One group that may benefit from the unfolding credit crisis is the companies that arrange the online sale of distressed loans.
Debt Exchange Inc., one of two companies that does so on behalf of the Federal Deposit Insurance Corp., announced Wednesday a deal to sell $424 million of loans originated by two failed banks.
The Boston company is one of a handful that have emerged in recent years to provide prospective investors secure, online access to loan documents and other data needed to perform due diligence.
Some of these companies say the Treasury Department's plan to purchase distressed assets from banks could provide a significant opportunity.
J. Kingsley Greenland 2nd, the president and chief executive officer of DebtX, said there has been "a significant upsurge in business" as the credit crunch has proceeded over the past year, with its volume so far this year easily twice what it was for the same period last year.
"Bankers in general, looking at the credit situation, have begun to engage in more active portfolio management," he said in an interview Wednesday. "We did not do a lot of residential prior to March of this year. There was a liquid market, and we couldn't add a lot of value through our marketplace. The world has changed."
As for the proposed $700 billion bailout of troubled assets that Treasury Secretary Henry Paulson is negotiating with Congress, he said DebtX's role would depend on how the buyer prices the assets, the assets involved, and who gets to participate.
"We're ready, willing, and able to participate, if it makes sense," he said.
The FDIC signed five-year contracts last year with DebtX and First Financial Network Inc. to provide loan sale advisory services.
Bliss A. Morris, First Financial's president and chief executive, said she also is watching closely the ongoing debate over the Treasury bailout plan. "The opportunity is probably quite enormous for First Financial," she said. "I would be very hopeful that we would be very active in that."
Other companies offer similar, though somewhat different services. For instance, IntraLinks Inc. of New York provides secure, online workspaces where banks and can share documents and work collaboratively on projects such as loan syndications. National Asset Direct Inc., a San Diego purchaser of distressed residential assets and loans, started offering a proprietary deal management system in June to manage deal bidding.
Mr. Greenland said his company's online market model offers several advantages, including the ability to provide due diligence documents electronically and the speedy resolution of auctions. In conventional loan auctions, an agency typically sends out boxes of information and then waits for sealed bids to arrive — a process that could take 90 to 180 days.
The deal announced Wednesday to dispose of the assets of the two failed banks will be much faster, he said. DebtX will sell $154 million of loans originated by the $259 million-asset First Priority Bank, along with $270 million of loans originated by the $752 million-asset Columbian Bank and Trust Co. Both failed in August.
Materials for First Priority's loans will be available online Oct. 7, and an electronic auction will be held Nov. 5, DebtX said. Materials for Columbian's loans will be available next month, and an auction is slated for late November.
First Financial is currently marketing a $365 million performing portfolio of commercial real estate loans for the FDIC that the agency inherited in the IndyMac Bancorp Inc. collapse; bids are due next month.
Ms. Morris said that her Oklahoma City company offers a variety of auction methods, including sealed bid, "online e-cry," public outcry, and private treaty.
"Technology has changed the landscape by making the due diligence process more efficient," she said. "It enables investors from anywhere to access the information about a loan portfolio."
More than half its clients conduct their research work online now, Ms. Morris said.
She emphasized that her company plays an active advisory role to asset sellers, canvassing the market to promote a portfolio to the most suitable prospects.
And with more bank failures expected, DebtX and First Financial are likely to get even more business from the FDIC.
"As more banks are failing and acquirers are unwilling to take the assets, you'll see more of these announcements," said David Barr, an FDIC spokesman.
