As filed with the Securities and Exchange Commission on September 6, 2002.

SECURITIES AND EXCHANGE COMMISSION

Form S-1

Portfolio Recovery Associates, Inc.

120 Corporate Boulevard

Steven D. Fredrickson

Copies to:

     Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared effective.

     If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box:    o

     If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o  ______

     If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o  ______

     If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o ______

     If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.    o

CALCULATION OF REGISTRATION FEE

     The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

SUBJECT TO COMPLETION, DATED [                              ], 2002

Common Stock

        This is the initial public offering of [                    ] shares of common stock of Portfolio Recovery Associates, Inc. Of the [                    ] shares of common stock being offered, [                    ] shares are being offered by us and [                    ] shares are being offered by a non-employee stockholder. We will not receive any of the proceeds from the sale by the selling stockholder.

      We expect that the initial public offering price will be between $[                    ] and $[                    ] per share of common stock. The market price of the shares after this offering may be higher or lower than this offering price.

      We have applied to have our shares of common stock approved for listing on the Nasdaq National Market under the symbol “PRAA.”

       Investing in our common stock involves risks. See “Risk Factors” beginning on page 8.

       Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined that this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

      The selling stockholder has granted the underwriters the option to purchase up to an additional [                    ] shares at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover over-allotments.

The date of this prospectus is [                    ]

Table of Contents

      You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that which is set forth in this prospectus. We are offering to sell shares of our common stock and seeking offers to buy shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of these securities. Our business, financial condition, results of operation and prospects may have changed after the date of this prospectus.

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PROSPECTUS SUMMARY

      You should read the following summary together with the more detailed information in this prospectus, including the section titled “Risk Factors” beginning on page 8 regarding our company and the common stock being sold in this offering.

Overview

      We are a full-service provider of outsourced receivables management. We purchase, collect and manage portfolios of defaulted consumer receivables. Defaulted consumer receivables are the unpaid obligations of individuals to credit originators, including banks, credit unions, consumer and auto finance companies, retail merchants and other service providers. We believe that the strengths of our business are our sophisticated approach to portfolio pricing, our emphasis on collection personnel and procedures and our long-standing relationships with many of the largest consumer lenders in the United States, including 11 of the top 13 bank credit card issuers and four of the top five store credit card issuers. Our proven ability to collect defaulted consumer receivables allows us to offer credit originators a complete outsourced solution to address their defaulted consumer receivables. The defaulted consumer receivables we collect are in substantially all cases either purchased from the credit originator or are collected on behalf of clients on a commission fee basis. We intend to continue to build on our strengths and grow our business through the disciplined approach that has contributed to our success to date.

      We specialize in receivables that have been charged-off by the original credit originator. Since the credit originator has unsuccessfully attempted to collect these receivables, we are able to purchase them at a substantial discount to their face value. Through June 30, 2002, we have acquired 292 portfolios with a face value of approximately $4.2 billion for approximately $116 million, or 2.8% of face value. Our success depends on our ability to purchase portfolios of defaulted consumer receivables at appropriate valuations and to collect on those receivables effectively and efficiently. To date, we have consistently been able to collect at a rate of 2.5 to 3.0 times our purchase price for defaulted consumer receivables portfolios, as measured over a five-year period, which has enabled us to generate increasing profits and cash flow.

      We were formed in March 1996 by four members of senior management that continue to lead us. Prior to our formation, members of the management team played key roles in the development of a defaulted consumer receivables acquisition and divestiture operation for Household Recovery Services, a subsidiary of Household International. Since our formation we have acquired and serviced portfolios of defaulted consumer receivables, and in March 2001 we commenced our third-party contingent fee collections operations to provide defaulted receivables management on a commission fee basis, receiving a percentage of the amounts collected on behalf of the client.

      We have achieved strong financial results since our formation, with cash collections growing from $5.0 million in 1997 to $53.4 million in 2001. Excluding the impact of proceeds from occasional portfolio sales, cash collections have increased every quarter since our formation. Revenue has grown from $2.8 million in 1997 to $32.3 million in 2001, a compound annual growth rate of 84%. Similarly, pro forma net income has grown from $130,000 in 1997 to $3.5 million in 2001, a compound annual growth rate of 127.8%. Our solid financial performance has continued into 2002. For the six month period ended June 30, 2002, cash collections were $38.0 million, revenue was $24.9 million and pro forma net income was $4.9 million, compared to cash collections of $23.7 million, revenue of $14.7 million and pro forma net income of $2.0 million for the six month period ended June 30, 2001.

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Industry Overview

      The accounts receivable management industry is growing, driven by a number of industry trends, including the following:

      According to the U.S. Federal Reserve Board, at June 30, 2002 consumer credit, which consists of non-real estate related short- and intermediate-term credit extended to individuals, has grown approximately 37% to $1.7 trillion from $1.2 trillion at December 31, 1997. According to the Consumer Bankers Association, defaults on non-mortgage consumer obligations reached its highest level in a decade at December 31, 2001, an approximately 33% increase from December 31, 2000. According to the Nilson Report, a credit card industry newsletter, credit originators outsourced an estimated $135 billion in defaulted consumer receivables for collection in 2000, nearly double the $73 billion outsourced for collection in 1990.

      The accounts receivable management industry (owned portfolio and contingent fee) is highly fragmented and competitive, consisting of approximately 6,000 consumer and commercial agencies. In recent years, the accounts receivable management industry has increased its use of technology in order to operate more effectively. We expect the increasing importance of technology and the associated increased capital requirements to cause challenges for many smaller participants lacking the required capital and management resources to implement and effectively utilize such technology to compete effectively and to continue to maintain regulatory standards.

Competitive Strengths

      We believe we have a number of strengths which will allow us to continue to capitalize on these industry trends, including:

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Growth Opportunities

      We have achieved significant historical growth while maintaining a conservative capital structure and ensuring that the level of our portfolio purchases of defaulted consumer receivables is matched by our ability to collect them effectively and efficiently. Our primary objective is to continue our controlled growth. We aim to achieve this objective through the following growth strategies:

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      We were initially formed as Portfolio Recovery Associates, LLC, a Delaware limited liability company, on March 20, 1996. In connection with this offering, the membership units of Portfolio Recovery Associates, LLC were exchanged for the common stock of a newly formed Delaware corporation, which we named Portfolio Recovery Associates, Inc., and is more fully described under the caption “Reorganization” on page 17. As used in this prospectus, all references to us mean Portfolio Recovery Associates, Inc. and, prior to the Reorganization, its predecessor Portfolio Recovery Associates, LLC. The address of our principal executive offices is 120 Corporate Boulevard, Suite 100, Norfolk, Virginia 23502, and our telephone number is (888) 772-7326. Our web site address is www.portfoliorecovery.com. You should not construe the information on our web site to be a part of this prospectus.

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This Offering

      Unless otherwise indicated, all share and per share data in this document assumes a one-for-one exchange of membership units of Portfolio Recovery Associates, LLC for shares of our common stock prior to this offering and the exchange of all of outstanding warrants to purchase 2,235,000 membership units of Portfolio Recovery Associates, LLC for warrants to purchase 2,235,000 shares of our common stock. See “Reorganization” on page 17. All dollar amounts less than $1.0 million have been rounded to the nearest thousand. Additionally, all share and per share data assume the underwriters do not exercise the option the selling stockholder granted to them to purchase up to an additional [               ] shares of our common stock in this offering.

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Summary Consolidated Financial Data

      The following summary consolidated financial data for the years ended December 31, 1999, 2000 and 2001 and the six months ended June 30, 2002 and as of June 30, 2002 have been derived from our consolidated financial statements, included elsewhere in this prospectus which have been audited by PricewaterhouseCoopers LLP. The following summary consolidated financial data for the years ended December 31, 1997 and 1998 have been derived from our audited consolidated financial statements, not included in this prospectus.

      The following summary consolidated financial data for the six months ended June 30, 2001 have been derived from our unaudited consolidated financial statements, not included in this prospectus. These financial statements include all adjustments, consisting only of normal recurring adjustments, which we consider necessary for a fair statement of our financial position and results of operations for this period.

      Operating results for the six months ended June 30, 2002 are not necessarily indicative of results that may be expected for the year ending December 31, 2002.

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RISK FACTORS

      You should carefully consider the risks described below in connection with reviewing this prospectus. If any of the events referred to below actually occur, our business, financial condition, liquidity and results of operation could suffer. In that case, the trading price of our common stock could decline and you may lose all or part of your investment. You should also refer to the other information in this prospectus, including our consolidated financial statements and the related notes.

Risks Related to Our Business

We may not be able to collect sufficient amounts on our defaulted consumer receivables to fund our operations

      Our business consists of acquiring and servicing receivables that consumers have failed to pay and that the credit originator has deemed uncollectible and has charged-off. The credit originators generally make numerous attempts to recover on their defaulted consumer receivables, often using a combination of in-house recovery efforts and third-party collection agencies. These defaulted consumer receivables are difficult to collect and we may not collect a sufficient amount to cover our investment associated with purchasing the defaulted consumer receivables and the costs of running our business.

Our contingent fee collections operations have a limited operating history

      Our contingent fee collections operations commenced in March 2001. These operations are in the early stages of development. Accordingly, these operations have a very limited operating history and their prospects must be considered in light of the risks and uncertainties facing early-stage companies. As of August 31, 2002, we have entered into contingent fee collection arrangements with eight credit originators. We incurred operating pre-tax net losses of $644,000 in 2001. Although we are currently generating positive operating income for our contingent fee collections operations, our limited operating history makes prediction of future results difficult.

We may not be able to purchase defaulted consumer receivables at appropriate prices, and a decrease in our ability to purchase portfolios of receivables could adversely affect our ability to generate revenue

      Although we have one forward flow contract under which we acquire a significant amount of receivables, we are not dependent on any single credit originator. However, if one or more credit originators stops selling defaulted receivables to us and we are otherwise unable to purchase defaulted receivables from credit originators at appropriate prices, we could lose a potential source of income and our business may be harmed.

      The availability of receivables portfolios at prices which generate an appropriate return on our investment depends on a number of factors both within and outside of our control, including the following:

      Because of the length of time involved in collecting defaulted consumer receivables on acquired portfolios and the volatility in the timing of our collections, we may not be able to identify trends and make changes in our purchasing strategies in a timely manner.

We experience high employee turnover rates and we may not be able to hire and retain enough sufficiently trained employees to support our operations

      The accounts receivables management industry is very labor intensive and, similar to other companies in our industry, we typically experience a high rate of employee turnover. From January 1, 1999 to

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We serve markets that are highly competitive, and we may be unable to compete with businesses that may have greater resources than we have

      The accounts receivable management industry (owned portfolio and contingent fee) is highly fragmented and competitive, consisting of approximately 6,000 consumer and commercial agencies. We compete with other purchasers of defaulted consumer receivables and with third-party collection agencies, and we also are affected by credit originators that manage their own defaulted consumer receivables. New competitors may enter our industry, as there are limited barriers to entry. Some of our current competitors and possible new competitors may have substantially greater financial, personnel and other resources, longer operating histories and more established relationships in our industry than we currently have. In the future, we may not have the resources or ability to compete successfully. If we are unable to develop and expand our business or adapt to changing market needs as well as our current or future competitors are able to do, we may experience reduced access to defaulted consumer receivables portfolios at appropriate prices and reduced profitability.

We may not be successful at acquiring receivables of new asset types or in implementing a new pricing structure

      We may pursue the acquisition of receivables portfolios of asset types in which we have little current experience. We may not be successful in completing any acquisitions of receivables of these asset types and our limited experience in these asset types may impair our ability to collect on these receivables. This may cause us to pay too much for these receivables and consequently we may not generate a profit from these receivables portfolio acquisitions.

      In addition, we may in the future provide a service to clients in which clients will place defaulted consumer receivables with us for a specific period of time for a flat fee. This fee may be based on the number of collectors assigned to the collection of these receivables, the amount of receivables placed or other bases. We may not be successful in determining and implementing the appropriate pricing for this pricing structure, which may cause us to be unable to generate a profit from this business.

Our collections may decrease if bankruptcy filings increase

      During times of economic recession, the amount of defaulted consumer receivables generally increases, which contributes to an increase in the amount of personal bankruptcy filings. Under certain bankruptcy filings a debtor’s assets are sold to repay credit originators, but since the defaulted consumer receivables we service are generally unsecured we often would not be able to collect on those receivables. We cannot assure you that our collection experience would not decline with an increase in bankruptcy filings. If our actual collection experience with respect to a defaulted consumer receivables portfolio is significantly lower than we projected when we purchased the portfolio, our financial condition and results of operations could deteriorate.

We may make acquisitions that prove unsuccessful or strain or divert our resources

      We intend to consider acquisitions of other companies in our industry that could complement our business, including the acquisition of entities offering greater access and expertise in other asset types and markets that we do not currently serve. We have little experience in completing acquisitions of other businesses, and we may not be able to successfully complete an acquisition. If we do acquire other businesses, we may not be able to successfully integrate these businesses with our own and we may be

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We may not be able to continually replace our defaulted consumer receivables with additional receivables portfolios sufficient to operate efficiently and profitably

      To operate profitably, we must continually acquire and service a sufficient amount of defaulted consumer receivables to generate revenue that exceeds our expenses. Fixed costs such as salaries and lease or other facility costs constitute a significant portion of our overhead and, if we do not continually replace the defaulted consumer receivables portfolios we service with additional portfolios, we may have to reduce the number of our collection personnel. We would then have to rehire collection staff as we obtain additional defaulted consumer receivables portfolios. These practices could lead to:

      Furthermore, heightened regulation of the credit card and consumer lending industry may result in decreased availability of credit to consumers, potentially leading to a future reduction in defaulted consumer receivables available for purchase from credit originators. We cannot predict how our ability to identify and purchase receivables and the quality of those receivables would be affected if there is a shift in consumer lending practices, whether caused by changes in the regulations or accounting practices applicable to credit originators, a sustained economic downturn or otherwise.

We may not be able to manage our growth effectively

      We have expanded significantly since our formation and intend to maintain our growth focus. However, our growth will place additional demands on our resources and we cannot be sure that we will be able to manage our growth effectively. In order to successfully manage our growth, we may need to:

      Continued growth could place a strain on our management, operations and financial resources. We cannot assure you that our infrastructure, facilities and personnel will be adequate to support our future operations or to effectively adapt to future growth. If we cannot manage our growth effectively, our results of operations may be adversely affected.

Our operations could suffer from telecommunications or technology downtime or increased costs

      Our success depends in large part on sophisticated telecommunications and computer systems. The temporary or permanent loss of our computer and telecommunications equipment and software systems, through casualty or operating malfunction, could disrupt our operations. In the normal course of our business, we must record and process significant amounts of data quickly and accurately to access, maintain and expand the databases we use for our collection activities. Any failure of our information

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      Further, our business depends heavily on services provided by various local and long distance telephone companies. A significant increase in telephone service costs or any significant interruption in telephone services could reduce our profitability or disrupt our operations and harm our business.

We may not be able to successfully anticipate, manage or adopt technological advances within our industry

      Our business relies on computer and telecommunications technologies and our ability to integrate these technologies into our business is essential to our competitive position and our success. Computer and telecommunications technologies are evolving rapidly and are characterized by short product life cycles. We may not be successful in anticipating, managing or adopting technological changes on a timely basis.

      While we believe that our existing information systems are sufficient to meet our current demands and continued expansion, our future growth may require additional investment in these systems. We depend on having the capital resources necessary to invest in new technologies to acquire and service defaulted consumer receivables. We cannot assure you that adequate capital resources will be available to us at the appropriate time.

Our senior management team is important to our continued success and the loss of one or more members of senior management could negatively affect our operations

      The loss of the services of one or more of our executive officers or key employees could disrupt our operations. We have employment agreements with Steve Fredrickson, our president, chief executive officer and chairman of our board of directors, Kevin Stevenson, our senior vice president and chief financial officer, and most of our other senior executives. The agreements contain non-compete provisions that survive termination of employment. However, these agreements do not assure the continued services of these officers and we cannot assure you that the non-compete provisions will be enforceable. Our success depends on the continued service and performance of our executive officers, and we cannot guarantee that we will be able to retain those individuals. The loss of the services of Mr. Fredrickson, Mr. Stevenson or one or more of our other executive officers could seriously impair our ability to continue to acquire or collect on defaulted consumer receivables and to manage and expand our business. We maintain key man life insurance on Steve Fredrickson.

Our ability to recover and enforce our defaulted consumer receivables may be limited under federal and state laws

      Federal and state laws may limit our ability to recover and enforce our defaulted consumer receivables regardless of any act or omission on our part. Some laws and regulations applicable to credit card issuers may preclude us from collecting on defaulted consumer receivables we purchase where the credit card issuer previously failed to comply with applicable law in generating or servicing those receivables. Collection laws and regulations also directly apply to our business. Additional consumer protection and privacy protection laws may be enacted that would impose additional requirements on the enforcement of and collection on consumer credit card receivables. Any new laws, rules or regulations that may be adopted, as well as existing consumer protection and privacy protection laws, may adversely affect our ability to collect on our defaulted consumer receivables and may harm our business. In addition, federal and state governmental bodies are considering, and may consider in the future, other legislative proposals that would regulate the collection of our defaulted consumer receivables. Although we cannot predict if or how any future legislation would impact our business, our failure to comply with any current or future laws or regulations applicable to us could limit our ability to collect on our defaulted consumer receivables, which could reduce our profitability and harm our business.

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We utilize the interest method of revenue recognition for determining our income recognized on finance receivables, which is based on an analysis of projected cash flows that may prove to be less than anticipated and could lead to reductions in future revenues or impairment charges

      We utilize the interest method to determine income recognized on finance receivables. Under this method, each static pool of receivables we acquire is modeled upon its projected cash flows. A yield is then established which, when applied to the outstanding balance of the receivables, results in the recognition of income at a constant yield relative to the remaining balance in the pool of defaulted consumer receivables. Each static pool is analyzed monthly to assess the actual performance compared to that expected by the model. If differences are noted, the yield is adjusted prospectively to reflect the revised estimate of cash flows. If the accuracy of the modeling process deteriorates or there is a decline in anticipated cash flows, we would suffer reductions in future revenues or a decline in the carrying value of our receivables portfolios, which in either case would result in lower earnings in future periods and could negatively impact our stock price.

Risks Related to this Offering and Our Capital Structure

We will use a portion of the net proceeds from this offering to pursue possible acquisitions of companies and for unspecified general corporate purposes; we may use these proceeds in ways with which you disagree

      We intend to use a portion of the net proceeds of this offering to pursue possible acquisitions of companies and for unspecified general corporate purposes, including working capital needs. Our management will have significant discretion in the use of these funds, and you may disagree with the way these funds are utilized. We cannot assure you that proceeds dedicated to pursue possible acquisitions or for unspecified general corporate purposes will be invested to yield a significant return, or any return at all.

Our quarterly operating results fluctuate and this may cause our stock price to decrease

      Because of the nature of our business, our quarterly operating results may vary on a quarterly basis, which may adversely affect the market price of our common stock. The reasons our results may fluctuate include:

We do not have experience in managing a public company

      Our management team has historically operated our business as a privately held limited liability company. Our management team has never had responsibility for managing a publicly traded company.

We may incur increased costs as a result of recently enacted and proposed changes in laws and regulations

      Recently enacted and proposed changes in the laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002 and rules proposed by the SEC and by the Nasdaq Stock Market, could result in increased costs to us as we evaluate the implications of any new rules and respond to their requirements. The new rules could make it more difficult for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified

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Our controlling stockholder has the ability to determine the outcome of matters voted on by stockholders which will limit your rights

      Angelo, Gordon & Co., L.P. (“Angelo Gordon”), together with its affiliates, currently controls 72% of our fully diluted equity, and after this offering will control [          ]% of our fully diluted equity. So long as Angelo Gordon controls a majority of our fully diluted equity, it will continue to have the ability to elect our directors and determine the outcome of votes by our stockholders on corporate matters, including mergers, sales of all or substantially all of our assets, charter amendments and other matters requiring stockholder approval.

We can issue preferred stock without your approval that could dilute your voting power and may reduce the market value of your common stock

      Our charter documents authorize us to issue shares of preferred stock, the designation, number, voting powers, preferences and rights of which may be fixed or altered from time to time by our board of directors. Accordingly, our board of directors has the authority, without stockholder approval, to issue preferred stock with rights that could further dilute the voting power or other rights of common stockholders, which may reduce the market value of the common stock.

We will have additional shares of our common stock eligible for future sale in the public market after this offering, which could cause our stock price to decrease or limit our ability to raise capital

      If one or more of our stockholders sells substantial amounts of our common stock in the public market following this offering or if there is a perception that they may do so, the market price of our common stock could decrease. In that event, it could be more difficult for us to raise capital through future offerings of our common stock.

      When this offering is complete, there will be [                              ] shares of our common stock outstanding. In addition, we issued outstanding warrants to purchase an aggregate of 2,235,000 shares that will be fully vested and exercisable at the time of this offering. We also will grant options to purchase an aggregate of [                              ] shares of our common stock to our directors, officers and employees at the time of this offering. Of these shares, only the [                              ] shares sold in this offering will be freely tradeable without restriction immediately, except for any shares acquired by persons such as directors, officers and major stockholders.

We cannot assure you that a market will develop for our common stock or what the market price for our common stock will be in the future

      Prior to this offering, there has been no public market for our common stock. Although we have applied to have our common stock listed on the Nasdaq National Market, there can be no assurance that such application will be approved or, if approved, an active trading market will develop or continue after this offering or that the market price of our common stock will not decline below the initial public offering price. The initial public offering price of our common stock will be determined by negotiations among us, the underwriters and representatives of the underwriters, and may not be indicative of the market price for shares of our common stock after this offering. Prices for the shares of our common stock after this offering will be determined in the market and may be influenced by many factors, including the depth and liquidity of the market for our common stock, investor perception of us and our business, the consumer credit industry as a whole and general economic and market conditions.

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Our stock price may be volatile

      From time to time, there may be significant volatility in the market price of our common stock. Our quarterly operating results or the operating results of other companies viewed by investors as being in comparable industries, changes in earnings estimated by research analysts, changes in general conditions in the economy or the financial markets or other developments affecting us could cause the market price of our common stock to fluctuate substantially. Additionally, in recent years the stock market has experienced extreme price and volume fluctuations. This volatility has had a significant effect on the market prices of securities issued by many companies for reasons unrelated to their operating performance.

You will immediately experience and may in the future experience dilution in the book value of your common stock

      The purchasers of our common stock offered in this offering will experience immediate and substantial dilution of $[                              ] per share, the amount by which the per share purchase price of the common stock offered is this offering exceeds the net book value per share of our common stock immediately following this offering. We have outstanding warrants to purchase an aggregate of 2,235,000 shares at a weighted average exercise price of $4.30 per share, all of which will be vested and exercisable following this offering. You will realize further dilution as the result of exercise of these warrants. In the event that we issue additional common stock in the future, including shares which may be issued in connection with future acquisitions of companies or the exercise of stock options and warrants, you may experience further dilution in the net book value per share of the common stock purchased.

Our certificate of incorporation, by-laws and Delaware law contains provisions that may discourage business combinations that may otherwise be in the best interest of our stockholders

      Our certificate of incorporation and by-laws contain provisions that may make it more difficult, expensive or otherwise discourage a tender offer or a change in control or takeover attempt by a third-party that is opposed by our board of directors, even if such a transaction would be beneficial to our stockholders. In particular, our certificate of incorporation and by-laws include provisions that:

      In addition, Section 203 of the Delaware General Corporation Law provides certain restrictions on business combinations between us and any party acquiring a 15% or greater interest in our voting stock other than in a transaction approved by our board of directors and, in certain cases, by our stockholders. These provisions of our certificate of incorporation and by-laws and Delaware law could discourage potential acquisition proposals and could delay or prevent a change in control, even if our stockholders support such proposals. These provisions could also make it more difficult for third parties to remove and replace the members of our board of directors. Moreover, these provisions could diminish the opportunities for stockholders to participate in certain tender offers, including tender offers at prices above the then-current market value of our common stock, and may also inhibit increases in the trading price of our common stock that could result from takeover attempts or speculation.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

      This prospectus contains certain forward-looking statements. When used in this prospectus, statements which are not historical in nature, including the words “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend” and similar expressions are intended to identify forward-looking statements. Forward-looking statements also include statements containing a projection of revenues, earnings or losses, capital expenditures, dividends, capital structure or other financial terms.

      The forward-looking statements in this prospectus are based upon our management’s beliefs, assumptions and expectations of our future operations and economic performance, taking into account currently available information. These statements are not statements of historical fact. Forward-looking statements involve risks and uncertainties, some of which are not currently known to us, that may cause our actual results, performance or financial condition to be materially different from the expectations of future results, performance or financial condition we express or imply in any forward-looking statements. Some of the important factors that could cause our actual results, performance or financial condition to differ materially from expectations are:

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USE OF PROCEEDS

      We estimate that our net proceeds from the issuance and sale by us of [                              ] shares of our common stock, based upon an assumed offering price of $[                              ] per share, will be approximately $[                              ] million after deducting the underwriting discount and estimated offering expenses. We will not realize any proceeds from the sale of shares of our common stock by the selling stockholder.

      We expect to use the net proceeds from this offering as follows:

      The amount and timing of these expenditures may vary depending upon a number of factors, including but not limited to the amount of cash we generate from our operations. We may find it necessary or advisable to use portions of the net proceeds for other purposes, and we will have broad discretion in applying the balance of the net proceeds. Until we use the proceeds of this offering for the above purposes, we intend to invest the funds in short-term, investment-grade, interest-bearing securities. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” for additional information regarding our sources and uses of capital.

DIVIDEND POLICY

      Our board of directors sets our dividend policy. We currently intend to retain all available funds and any future earnings for use in the operation and expansion of our business, but we may determine in the future to declare or pay cash dividends on our common stock. Any future determination as to the declaration and payment of dividends will be at the discretion of our board of directors and will depend on then existing conditions, including our financial condition, results of operations, contractual restrictions, capital requirements, business prospects and other factors that our board of directors considers relevant.

REORGANIZATION

      We were initially formed as Portfolio Recovery Associates, LLC, a Delaware limited liability company, on March 20, 1996. As a limited liability company, Portfolio Recovery Associates, LLC was treated for income tax purposes as a partnership with taxes on income generated paid by its members. In connection with this offering, the membership units of Portfolio Recovery Associates, LLC were exchanged for the common stock of Portfolio Recovery Associates, Inc., a new Delaware corporation formed for purposes of this offering. Accordingly, the members of Portfolio Recovery Associates, LLC have become the common stockholders of Portfolio Recovery Associates, Inc., and Portfolio Recovery Associates, LLC has become a wholly-owned subsidiary of Portfolio Recovery Associates, Inc. In connection with the Reorganization, (i) each issued and outstanding membership unit of Portfolio Recovery Associates, LLC has been exchanged for one share of common stock of Portfolio Recovery Associates, Inc. and (ii) warrants to purchase 2,235,000 membership units of Portfolio Recovery Associates, LLC at a weighted average exercise price of $4.30 per unit have been exchanged for warrants to purchase 2,235,000 shares of common stock of Portfolio Recovery Associates, Inc. at a weighted average exercise price of $4.30 per share.

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CAPITALIZATION

      The following table sets forth our capitalization as of June 30, 2002 on (i) an actual basis, giving effect to the Reorganization, and (ii) on an as adjusted basis, giving effect to the sale of [          ] shares of common stock by us in this offering at an assumed initial public offering price of $[          ] per share (excluding our estimated offering expenses and underwriting discounts) and our anticipated repayment of approximately $25.0 million of indebtedness.

      You should read the following capitalization data in conjunction with “Use of Proceeds”, “Reorganization”, “Selected Financial Data”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, the consolidated financial statements and accompanying notes and the other financial data included elsewhere in this prospectus.

      The table above excludes [                              ] shares of our common stock reserved for issuance under our 2002 Stock Option Plan, of which [                              ] shares will be subject to options granted upon the consummation of this offering at the initial public offering price, and 2,235,000 shares of our common stock reserved for issuance upon exercise of outstanding warrants at a weighted average exercise price of $4.30 per share, which warrants will be exercisable at all times after this offering.

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DILUTION

      As of June 30, 2002, after giving effect to the Reorganization, our net tangible book value was approximately $33.5 million, or approximately $3.35 per share of our common stock. Net tangible book value per share represents the amount of our total assets less intangible assets and less our total liabilities, divided by the total number of shares of common stock outstanding. We had no intangible assets on our books as of June 30, 2002.

      After giving effect to the sale of common stock by us in this offering at an assumed initial public offering price of $[               ] per share and our estimated receipt of the net proceeds from the sale, our net tangible book value will increase to $[               ] per share. This represents an immediate increase in net tangible book value of $[               ] per share to existing stockholders and results in immediate dilution of $[               ] per share to new investors. The following table illustrates this per share dilution.

      The following table summarizes, as of June 30, 2002, after giving effect to the Reorganization, the difference between the existing stockholders and the new investors with respect to the number of shares of common stock purchased, the total consideration paid and the average price paid per share paid before deducting underwriting discounts and our estimated offering expenses.

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SELECTED CONSOLIDATED FINANCIAL DATA

      The following selected consolidated financial data for the years ended December 31, 1999, 2000 and 2001 and the six months ended June 30, 2002 and as of December 31, 2000 and 2001 and June 30, 2002 have been derived from our consolidated financial statements, included elsewhere in this prospectus which have been audited by PricewaterhouseCoopers LLP. The following selected financial data for the years ended December 31, 1997 and 1998 and as of December 31, 1997, 1998 and 1999 have been derived from our audited consolidated financial statements, not included in this prospectus.

      The following selected consolidated financial data for the six months ended June 30, 2001 have been derived from our unaudited consolidated financial statements, not included in this prospectus. These financial statements include all adjustments, consisting only of normal recurring adjustments, which we consider necessary for a fair statement of our financial position and results of operations for this period.

      Operating results for the six months ended June 30, 2002 are not necessarily indicative of results that may be expected for the year ending December 31, 2002.

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