the split was closer to 55/45. In 2021, the investment was split nearly 50/50, and as a result, we're seeing very strong growth in the business in Europe.
Our cash efficiency ratio was 63.5% for the fourth quarter and 65.3% for the full year. Although we experienced some expected normalization of the efficiency ratio in the latter part of the year, we achieved record cash efficiency in 2021. Looking forward into 2022, we expect the fourth quarter trend to be more indicative of the level we could attain. Even with some downward pressure on our cash efficiency ratio, it will still be significantly improved over our pre-COVID levels. While we do not expect the same levels of consumer liquidity we've seen over the last two years, we believe the efficiency gains we've achieved on the operational side are here to stay. ERC at the end of the quarter was $6 billion, with 41% in U.S. and 52% in Europe.
While this is a slight decline from last quarter, we're encouraged about our improved diversification over the past year. Within Europe, the proportion of ERC coming from Northern Europe increased, as well as the proportion coming from other Americas. This validates our diversification strategy and our ability to deploy capital in any market as opportunities become available. We expect to collect $1.6 billion of our ERC balance during the next twelve months. Based on the average purchase price multiples we recorded in 2021, we would need to invest approximately $900 million globally over the same time frame to replace this runoff and maintain current ERC levels. I think this level is attainable, but it will be dependent on the normalization of the U.S. market we're expecting to happen during 2022
Our capital position remains strong, with our leverage ratios remaining below our long-term target of two to three times debt to Adjusted EBITDA. We ended the year with $1.4 billion available for portfolio investment. Additionally, in 2021, we generated $1.4 billion of Adjusted EBITDA, an increase of over $40 million when compared to the full year 2020. We believe that having the ability to fund larger deals as they come available gives us a competitive advantage, and we will continue to evaluate our funding profile and mix of secured and unsecured debt and look for opportunities to expand our investor base.
During the fourth quarter, we repurchased $139 million, or 3 million shares of our common stock at an average price around $46 per share, bringing the total for the year to $213 million, or 11% of our outstanding shares. Additionally, during 2022, we repurchased the remaining $17 million authorized under the program. Last week, our board of directors approved a new $150 million share repurchase program. Our strong cash and financial performance, conservative capital structure provide considerable flexibility for balanced capital deployment across portfolio acquisitions, share repurchases, and other growth initiatives. Now I'd like to turn things back to Kevin.
Well, thank you, Pete. Looking back on 2021, I am extremely proud of our employees and their accomplishments despite of the ongoing challenges of the pandemic. We faced many obstacles and rose again, just as we did in 2020, and we've achieved multiple records. Record cash collections, record revenue, record cash efficiency ratio, and record net income. Our success was directly attributable to our exceptional team and our focus on our strategic objectives. In my 25 years at PRA, many things have changed in the financial services industry, especially recently. As we moved to a world of digital payments, digital wallets, cryptocurrencies, buy now, pay later, and A2A banking. It's interesting and exciting to see this kind of overhaul of the industry. We've not seen this magnitude and velocity of change in quite some time.
We've successfully reacted to these changes through the development and evolution of our digital platforms and improving and leveraging our data and analytics. We're utilizing these capabilities as a way of better understanding our customers and enabling them to pay through the channel that they prefer. Very proud of our team and the significant progress they've made. Throughout this transformative time and in the industry, there are a few things that remain unchanged. We are committed to delivering long-term results. We maintain a strong conservative balance sheet. We treat our customers with dignity and respect. We give back to the communities where we live and work. Looking ahead at 2022, we will continue to deliver on our strategic priorities. We will continue to share our progress with you. We will continue to adapt to the ever-changing needs of the customer.
We will continue to deploy capital profitably and efficiently collect on our portfolios. We'll continue to provide additional value to shareholders, whether that be through organic growth, M&A, or share repurchases. We do the right things for the right reasons. We have a proven track record of sticking to our long-term view. As I said before, not just words, not just hope, but a proven and demonstrated track record over decades of business. Operator, we are now ready for questions.
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Bob Napoli with William Blair. Please go ahead.
Good afternoon, Kevin, Pete. Nice job on the quarter, on the year. I guess my first question would just be the comment you made, Kevin, around testing purchases of new products selectively and in different markets. With all the change obviously we've seen in financial services with new products like buy now, pay later, and different types of consumer loans, can you give a little color on, you know, around what you're testing or where you see opportunities for new products?
You know, just generically, you know, historically we have, you know, largely stuck to, you know, credit card, private label, and those kind of products. I guess I don't wanna be too cute about it, so don't get me wrong here. I just don't wanna talk too much about specifics on the kind of products we purchased. I'll tell you that it's, again, it's stuff that we generally haven't purchased in the past, and it's in both the U.S. and in Europe. You know, we'll. As it gets larger, we'll expand on that a little bit over time.
Okay. Thank you. You know, the forward flow portfolio that you have. How are the IRRs in that forward flow versus, say, a year ago? What are your, I mean, I know you did call out some additional competition in Europe. Are the IRRs in line with historical levels for the forward flow portfolio?
The returns, you know, with any supply and demand equation, they have come down a little bit. I guess I would say that.
Yeah.
They're still at levels we like. We'd all love to buy at 2020 levels for a long time, but we're happy with these.
Great. I guess with forward flow picking up towards the end of the year, that might be helpful to returns.
I agree. I agree, yeah.
The cash efficiency ratio. I guess the 63.5%, I mean, I think that's. Is that a reasonable target for you on a go-forward basis for 2022 and forward?
Yeah, as I said, I think that's probably indicative of where we go into next year. You know, we're always looking to improve efficiency. It's one of the kinda core objectives, but we know we're gonna have some pressure just given we're not gonna have the top-line liquidity that we've had in the last year or so. I think that more recent trend is more indicative of what we're gonna carry into next year.
Great. Thank you. I'll turn over the floor.
Thanks, Bob.
Our next question comes from David Scharf with JMP Securities. Please go ahead.
Hi. Yeah, good afternoon. Thanks for taking my questions. Hey, Kevin, wanted to maybe get a little more color on the U.S. market. I apologize if this is a rambling question. Ultimately, what I'm you know hoping to get some better understanding of is whether you think banks are gonna behave the same way they have in prior cycles. You know, the reason I ask this is you know we see the same external data that you do in terms of delinquencies rising, loss rates rising in the New York Fed data. Ultimately, it's a really weird credit cycle in the sense that you know it it's not losses going to kind of peak levels. It's really just credit normalization, the return to pre-pandemic loss rates.
It's also a unique cycle 'cause it's really sort of the first rising loss rate cycle post-Dodd-Frank, where banks are much more well-capitalized, you know, not sure if they don't feel as compelled to, you know, shore up capital and sell charge-offs to the extent they have in all prior cycles. So excluding just the, you know, same loss data that we see, do you get any sort of qualitative or strategic feedback from your sellers about, you know, whether they're going to sell as much as loss rates go up as they, you know, have in prior cycles? Because things have shifted a little bit.
That wasn't that rambling, David. That was okay. I don't. I'm not hearing anything that would lead me down the road that there'd be some shift away from where they're at. You think about just this year, as I mentioned in my script, the volumes we see in the U.S. are pretty consistent with the prior three quarters. You know, I've not heard any. You know, a number of years ago, people were talking about bringing stuff internally, if you remember some of that. I don't hear anything like that. In Europe, the volumes are strong in Europe. I don't. It's not high on my list of things that I'm either concerned or thinking about. Now, you know, I guess you've been around long enough.
You know, is it enough to maybe shake loose some people who aren't selling today? I don't know if that's the case or not, but, you know, we'll certainly keep working on those trees as well.
Got it. Maybe as a follow-up, shifting from the U.S. to Europe, you know, as it relates to the comment about becoming a little more competitive than the last few quarters, can you just maybe put that into historical context? Because a few years ago, obviously, it was excessively competitive, and you bided your time, and obviously, that discipline paid off very well. You know, as you use the term more price competitive this past quarter.
Should we still view that as just relative to the last couple of quarters, but nowhere near sort of the frothiness of a few years ago? Thank you for asking that question because I'm ready for it, and I think that's a great way to lead in. So let me tell you what this is not, and I'll focus on Europe for a second. This is not 2017 and 2018. I actually went back in preparation for the call and looked at some of my old notes from a conference back in June of 2019. I referenced in that conference that you know, kind of the irrational pricing in Europe started really in Q3 of 2016. We called it a land grab.
I gave some data. I think it was in the Q1 of 2018 call where 60% of the deals in Europe were trading for, you know, low single-digit negative returns. We are not there. We're no way near that. That's the message I'll give you guys. Good volume in Europe. The returns have certainly come in from where they were, but, you know, we're hoping that'll be a little bit of a transition period as we enter 2022. Great. Thanks a lot.
Our next question comes from Mark Hughes with Truist. Please go ahead.
Yeah, thanks. Good afternoon.
Hey, Mark.
Hello.
Hello.
The share repurchase, what's your sense on, you know, how motivated you're gonna be? Should we expect that $150 million should be pursued pretty aggressively? How might you frame that up?
I think given the environment we're in now and the fact that we think that, you know, we're gonna have portfolio opportunities in, particularly in the U.S., as the year builds, we're probably not gonna be as hard on the gas with the program as we were the latter part of last year. Beyond that, I can't-
Yeah.
Can't really give you a specific guidance.
How about you talked about the efficiency ratio being not quite as good, in part because of the liquidity, probably lower liquidity, which makes sense. I'm just sort of curious if you can describe what you've seen lately. Obviously, you had COVID kind of ramped up and is now receding, you know, with some of the government spending or other supports transitioning, let's say. Anything you can say about that liquidity, about the collections environment as you see it shaping up this year?
Well, I think, you know, we've kind of talked through the last couple of quarters about the fact that we expected things to start to normalize, you know, the farther and farther we got away from lockdowns and stimulus, and we are seeing that. We're expecting a more normalized level of collections in line with our ERC forecasts as we go into 2022. As a result, I think the most recent trending of cash efficiency is what we, you know, as I said in my prepared remarks, what we expect to kind of carry into 2022. If I could add to that. Yeah. Mark, if I could add to that.
You know, Pete's prepared comments, just to put a pin in it a little bit, you know, the record, the numbers we're forecasting are still quite a bit higher than our pre-COVID levels. I think that just this idea of all this that we've learned and developed over the past couple of years is gonna stick with us, and that's gonna benefit us down the road.
Understood. The M&A, do I hear slightly more enthusiasm in your voice about potential M&A? Could you give us a little more on what you might be looking at?
Yeah. I thought I laid it out pretty good in the script. You know, but yeah, you hear a little more enthusiasm from me. That's for sure. I think it's an interesting time for it. You know, I talked about, you know, adding new skill sets, new capabilities, that's one thing. I talked about kind of the normal blocking and tackling of getting new data. It's always a big thing in our industry. Getting new seller relationships to some degree, or potentially new geographies. That covers most of the areas that we're thinking about right now.
Yeah. Just one final one. You're talking about pursuing new asset classes. It sounds like you're penetrating or you're in a new asset class, and you're waiting for it to build before giving some additional disclosures. Is that the right way to think about it?
Absolutely. Yeah. It's, you know, we call them tuition investments. You know, we'll pick off these asset classes to see what we know about them and how they track and step our way into them. It's a pretty consistent approach we've taken over the years. If you think about, again, much like I said, you know, M&A, the timing is good. The timing is also good for this kind of exploration as well. I don't know that 2020 and 2021 would have necessarily been that time, you know, during COVID, but we're at that point, and we're excited about it.
Thank you.
Our next question comes from Robert Dodd with Raymond James. Please go ahead.
Hello, everyone. Congratulations on the year and all the efficiency improvements over the last couple of years. One question for us. On the buyback, I presume the amount is more or less dictated by the covenants in the credit facility. A, is that the case? And B, do those covenants limit any of your flexibility on either M&A or, you know, other new product portfolios that you're acquiring? Are those eligible to the credit facility or are there any restrictions that come into play in terms of how you might allocate capital beyond just the buyback?
Sure. First part of your question around the covenant limits. The new program is well within, you know, the covenant limits, which are, you know, broadly $150 million plus 50% of the prior year's net income. That would have put us, you know, similar to actually a little higher than the levels that we had in the program last year. We've got, you know, ample room if the situation develops and makes sense for us to do more. We've got plenty of flexibility within the covenant limits in the credit facility.
In terms of M&A, you know, there's buckets within the credit facility that sort of outline those availability as well as some incurrence-based things, you know, with the unsecured bonds that we have out. You know, they're all manageable and, you know, given the low leverage position that we're at, conservative nature of the balance sheet, we've got plenty of flexibility to, as I said in my prepared remarks, deploy capital in a pretty balanced way across all three of those avenues.
Got it. Thank you. On the cost to collect, I mean, you've been very clear that the Q4 number is probably the sustainable number. I mean, I presume there's still improvements you can generate from digital efficiency, et cetera. I mean, I think that your cash per collector was up 14%, but some of that's the enhanced consumer liquidity that may be in the rear view mirror.
I mean, is the 63.5% because you've kind of reached a steady state efficiency or do you think there are tools to increase efficiency, but then they're offset by the fact that consumer liquidity and excess collections, you may not be generating the same level of excess collections into 2022?
Well, there's a couple of things sort of wrapped up in there. You know, part of the challenge we've got is moving past the sort of pandemic induced you know, consumer liquidity. We wanna get some time under our you know, under our belts with regards to performance in a post-pandemic world. That's one. I think the other factor here is, you know, we're down pretty significantly in terms of total collectors in the U.S. We've still got a good amount of slack in the system, but we're not really interested in going much lower in terms of total collectors, even though we've had you know, kind of lower levels of portfolio investment over the last year or so.
I think there's capacity for us to build, you know, as investment opportunity comes through 2022 for us to build and layer those portfolios on without significantly impacting the cost base. That will obviously drive additional impact on the cash efficiency ratio.
Got it. Thank you. One housekeeping item, if I can. On sensitivity to rising rates. I think from what I can recall looking at the last Q, I mean, you hedge the vast majority of your floating rate exposure. So would you say that I should expect the rate sensitivity to be minimal? Is that fair?
Yeah. I mean, we largely historically have been, you know, funded through the secured credit facilities, which are all floating rate. We've done some interest rate hedging over time. We've now layered in fixed rate debt exposure in the context of the unsecured bonds. I'd say our sort of natural posture is neutral, so call it 50%. But at times we'll be, you know, hedged higher than that. Probably won't be much lower than that. At the end of the year, we were roughly 68% effectively hedged, the combination of, you know, those fixed rate debt issuances as well as the hedging program.
Got it. Thank you.
Mm-hmm.
Again, if you'd like to ask a question, please press star then one. Our next question is a follow-up from Bob Napoli with William Blair. Please go ahead.
Thank you. Just to be clear, are they the sanctions that are flying around over the last couple of days? Is there any effect on your business from any of those sanctions and payments or in any way? Maybe take it a step further. I mean, you called out your Poland, your employees in Poland. Is there any disruption within your organization in any way at this point?
I guess I'll say that on the sanctions, I don't think there's any impact to us. You know, we wouldn't have any involvement.
Right
In any of those kind of things. The Poland situation is just that there's so many refugees coming across the border. I think I heard 600,000-ish, and about half are coming into Poland. I guess I'll share with you, some of our employees personally have taken in folks from Ukraine. That's a sensitivity to have that. It's really about the personal impact from our employees, but ...
Yeah.
That's it. Yeah, nothing on a financial side.
Thank you. Just, you had given out a stat, and to make sure I got this right, $1.6 billion in cash collections. That's from the ERC that you had at the end of the year, is what you're suggesting, 2022 cash collections, $1.6 billion from ERC, and then obviously collections from purchases on would be on top of that?
Yeah. To the extent we have any, you know, overperformance against the projections, that would be additive as well. It's basically just the back book, the next 12 months of the ERC projection of $6 billion is $1.6 billion.
Okay. Thank you. Then I think you had Pete maybe suggested some tweaks to your debt structure. Are there ways to, I mean, your leverage is relatively low. Are you looking at, you know, converts or, you know, are there a way to, you know, give you more permanent or long-term capital that gives you more flexibility for either M&A or share repurchases or debt purchases?
Yeah, we've been on kind of a long-term multi-year journey of rebalancing our funding profile. You know, we started with getting rated in 2020, and we've done now two unsecured issuances in the U.S. market. We'll continue, you know, to work down that journey. You know, the European market is one that is for our sector actually a very liquid market and a lot of investor interest. That's probably a logical sort of place for us to look next.
Would you take up your target leverage ratio slightly if you're-
No, it doesn't really have an impact on the leverage ratio per se. It gives us an ability to term out the maturity profile. You know, at the margins, you know, increasing our level of unsecured funding versus secured funding will be, you know, credit enhancing from perspective of the rating agencies.
Right. Thank you.
Yep.
This concludes our question and answer session. I would like to turn the conference back over to Kevin Stevenson for any closing remarks.
Yeah. Thank you, operator, and thanks everyone for joining us on the call this evening. I really do wanna end here where I started. These are trying times for the world, from COVID to what's happening in Ukraine. These are times when we really gotta pull together as a global community and support those who need it the most. I just urge you, everyone on the call, don't sit on the sidelines. You know, get involved, show your support, send your support, and help those folks in need. With that, of course, we look forward to talking to you next quarter. Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.