About DebtX Loan Sale Advisory Services

DebtX is the world’s leading full-service loan sale advisor for commercial real estate (CRE), commercial & industrial (C&I), single family residential (SFR), consumer and specialty finance debt. DebtX supports its highly skilled personnel with the most advanced technologies to service financial institutions seeking a competitive edge through active portfolio management.

DebtX’s Loan Sale Advisory Group provides loan sale services and facilitates the entire loan sale process including portfolio analysis and pricing, deal preparation, marketing, trade execution, and closing. DebtX structures each loan sale to achieve optimal results for our clients, which typically includes a combination of highest price, certainty of execution, efficient timing and security/privacy.

Active Portfolio Management

Performing Loan Sales

Financial institutions have emerged from the financial crisis with a greater appreciation of how active portfolio management can facilitate growth and address scrutiny from regulators. These institutions engage DebtX to execute sales of performing loans for myriad reasons including deploying capital more strategically, distributing excess loan origination capacity, reducing concentration exposure, divesting non-core portfolios following M&A, and proactively managing compliance with regulatory requirements.

Non-Performing Loan (NPL) Sales

Financial institutions sell non-performing loans to rapidly dispose of unwanted assets, often at a gain to book values. Loan sales reduce expenses related to loan workouts and in some cases, particularly for smaller institutions without dedicated workout teams, are the preferred resolution for troubled assets. Loan sales enable bankers to focus on profitable lending activities rather than engage in protracted workout negotiations with uncertain outcomes. Selling problem loans frees up reserve capital, eliminates earnings drag, and often leads to improved stock prices by aligning the balance sheet and income statement with the institution’s strategic goals.

Loan Sale Strategy and Management Approach

Loan Sales InfographicDebtX represents sellers on an exclusive basis, tailoring each loan sale engagement to meet our client’s strategic goals and objectives. Maximizing recoveries and certainty of execution are most often our clients’ primary goals. Whether this is accomplished by executing a broadly marketed transaction or limiting participation to specific investors for particularly sensitive transactions, the framework for every sale breaks down into two phases: strategy and execution. Specific objectives and deliverables within these phases represent the loan sale lifecycle.

The strategic stage of the lifecycle includes developing an understanding of our client’s goals and objectives, valuing the loan or loan portfolio, and recommending the most effective disposition alternative and sale strategy to meet our client’s goals. The execution phase includes the underwriting and preparation of due diligence and legal materials, investor outreach and marketing, bidding, closing, and post-closing activities.

DebtX’s Loan Sale Advisory Group is organized functionally to mirror the various objectives and deliverables within the loan sale lifecycle from sales and marketing through valuations, underwriting, trading and closing with support from our legal, accounting, and technical groups. Each function is staffed with highly skilled and specialized personnel. While each function serves a specific purpose, individuals from different units communicate and collaborate throughout the loan sale life cycle to optimize sale execution; senior managers and executives oversee the process from start to finish. We support our professionals with best-in-class technology, giving us a competitive advantage as the seller’s agent.

File Preparation Services

As a leading loan sale advisor, DebtX has performed highly efficient and orderly document preparation for over fifteen years. DebtX also provides these supporting services to institutions who conduct direct sales via the DebtX marketplace.

In addition to its human resources, DebtX offers proprietary document processing software for decrypting and converting large volumes of native encrypted files from multiple document management systems.  The software runs on an enterprise platform capable of processing millions of files per day.  The software:

  • Decrypts encrypted files
  • Converts non-PDF files (e.g. TIFF, TXT) into PDF format for end user consumption via web browser
  • Utilizes metadata to index related document pages by consolidating (or parsing) related files
  • Formats PDF documents in final consumable format, applying OCR data layer
  • Integrates with Adobe LiveCycle to apply Digital Rights Management encryption for watermarking, print control, digital shredding, and other advanced security

Loan Sale Case Studies

Regional Bank: $18.8 Million Non-Performing CRE and C&I Loans

Seller Goals and Concerns:

A regional bank sought to dispose of a pool of non-performing loans in order to free up account officers to start originating loans again. The pool included a large, suddenly re-performing C&I loan.

A complicated credit with uncertain cash flow, the current value of the C&I asset was now above book value. However, the potential existed for the value to collapse. In order to avoid the risk of future default and loss, the bank wanted to take advantage of the current asset cash flow and sell the loan above book value, taking the gain.

Solutions and Outcomes:

DebtX analyzed and presented the complicated financials of the C&I asset as a compelling investment opportunity. Using the company’s extensive buyer data base, the DebtX trading team attracted niche investors interested in this unique asset as well as the rest of the non-performing pool.

Because of its flexible loan sale process, DebtX had the resources to structure this offering and sale to fit the unusual characteristics of the transaction. DebtX’s deep buyer pool along with the talents of the trading team meant the seller was able to sell the entire pool of loans and realize the gain it desired on the unique C&I asset.

Community Bank: $8 Million Non-Performing Residential and CRE Loans

Seller Goals and Concerns:

This community bank was under pressure from investors, regulators and, in particular, bank analysts to reduce its CRE exposure by year end. To address the issue, the bank had previously negotiated a deal to sell a portfolio to a direct buyer. A letter of intent was signed. However, shortly before year end, the investor lowered the price and removed assets from the sale.

The new terms proposed by the investor would have weakened the bank’s balance sheet, thereby defeating the purpose for the transaction. The bank feared it could not satisfy the requirements to reduce its concentration of non-performing CRE loans and preserve capital by year-end. With the time constraints it faced and the severity of the problem, the entire enterprise was at risk.

Solutions and Outcomes:

Rather than accept the direct buyer’s renegotiated terms, the bank terminated the letter of intent and engaged DebtX to sell the portfolio. DebtX provided a swift and efficient loan sale to meet the narrow timeline of this seller. With an ability to both underwrite quickly and reach a broad buyer base, DebtX completed the sale and obtained premium pricing in just half the normal marketing period.

With DebtX, the bank was able to sell more loans at a higher price and enter 2012 with an improved balance sheet and an enhanced reputation for delivering results above its required goals.

Large Financial Institution: $74.3 Million Performing and Non-performing CRE Loans

Seller Goals and Concerns

This large financial institution was under pressure from bank analysts to reduce the level of NPAs in its portfolio. Previous attempts to sell the loans internally had frustrated the institution with few offers from unreliable buyers at low prices, resulting in criticism from analysts and regulators. These failed sales attempts were a poor use of their professional staff time. The seller sought an orderly, effective and transparent sale process that would obtain the highest possible price.

The loans to be sold were both performing and non-performing loans secured primarily by various commercial property types, related business and equipment loans, land for development and some REO properties. Many were complex credits, requiring a large amount of due diligence and explanation.

Solutions and Outcomes:

DebtX brought multiple binding bids at higher than expected prices on every single loan offered. This success, teamed with the quality level of underwriting and a highly transparent process, allowed the seller to meet the promised level of NPA reduction and satisfy the analyst expectations.

DebtX’s thorough underwriting provided highly organized due diligence files. This allowed potential investors to better understand the loans offered. DebtX’s extensive buyer database and a marketing outreach program specifically designed for this offering were able to reach multiple qualified investors.

With DebtX, the seller experienced greater predictability and better pricing. The seller engaged DebtX for continued programmatic selling of its troubled assets.

Public Employee Pension Fund: $32 Million Performing and Non-Performing CRE Loans

Seller Goals and Concerns:

A public pension fund owned an “orphan” portfolio of CRE loans that no longer fit its strategic goals. This CRE portfolio consisted of twenty-six performing loans and one non-performing loan. The loans were secured by retail, office, industrial and multifamily properties. The fund was under pressure to sell all the loans, and could not risk holding just a handful of credits.

The seller received a direct bid for the portfolio at a price below par, leaving the fund with a need for fairness guidance. More bids were required to validate the current offer and confirm the fund would be achieving a fair market price. It was important to the fund that they receive the highest possible price and that the transaction be demonstrably fair.

Solutions and Outcomes:

DebtX’s review suggested the seller would obtain a significantly higher price through a comprehensive marketing effort. DebtX’s sales effort would also bring a high level of transparency and fairness to the transaction. This allowed the pension fund greater comfort in reporting to its board and its overseers.

Buyer response and interest in the portfolio was overwhelming. Every single loan was sold and most sold at a premium. Ultimately, the seller got an auditable, independent transaction and delivered an extra $4.5 million in proceeds to its beneficiaries.

International Bank: $13.2 Million Non-Performing CRE Loan

Seller Goals and Concerns

This collateral consisted of 70 condominium units located within a 297 unit luxury development. The condominiums were part of a development of nine four-story buildings on a 16 acre parcel. Project amenities included a resort style pool, a heated spa, clubhouse, fitness center, restaurant/bar area and a business center. The loan consisted of a single non-performing credit facility, advanced under three promissory notes.

The seller had tried to dispose of this real estate and/or the first mortgage a number of times in the past without success. Each deal had ended with the buyer lowering their prices and/or failing to close. The bank had found another buyer and wanted to pressure him to complete the sale. The seller was concerned this buyer was also unreliable and wanted to end the waste of resources spent on unsuccessful sales. After so much frustration, the seller wanted to close as quickly as possible at the highest price possible.

Solutions and Outcomes:

The seller turned to DebtX and through its extensive database, DebtX reached a large number of qualified local, regional and national buyers interested in the intrinsic value of the real estate. The large number of potential buyers propelled the price higher than the seller’s previous unsuccessful offers.

The entire loan sale process was managed by DebtX in an efficient, transparent manner, requiring few bank resources. Bidding requirements, complete terms of sale and a standard closing procedure ensured that there was no re-trading. Both price and certainty of execution were high.

The sale closed in one week, rather than one year and at a price reflecting the intrinsic value of the real estate.

Community Bank: $48 Million Non-Performing CRE Loans

Seller Goals and Concerns:

With aspirations of becoming a regional bank, a newly-formed, super-capitalized community bank embarked on a series of bank acquisitions. Following each acquisition, bank management sought to optimize the composition and profitability of the acquired loan portfolios.

Bank management was concerned about pouring money into weakening portfolios of TDRs (Troubled Debt Restructure), long-term workouts, and other large, capital-intensive risky loans. Instead, the bank pursued a reduction in CRE loan concentrations. In particular, the bank focused on large loans that had been crippling the acquired institutions during the real estate downturn. Because these loans represented a significant portion of the bank’s capital, disposition had to occur without impairing it.

Solutions and Outcomes:

The bank engaged DebtX for the sale of six of its largest and most complicated loans. Drawing from DebtX’s deep buyer base, years of secondary market experience, and the expertise of the DebtX sales and trading teams, the loans were sold at premiums to the bank’s book value. This allowed the bank to realize its goals of minimizing risk while preserving capital.

The successful sale cleared the bank’s balance sheet and positioned the bank for profitable growth through traditional lending efforts and further bank and loan acquisitions. This seller continues to be an active buyer of banks. It pursues the sale of non-strategic loans to maximize profitability and increase both enterprise and shareholder value.

Top 25 Bank: $33.5 Million Non-Performing Residential/Mixed Use Loan

Seller Goals and Concerns

This top 25 bank held a large, non-performing loan collateralized by a unique residential/mixed use property located in a major U.S. city. Forced to indefinitely classify the loan as a troubled debt restructure, the bank became frustrated by the extended work out period. The bank was also concerned about the property level liability associated with controlling such a large, urban multifamily project.

The bank opted to pursue the sale of the loan in order to free up capital and relieve its lending professionals from tasks and concerns that were not profitable. Aware of the quality and potential of the property, the bank was determined to obtain the highest possible price.

Solutions and Outcomes

DebtX began pursuit of the Seller’s goals through its commitment to high quality underwriting and its ability to provide specialized and comprehensive marketing.

DebtX first acquired an in-depth understanding of the property, the neighborhood and the region’s real estate trends. Armed with detailed informational materials, DebtX then engaged in an intensive campaign aimed at commercial real estate owners and developers on a local, regional and national level via face to face meetings.

Meanwhile, DebtX’s underwriting team prepared highly detailed due diligence files. This superior underwriting allowed prospective buyers to gain a clear understanding of the asset and the opportunity.

Final bids were beyond the client’s expectation in both number and amount. The loan sale strategies employed by DebtX allowed the bank to move this large single asset off its books at a premium and return to more profitable lending activities.

Super Regional Bank: $75 Million Mixed Performance CRE, C&I and Agricultural Loans

Seller Goals and Concerns:

This super regional bank needed to shed a large portfolio consisting of very diverse assets. The portfolio contained more than 100 small balance commercial loans of varying performance levels backed by multiple collateral types scattered throughout the United States. These assets had been stuck on the bank’s balance sheet for some time without any clear path to resolution.

The bank aimed to reduce its overall level of NPAs in order to free up capital and concentrate on new, more profitable lending. With this goal in mind, the bank was under pressure to sell the entire portfolio at the highest possible price.

Solutions and Outcomes:

The pooling strategy typically recommended by DebtX for portfolios of this size and diversity is to create small, homogeneous pools that will appeal to specific relevant buyers willing to pay a premium. However, in order to take advantage of unusual market conditions, DebtX counseled the bank to sell this portfolio in a single pool. DebtX’s deep relationships with the top loan and investment funds allowed the trading team to create a uniquely competitive environment for this group of assets.

DebtX employed a transparent, indicative pricing strategy that forced this group of well-qualified buyers to complete full due diligence prior to the final bid. DebtX’s underwriting team presented complete, comprehensive and detailed asset level information, which prompted multiple buyers to remain actively engaged in the sale and drive up prices.

DebtX generated over a dozen final bids, driving every bidder higher than indicative levels. Five of the final bids substantially exceeded the seller’s expectation. The sale brought a considerable premium for the bank and every asset was sold. The entire transaction closed within 10 days, having surpassed every goal set by the seller.

Regional Bank: $285 Million Performing and Non-Performing Residential Loans

Seller Goals and Concerns:

This regional bank was involved in an arrangement with a government agency. Due to the nature of the partnership and government regulation, the sales required particularly high levels of transparency, security and privacy. The sale process would be highly scrutinized and the seller wanted significant levels of support in all phases of the sale to ensure compliance.

It was imperative that multiple bids be obtained at the highest possible prices and that all bids carry absolute certainty of execution. The sale consisted of four residential loan pools with an average loan balance of $345M. The majority of the loans were HAMP modified.

Solutions and Outcomes:

DebtX provided the client with complete confidence regarding security and privacy. DebtX has passed security audits by many of the world’s most sophisticated financial institutions and maintains high standards of security and privacy at all times. Buyers registered with DebtX must be either accredited investors or qualified institutional buyers who have made substantial representations, warranties, certifications and disclosures prior to having access to any offering.

The DebtX team supplied “on the ground” support from the initial gathering of documents through marketing, bidding and post-closing servicing and transfer. After closing, DebtX provided an auditable transaction summary.

DebtX’s extensive buyer database and patented trading desk allowed traders to reach out to a large number of highly relevant and qualified buyers capable of fully-executable bids. A broad marketing campaign resulted in scores of bids by qualified buyers in the desired price range.

This seller engaged DebtX in a multi-year loan sale relationship to effect an orderly reduction in non-strategic assets.

Loan Servicer: $40.4 Million Non-Performing CRE and Multifamily Loans

Seller Goals and Concerns:

The portfolio consisted of dozens of different loans but this was not a typical bulk sale. The seller was a major special servicer and the servicer did not own the loans, rather they were owned by multiple trusts. Each trust had technical and pricing requirements for the sale of their individual loans in the pool. Every loan needed to bring in the best possible price; an overall average price for the portfolio would not be acceptable. A poor price or an execution issue on any loan would risk the success of this entire sale.

Solutions and Outcomes:

For this sale, DebtX had to balance a broad marketing campaign with focused efforts to attract buyers to the individual loans. This strategy was possible due to DebtX’s deep buyer base and patented trading desk. With the extensive information available to them, DebtX traders were able to immediately and aggressively pursue buyers known to have previously bid on like property types in similar geographies.

DebtX succeeded and found multiple investors willing to pay a premium for this large variety of loans. DebtX’s clear bidding requirements, complete terms of sale and standard closing procedure ensured all loans were sold and closed within the desired period. DebtX met the seller’s need to sell a large diverse portfolio while delivering loan by loan pricing and execution that satisfied the many individual trusts.