Buying & Selling Consumer Debt in the United Kingdom

Within the wider financial services ecosystem globally, the practice of buying and selling non-performing debt and other distressed assets has grown exponentially over the past decade, including visible acceleration across the United Kingdom economic landscape recently.

With constantly evolving regulations, customer trends and portfolio dynamics, partnering with an experienced firm that offers diverse options for your debt acquisition or disposition needs is key to deriving maximum value.

As leading specialists supporting both one-off and programme-based debt transactions encompassing wide-ranging asset classes across consumer and commercial lending spheres, EFF offers uniquely comprehensive solutions tailored to your specific portfolio objectives, risk considerations, operational constraints and strategic vision.

Common Assets Targeted for Sale of Debt

Whilst almost every lending product can theoretically end up packaged inside debt portfolios available for purchase, certain offerings tend to feature more prominently during sale mandates:

Credit Cards - With billions in outstanding balances and fierce competition, delinquent card debt often heads this list for buyers given large volumes available. However, unsecured nature demands prudent underwriting.

Personal Loans - From legacy banks to new Fintech players, unpaid personal cash loans, including payday lending, can appeal to debt buyers aiming for higher margins despite lack of collateral. Careful segmentation is key.

Auto Loans - Secured against vehicles, these facilities see regular capital turnover between original lenders and secondary collectors, especially where borrowers face affordability issues for expensive cars bought on credit.

Mortgages - Still a smaller portion of debt sales historically, rising interest rates expanding numbers of homes in negative equity may compel more lenders to offload severely delinquent mortgages to specialist buyers going forward.

SME Lending - Dramatic expansion in alternative SMB lending also indicates distress portfolios of unpaid invoices and business cash advances will likely reach secondary markets soon.

Step By Step Process for Sale of Consumer Debt

While processes can vary based on portfolios, broadly the mechanics entailed in sale of consumer debt remains fairly consistent:

1. Define Eligibility Criteria

Lenders shortlist specific pools of outstanding loans, credit facilities or unpaid receivables for sale based on certain cut-offs - usually dictated by severity of delinquency, size of balances, risk tier of customers by historical behaviours, geography of borrowers etc.

2. Portfolio Data Gathering

Standardised templates are prepared capturing all available data metrics on customers, products, payments history, previous collection attempts made, outstanding tenure etc. This is made available for review by prospective buyers during due diligence.

3. Initial Buyer Outreach

Once adequate internal approvals are in place, transaction advisors first reach out to known prospective debt buyers to gauge potential interest levels in assets identified for sale.

4. Due Diligence & Underwriting

Through access to detailed data rooms, buyers then assess overall portfolio quality dynamics, expected operational costs involved to collect and projected recovery potential across a range of probabilistic scenarios. This data underpins financial models guiding their valuation and bidding strategies.

5. Binding Offers Submission

Having completed underwriting, prospective purchasers then submit financial offers for debt pools they wish to acquire - with price backed detailed models reflecting target returns for their funds / investors.

6. Review, Clarifications & Selection

The debt seller reviews all offers received, requests any clarification from bidders, undertakes comparisons to internal base case projections, negotiates where feasible before selecting successful buyer(s) based on optimising value.

7. Completion Mechanics

Upon agreeing final pricing and legal terms, requisite assignment documentation, notifications to underlying debtors, submissions for regulatory blessings, establishment of data & payment channels etc. are completed to officially shift ownership fully to the buyer.

8. Post-Sale Recoveries

Once the debt title transfers formally, focus for buyers moves to leveraging in-house capabilities or enlisting external collection agencies to pursue outstanding payments from underlying delinquent customers. Sophisticated investors may look to package purchased assets into fresh portfolios for resale.

Evaluating Options for Disposing Defaulted Debt

For lenders facing profitability challenges handling severely delinquent books inhouse, periodic sale of toxic assets to external specialists frees up capital while allowing cleaner balance sheets and greater focus on originating newer business. However, assessing the most suitable channel entails careful analysis of benefits and limitations unique to each:

Sale to Established Debt Collectors - Approaching reputed collectors with known track records of recovering similar debts allows lenders to cherry pick partners relatively quickly. However, migration to auction models may mean losing out on price competitiveness & reaching wider buyer bases.

Outsourced Collections Arrangement - Keeping ownership but signing up contingency based agencies to recover payments is simpler and allows oversight. Nevertheless, risks value leakage if partners lack scale or attempt ill-suited methods falling foul of conduct regulations.

Public Auctions of Non-Performing Loans - Widely marketed competitive auctions ensure maximising final realised pricing for portfolios based on buyer demand dynamics. However limitations in available borrower data still prevalent in UK markets can hamper price realisation. Confidentiality around publicity events also requires deft navigation to avoid consumer backlash or reputation damage if mishandled.

How EFF Creates Value for Clients Buying & Selling Debt

With extensive hands-on experience supporting sophisticated debt sale and purchase transactions between holders of consumer and commercial loan assets across diverse sectors within British financial markets and internationally, EFF brings deep multifaceted expertise to advisory mandates:

Portfolio Data Analytics - Our highly qualified in-house team can provide advice on how to leverage latest statistical modelling techniques to analyse target portfolios, forecasting expected returns under various scenarios to shape underwriting.

Deal Sourcing & Strategy - We help you explore opportunities best aligned to your growth objectives, target risk profile and expected returns over custom investment horizons defined - advising on merits of potential asset classes that serve your needs.

Private Treaty Negotiations - We aid in establishing relationships with banks, alternative lenders and overseas funds to discreetly pre-negotiate attractive portfolio acquisition or disposal deals meeting specific preferences, away from full blown public auction processes.

Auction Management - We provide seamless end-to-end support preparing visually impactful marketing materials, screening prospective buyers, coordinating access to virtual data rooms and professionally managing entire bid submission processes.

Documentation and Closing - Our vastly experienced project managers handle drafting and negotiating bespoke legal contracts, requisite debt assignments, regulatory application paperwork, transition protocols, escrow mechanisms etc; liaising between sellers, buyers and key agencies.

Post-Sale Portfolio Tracking - We methodically track performance of portfolios sold / bought versus original projections, analysing reasons behind over / underperformance to identify process enhancements for future transactions.

Get access to EFF's multifaceted expertise to maximise value from your distressed debt holdings - while optimising risk adjusted returns on new asset purchases. Contact our team to evaluate options today!