Portfolio Pricing Top of Mind as Debt Purchasers Head to Conference

As the debt purchasing industry prepares to meet in Las Vegas for DBA International’s annual convention, portfolio pricing is a topic at the top of everyone’s mind. And while there are no sessions planned to specifically address the issue, at least one will focus heavily on pricing.

“No Need for Home Runs, Singles and Doubles Work Just Fine” on Wednesday was created to take a look at the resale market for consumer debt portfolios and how reselling, or “flipping,” a portfolio may be a practice doomed in the current economy.

Samir Shah, CFO of debt purchaser RJM Acquisitions, told insideARM that he and the two other panelists decided to shift the focus to pricing.

“We’re seeing prices right now that are dropping for many debt types, but stable in others,” said Shah. He noted that in some markets prices are down 30 percent.

David Rosenberg, founder and CEO of debt buyer Unifund – who is also on the DBA panel with Shah – explained to insideARM that certain geographic markets, like Ohio and Michigan, are experiencing disproportionate economic weakness that is reflected in debt prices there. Rosenberg also said that among sectors, telecom and utility debt prices have fallen quicker.

Prices have dropped in the face of higher supply and reduced liquidity expectations of buyers in a strained consumer collection environment, according to Shah.

Rosenberg noted that the weakness in expectations is attributable to a drop-off in voluntary consumer payments. In recent years, credit was cheap and easy to obtain, said Rosenberg, and more consumers were voluntarily paying off debt through traditional collection methods in the hopes of raising credit scores to qualify for large mortgages. Another factor is the tanking housing market which has stopped many consumers from drawing on home equity money to pay off debt.

Shah said fear over liquidity has been the primary driver sending portfolio prices down. “Buyers are expecting less return on their investment,” said Shah. He blames an “overhang” on the part of consumers and buyers in response to all of the negative economic news in the media.

“The proposed economic stimulus package could have an impact, but consumers are just so uncertain right now,” he said.

Shah believes that buyers may be gaining greater leverage in their negotiations with sellers, a marked change from recent years where sellers ruled the roost. Shah related a recent example of this in a deal where his company was bidding on two portfolios. The price was too high for his firm, so he passed. Forty-five days later, the creditor came back to Shah with the portfolio unsold and quoting a lower price.

Rosenberg also said that creditors’ situations may be driving lower prices. “Creditors are seeing larger inventories of bad debt,” he said. “We’ve seen a lot more portfolios lately.”

Last week, West Corp. CEO Thomas Barker discussed his company’s ARM unit, West Asset Management, in an earning’s conference call. Barker said that expectations for WAM’s debt purchasing operations will be tempered in 2008 due to “less competition among debt buyers as portfolio prices move down reflecting reduced liquidity expectations in a difficult collections environment.” Rosenberg said that many players who relied on short-term funding models “have gotten out of the way.”