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

Seller Goals and Concerns:

This large, national bank sought to dispose of non-core, non-strategic assets at the highest possible price. The portfolio consisted of performing, low loan-to-value loans with an average balance of $2.2MM. The loans were secured primarily by multifamily, retail, office and industrial properties. Past sales by internal teams had been only partially successful, often ending with re-trades, cherry picking and a substantial percentage kicked out.

These performing assets were likely to be of greatest interest to community and regional banks. Reaching those banks posed a challenge for the internal sales team. Bank to bank sales were notoriously challenging. Difficulties included getting the potential buyers to move quickly, complete full diligence and “pull the trigger.” Marketing to smaller banks also required smaller pools than internal teams were used to handling.

Solutions and Outcomes:

The DebtX trading team marketed to and connected with buyers at regional and community banks around the country. Smaller pools were created to appeal specifically to these buyers. Highly organized due diligence files gave confidence to potential buyers, encouraging them to “pull the trigger.”

On bid day, DebtX’s proprietary bid optimization technology allowed for identification of the most lucrative combinations of bids. DebtX was able to execute the entire offering. Two-thirds of the loans sold at or above par.

Seller Goals and Concerns:

The U.S. Department of Housing and Urban Development (HUD) engaged SEBA Professional Services and DebtX to execute this sizable loan sale. The sale was to be the largest of its type ever held by HUD and the process was being carefully observed and evaluated by the executive branch of the federal government.

The demands of this sale were high. Millions of loan documents had to be organized in a matter of days. Pressure to obtain the highest possible price for all pools of loans was tremendous. The pools were organized in new and experimental ways in hopes of promoting stabilization of struggling urban communities hardest hit by the economic downturn. The success of these pooling strategies depended on the efforts of the DebtX trading team to find interested and qualified buyers willing to pay a premium for each type of pool.

Solutions and Outcomes:

The loan pools were offered in two distinct groups designed to appeal to two sets of buyers. The Standard National Pools were larger and geographically more diverse, appealing to larger, national buyers. The Neighborhood Stabilization Outcome Pools were smaller and geographically compact, appealing to local investors familiar with the region. DebtX’s deep buyer base and patented trading desk allowed traders to find and reach out to buyers known to have interest in the types of pools being offered. These are the buyers who are typically willing to pay more for particular types of assets.

DebtX readily met the enormous demands of this sale. DebtX successfully organized over six million paper loan documents in six days. DebtX’s underwriting team prepared orderly due diligence files that allowed for quick and efficient review by a multitude of potential buyers. Prices obtained for both types of pools exceeded expectations with particular success for the Neighborhood Stabilization Outcome Pools.

Seller Goals and Concerns

In early 2011, an investor group purchased a majority interest in a community bank. A primary goal of the new bank management was to grow the bank through M&A. However, since 2010, the bank had been under a cease-and-desist order from the Federal Reserve Board, restricting the company’s ability to issue debt or make stock transactions. It was imperative for the new management to improve the bank’s balance sheet and get the order lifted in order to pursue their strategy for growth.

To bring the ratio of classified assets to capital to a satisfactory level, bank management engaged DebtX to sell a pool of problem loans. The bank needed quick turnaround and certainty of execution at the highest possible price to satisfy the regulators and move forward.

Solutions and Outcomes

Through the use of its patented trading desk and a targeted marketing campaign, DebtX sold the loans quickly and successfully. All sales closed promptly and smoothly with prices exceeding the bank’s expectation. Within a short period, the Federal Reserve Board terminated the cease and desist order. Within weeks, the bank announced the acquisition of an area bank, tripling the original size of the bank.

Aggressive loan sales were the final piece that allowed the bank to go from surviving under a cease and desist order to growing through acquisition. The stock price of the bank increased 25% between the time of the C&D order and the acquisition.