Group Purchasing of Charged-off Consumer Assets at Wholesale Pricing - National Portfolios, Issuer Direct
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Current Portfolio Pricing

 

The U.S. debt purchasing market has experienced a significant increase in sales volume over the past twelve months, particularly within the credit card sector, which continues to generate roughly 80% of the total U.S. debt purchasing activity. The driver of this increased activity is a substantial reduction in portfolio prices across all stages of delinquency. The following table summarizes the change in price ranges that have been shared with us anecdotally by debt buyers, and confirmed through recent portfolio transactions within the credit card sector. Certain transactions are occurring outside of these price ranges, and these typically involve forward-flow arrangements in which historical collection activity and liquidation results justify a higher sales price.

 

                        2007 – 2010 Pricing of Charged-off Credit Card Debt

                                                         

Stage of

Price Range

Price Range

Price Range

2 Year Price

Price Range

May 2010 Current 

Delinquency

2007

3/1/2008 *

3/9/2009*

Decline

Nov-09

Price Range

Fresh

$.12-$.17

$.09-$.12

$.05-$.07

55%-60%

$.04-$.06

$.05-$.07

Zero Agency

$.10-$.13

$.07-$.10

$.04-$.05

55%-60%

$.03-$.045

$.035-$.05

Primary

$.08-$.12

$.05-$.08

$.03-$.05

55%-60%

$.0225-$.04

$.025-$.05

Secondary

$.055-$.09

$.03-$.05

$.02-$.03

60%-67%

$.015-$.025

$.015-$.03

Tertiary

$.03-$.05

$.0125-$.03

$.01-$.02

60%-67%

$.0075-$.015

$.0075-$.015

Quads

$.01-$.025

$.005-$.0125

$.005-$.01

50%-60%

$.003-$.0075

$.003-$.0075

* Source: Kaulkin Ginsberg March 2009; Crescent Bay Financial May 2010

 

The primary reasons for the reduced prices include an increase in sales volumes and a decline in liquidation rates (collection ratios). Sales volumes have increased significantly because many credit issuers have seen their charge-off rates rise as a result of the sub-prime mortgage meltdown and recessionary economic conditions, and are feeling pressure to liquidate their delinquent accounts quickly. Debt buyers who have historically utilized the re-sale market as part of their liquidation strategy are also trying to sell portfolios acquired directly from credit issuers. In most cases these resale accounts lack good account documentation and have already been serviced by at least one purchaser. While most debt buyers are ecstatic about the price reductions, and as a result have substantially increased their debt purchasing levels, some believe that price reductions have further to go. 
 

Factors Influencing Portfolio Pricing

Portfolio pricing is influenced by number of factors including the estimated cash flow expected, from a portfolio of receivables, during a certain period of time. Determining a reasonable estimate of collections requires the purchaser to analyze and understand certain characteristics of a portfolio, and then compare those characteristics, to similar portfolios where the recovery rates are known. Some of the evaluation criteria that may influence how an account can be collected include the following:

 

  • The number of collection agencies previously attempting to collect the receivables in the portfolio

  • The average balance of the accounts

  • The age of the receivables (as older receivables might be more difficult to collect or might be less cost effective)

  • Past history of performance of similar assets (as we purchase portfolios of similar assets, we believe we have built significant history on how these receivables will liquidate and cash flow)

  • Number of months since charge-off

  • The locations of the accounts (as there are better states to attempt to collect in and ultimately we have better predictability of the liquidations and the expected cash flows. Conversely, there are also states where the liquidation rates are not as good)

  • Payments made since charge-off

  • The credit originator and their credit guidelines

  • The ability to obtain customer statements from the original issuer

  • Jobs or property of the debtors found within portfolios (as debtors with jobs or property are more likely to repay their obligation and conversely, debtors without jobs or property are less likely to repay their obligation)  

 

 

 

 

 

 

 
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