While this note focuses on U.S. NPL transactions, a number of these issues will be common to performing loan portfolios as well as to European and Asian NPL and performing loan sales. For more on European transactions, see European note.
2011 was a busy year for many of us with an increased number of performing and NPL portfolios changing hands. Anglo Irish Bank’s auction sale of a $4.5 billion NPL portfolio to Lone Star Funds and the companion multi-billion dollar performing loan portfolio sale to Wells Fargo and JPMorgan was the feature transaction of the year, as most of the major loan portfolio buyers and potential lenders chased the various pools, but there was plenty of other additional action in the market. 2012 will continue to be busy with portfolio sales being driven by the ever-tightening pressures of Dodd-Frank and Basel III. As a result, many U.S. and European banks, weakened by the financial crisis and unable to raise required capital, need to raise capital and significantly clean up their balance sheets through asset sales.
At the outset of a sale it is important for a seller to have a good understanding of who the likely buyers of its loan portfolio will be and what those buyers' likely investment objectives and underwriting issues will be. The approach on a performing loan portfolio, where the likely buyer is another financial institution looking to acquire a new client base and secure cash flow, will necessarily be very different than the approach of an opportunistic buyer that is purchasing an NPL portfolio with an asset realization strategy. This note highlights the main issues that sellers and buyers will likely encounter on NPL portfolio sales. Anticipating and understanding these issues will be key to any successful sale execution.
For the full article on NPL portfolio sales please click here.