When FleetBoston Financial Corp. announced last year that it had sold $1.35 billion of troubled loans to an investor group, it triggered expectations that a flood of such deals might soon be disclosed.

Though the first quarter apparently produced no transactions rivaling the Fleet sale, there are indications that the period produced a relative bumper crop for buyers of distressed loans.

One such firm, Republic Financial Corp. in Denver, has already completed five purchases this year. That may not sound like a frenzied pace until one considers the firm’s volume of business — it has completed 43 deals in the past three years — and its experience in prior years, which taught it the market for such assets is actually a fairly seasonal one.

“This is by far our best start” since Republic started buying distressed commercial debt in 1997, said C.J. Burger, managing director for special assets marketing. “Usually first quarters are quiet, because it’s a budgeting time. It looks like a lot of that work happened at the end of last year,” and the deals “came running right out of the chute.”

The pickup in business has had several effects on Republic’s portfolio that, taken together, offer a kind of progress report on the state of commercial credit quality, albeit from a base of relatively small borrowers.

Republic buys nonperforming loans, on which payments have either stopped or been erratic at best. About half its deals are won by competitive bid and half negotiated, with pricing of such loans ranging generally between 40 cents and 60 cents on the dollar, the company says.

With four years of preparatory work under its belt — “We survived the good times,” senior managing director Robert Ekback likes to say — Republic has culled a long-awaited boom from the downturn. The turnaround has not just been in terms of the number of bad loans available, but the kind.

“This cycle has been different,” Mr. Burger said. “Last time around there were a lot of real estate loans,” he said. This time it has been commercial and industrial ones.

The firm has not been involved in anything approaching the size of the Fleet deal, but it has been taking on bigger packages than before. Its current portfolio of about 200 distressed loans comes to about $350 million. The dollar amount of the portfolio is expected to rise, but the number of loans has actually tumbled, from about 900 in 1999, because of a fairly steady increase in the size of the credits available for purchase.

“Every day the average transaction size seems to grow,” Mr. Ekback said.

By the firm’s own last count, it had acquired loan packages from six of the nation’s 10 largest commercial banks. In each case, the underlying loans were middle-market commercial — the firm won’t get involved in consumer debt or single-family residential-backed purchases, where there are fairly well developed markets in place.

The relative illiquidity of the loans Republic buys provides comparable opportunity for reward, obviously, but those payoffs won’t be realized for some time.

“We’re at the riskiest part of the cycle for our business,” Mr. Ekback said. “From the outside, everyone says, ‘Boy, you must be loving it.’ But we’re by definition buying an illiquid profit in a falling market. If we’re not careful, we wind up with a portfolio of junk that could just blow up.”

By the same token, banking companies had been somewhat reluctant to part with troubled assets late last year, in some cases because the condition of the market led them to conclude that there was no economic upside to selling.

Bank of America Corp. was one such company. Its chief financial officer, James Hance, disclosed during a conference call in January that the company had looked at a variety of bulk sales in the fourth quarter. “Our assessment was that the loss sustained in that transaction was larger than the cosmetic benefit,” he said at the time. (When asked about the past quarter on Friday, B of A spokesman Bob Stickler said, “We haven’t done any major [distressed-loan deals] recently.”)

Perhaps predictably, Republic’s view is that selling, even into a market where you don’t get full price, makes strategic sense.

“Do banks wind up leaving some money on the table? Sure, but it’s the right thing to do,” Mr. Ekback said. “It accelerates their ability to redeploy capital to their profit centers.” He pointed to Fleet’s stock price gains in the days after its loan sale as evidence that the market shared his view.

There is little way to guess what kind of pricing environment will develop near-term for the assets involved in these kinds of deals, but Republic tends toward a buy-and-hold, rather than a buy-and-trade approach to the loans. Of the loans the firm acquires, perhaps 15% wind up as liquidations, and another 15% get sold off.

The remaining 70% involve restructurings of some kind, occasionally involving bankruptcy but usually handled on an out-of-court basis. “At the end of the day we are asset managers, not traders,” Mr. Burger said. “Our core strengths involve our emphasis on due diligence and workout strategies.”

There are some commercial loans the firm won’t touch. Tangible assets are a must. That rules out companies whose entire worth is wrapped up in enterprise value — read “dot-com” here.

“That stuff is too hard to value,” Mr. Burger said. “We don’t touch it.”

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