Explore the hot credit management topic of selling debt. The NPL scene is affected by volatile macroeconomics for both originators and investors. For you as seller, we have compiled some best practices on how to optimize the sales process by creating competition, understanding the value of the portfolio and how to increase the attractiveness of it to investors.
Selling debt has become increasingly crucial due to two key factors:
- Sellers are witnessing a rise in non-performing loan (NPL) levels, coinciding with the enforcement of backstop regulations. The urgency to sell debt has intensified and is expected to continue growing in the next 6-12 months.
- Buyers face constraints as they contend with higher refinancing and funding costs. Simultaneously, payment behavior has become more volatile due to increased living costs and general inflation. These challenges put pressure on the prices offered for debt portfolios.
At Dignisia, we recognize these market dynamics. Bids for debt portfolios now exhibit a wider price spread, making it more critical than ever to understand the true underlying and long-term value of the debt portfolio you intend to sell. Here are some essential tips we recommend for selling debt successfully:
- Competition is key: Engage in a competitive selling process rather than exclusively targeting the incumbent servicer to avoid sub-market prices. Prices for portfolios vary significantly over time and across different debt portfolios and an active process is key to secure the right price
- Know your portfolio's value: Conduct your own estimations to determine whether selling or retaining the debt portfolio is more advantageous in the end. This is especially crucial in today’s volatile times.
- Demonstrate a comprehensive understanding of your portfolio's structure and optimize its segmentation. Optimal segmentation varies from market-to-market and may differ from time-to-time.
- Provide high-quality, standardized data: Share data in standardized formats to reduce buyer risk and enhance the attractiveness of the debt portfolio. High quality data is what will make your portfolio shine more than others.
- Concisely describe your debt portfolio from a business perspective: Utilize short, concise and easy-to-understand graphics to highlight the key aspects of the portfolio, avoiding lengthy information memos.
By partnering with Dignisia, the process of selling debt becomes streamlined:
- Ensure data quality and establish a clear cut-off date from the beginning, avoiding changes during the project. Dignisia already has data in place, significantly reducing the timeline compared to collecting data from scratch with an incumbent servicer.
- Analyze and slice-and-dice the data in various ways to identify the optimal selling strategy for your debt portfolio. Create a short, concise presentation (IM) that includes specific details about the portfolio, its background and case selection and showcase that you know your portfolio and what it is worth.
- Obtain internal approval to proceed with selling the debt portfolio. Utilize Dignisia's templates to write a decision memo that facilitates the approval process.
- Initiate a non-binding phase involving multiple bidders, typically five or more. If certain data points are excluded during this phase, clearly communicate which data will be provided in the binding offer (BO) phase.
- Establish a clear timeline, decision criteria, and the number of selected bidders for the final round. Clearly communicate your expectations regarding adherence to the non-binding offer (NBO) price level also when moving into the Biding Offer (BO) round.
- Retain at least one strong contender during the binding offer (BO) phase for potential changes and final contract negotiations.
Are you interested in learning more about how Dignisia can support you in selling debt portfolios? Do you want to discuss our view on the current market and gain additional tips? Contact us today for more information.