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Asset Acceptance Capital Corp., a buyer of charged-off consumer loans, faces a "difficult collections environment" that will adversely affect the company in the second half of the year, prompting Jefferies & Co. analyst Richard Shane this week to downgrade the company's stock from "hold" to "underperform."


Shares of the Warren, Mich.-based debt purchaser, already have lost 36% of their value in the past year, trading at $9.72 at midday. "We continue to expect the growth rate of collections to decline throughout 2008 as energy and food inflation coupled with real estate deflation exerts growing pressure on disposable income," Shane wrote in a research note.


He also noted that Asset Acceptance's price-to-earnings ratio is about 50% higher than that of two publicly traded debt-buying peers - Encore Capital Group and Portfolio Recovery Associates. Further, any positive impact felt by lower debt portfolio prices, he wrote, will be overshadowed in the next few quarters not only by the current difficult collections environment but by a "drag from lower returning 2006 and 2007 vintage performances."


Asset Acceptance had reported net income of $6.8 million in the first quarter ended March 31, down 31% from profits of more than $9.8 million in the same period last year. Revenues totaled $63.7 million, down 4.6% from first-quarter 2007 revenues of $66.8 million. In the quarter, Asset Acceptance spent $22.3 million to purchase charge-off consumer debt portfolios with a face value of $548.5 million, for a blended rate of a little over 4 cents on the dollar. This compares with a first-quarter 2007 investment of $36.3 million to purchase portfolios with a face value of $765.1 million.

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