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Prices for charged-off debt portfolios in all asset classes are down this year compared with the previous two years as liquidation rates drop, Aaron Hadam, senior vice president at debt broker National Loan Exchange Inc., tells Collections & Credit Risk, a CardLine sister publication. Hadam has seen a "dramatic shift" in pricing that has moved the industry from a sellers' market to a buyers' market. But with concerns about declining liquidation rates and the weak economy, buyers more often are eschewing traditional 12-month forward-flow contracts, in which they purchase a set amount of debt, and seeking three- or four-month contracts, adds Al Brothers, a senior executive at Cavalry Investments, a debt buyer based in Hawthorne, N.Y. "Buyers can't pay 10 cents or more on the dollar for charge-offs any more because they're not going to be able to collect enough to recover expenses. They don't want to take the additional risk of entering into a longer forward-flow contract," Brothers says. "It's just harder to collect in 2008. Margins for buyers really haven't improved and that seems to be widespread across the industry." The 15 largest debt buyers last year purchased a combined face value estimated between $25.1 billion and $37.7 billion in delinquent credit card accounts, or 60% to 90% of total debt purchases of $41.9 billion, according to a recent survey by Collections & Credit Risk. Credit card charge-offs not yet placed with a collection agency are selling for approximately 7 cents to 9 cents on the dollar. Many buyers that purchased multimillion-dollar volumes of debt in late 2006 and into 2007, at prices that assumed higher liquidation rates achieved at that time, either have taken portfolio impairment charges or have discussed doing so soon. NCO Group, the largest accounts receivable management firm as ranked by total 2007 revenue, recently reported a loss in its Portfolio Management unit of $18.2 million for the second quarter ended June 30, the result of the "ongoing consumer downturn," said CEO Michael Barrist in a conference call.
