Should the company not instigate changes to the activist investor's satisfaction, Engaged is prepared to nominate new directors to PRA's board, to be voted on at the annual shareholder meeting next year, the sources said.

Norfolk, Virginia-based PRA buys non-performing loans from banks and other financial institutions and then seeks to collect on the debt. It has a market value of around $800 million, after its share price dropped 40% in 2023.

Engaged, founded by Glenn Welling, would be the fifth largest shareholder in PRA, LSEG data showed.

The sources spoke on condition of anonymity to discuss confidential information.

Engaged believes the company's poor stock performance in recent times can be linked, in part, to a botched leadership transition after Kevin Stevenson left as chief executive in March, the sources said.

Stevenson and current chairman Steve Fredrickson co-founded PRA in 1996, before taking it public in 2002. Vikram Atal, a former long-time Citigroup banker and board member of PRA since 2015, took over as CEO after Stevenson's departure.

Engaged, the sources say, is pushing for the appointment of a president or chief operating officer who could help oversee changes including a more disciplined approach to the business.

This would include improving the efficiency of its collection practices through greater automation and use of technology and some outsourcing.

With a potential uptick in loan defaults, as interest rates remain elevated after central banks' aggressive hiking programs, Engaged has argued improving PRA's business now would allow it to benefit from favorable market conditions, the sources added.

(Reporting by David French in New York; Editing by Shri Navaratnam)

By David French