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Financial
Lending Notes
November
13 , 2008
Options
for Distressed Debt
One
result of the credit crisis that has rocked
the nation’s financial system over
the past year has been an abundance of
distressed debt for sale in the commercial
marketplace. Well, one man’s trash
may indeed be another man’s treasure,
since a growing number of firms are interested
in purchasing this debt.
Buyers
of distressed debt strive to purchase
non-performing loans at a discount and
then use their experience in working out
problem loans to collect them and turn
a profit. They are set up with the infrastructure,
expertise and personnel (e.g., attorneys,
professional liquidators) to do this more
cost-effectively than most banks can.
For
community banks holding non-performing
commercial loans primarily secured by
real estate or equipment, this may be
a viable option worth considering. However,
you must take emotion out of the equation
and reduce it to a simple business decision.
What will result in the most money to
your bank, present-value, for the least
time, cost and risk — selling the
debt in the commercial marketplace, continuing
to work with the borrower toward a resolution,
or liquidating it?
As
the number of firms buying distressed
debt grows, so do the options for sellers,
who may have more bidders to choose from.
Buyers need to build volume, so increased
competition may drive the price for non-performing
loans higher.
Several
different clearinghouses have also emerged
to connect sellers of distressed debt
with potential buyers. The most popular
is Debtx.com, which operates the world’s
largest online marketplace of buyers and
sellers of commercial debt. Think of it
as an eBay for debt: You simply input
broad data on loans you want to sell into
the website, and buyers come back to you
with bids, with Debtx taking a fee for
successful matches.
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Compliments
of:
Porter
Keadle Moore, LLP (PKM) is a full
service accounting firm based in
Atlanta, Georgia. PKM offers audit,
tax and systems services to clients
throughout the country. The firm
focuses its efforts on companies
registered with the Securities and
Exchange Commission (SEC), community
banks, the insurance industry, technology
and life sciences companies and
the real estate/construction industry. |
To
discuss this article contact Pat
Tuley, CPA with Porter Keadle Moore,
LLP at ptuley@pkm.com.
Pat
has over 23 years of experience
in public accounting. He has worked
with clients ranging from individuals
to international Fortune 50 companies
in a variety of tax consulting
and compliance areas. He is most
active in the real estate and
banking industries, serving numerous
clients across the Southeast.
Pat has led PKM’s tax practice
since 2003. Prior to joining PKM
he was a partner with KPMG, where
he spent 17 years of his professional
career.
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