Anyone purchase from Revolve Capital Group?

Question

I haven't bid on a lot of their notes, but every counter they have given has exceeded UPB.   Has anyone bought from them?  They paint a picture like they regularly get bids above UPB.  That puzzles me why someone would do that.   I'd like to hear from people that exceed UPB on the logic and how that's worked out.

Bob Malecki · Answer

That's Chaz Guinn's newly formed company in Irvine. We bought some notes from him when he was running Granite about 4 years ago and it didn't turn out well. Frankly, I wouldn't waste my time attempting to get a profitable asset from them. A lack of transparency and misleading intentions were in the primary issues that I encountered in our dealings with his company and him.

Matthew Kelley · Answer

I have known Chazz for years and consider him a good person but that doesn't mean I have or would buy notes from him. I am familiar with the message of buying above UPB but never known it to be a good business practice. With delinquent assets, especially ones years delinquent, the 'collectible balance' can be very different than what is promised by a seller due to defensible arguments of Laches and the Statute of Limitations in some states. The risks do not necessarily justify paying over par in most circumstances... or any circumstance from my experience.

Jay Hinrichs · Answer

that is curious my only thought is the UPB is actually higher given default rates etc.. or the theory for folks is simply loan to own.

equity is so high you take on the risk of low return for the chance to own the asset through DIL  as we know if there is a lot of equity more than likely someone will bid it at courthouse steps and you wont acquire it anyway.

we have bought notes for the sole purpose to own the asset mostly properties that could be developed that most note investor simply looking at the notes and zillow etc would not know the HBU of the asset.. I used to have a pipeline into a local Oregon Thrift that would sell me these 2 to 3 weeks before the actual Trustee sale as they did not want OREO on their books.  OH the good ole days LOL

Peter Halliday · Answer

@Bob Malecki thanks for the feedback.  The fact it happened twice make me wonderful if it was worth wasting my time.   Plus I’m just curious at people’s motivation that actually do purchase them.   Last time it was a non-performing loan in Texas where it exceeded UPB because they indicated the legal balance was so high and the initial filing had been done.  However, they weren’t able to warranty the legal expenses.  And we all know nothing else could go wrong.

Andy Mirza · Answer

@Peter Halliday We bought a few NPNs from Revolve at the end of 2020. 2 out of the 3 purchase prices were below UPB. One purchase was at par. We did ok with one and very well with the other two.

From what I remember, there were some things that came up during DD but we were able to handle these with little issue. We had cooperation from them and hashed out solutions (delinquent taxes or liens or something like that.) As with any note seller, buyer beware and do your DD.

Our business model is short term liquidation. We have some notes that go re-performing & those we re-sell but they are very few and it's not our main focus for an exit strategy. Here's where buying below UPB is so important since performing note buyers base their calculations off of UPB, not total debt.

We are more aggressive, seek out the more delinquent notes, so getting re-performers is rare.

The best out of the 3 looked like this:

Purchase price:     $148,500

UPB:                     $149,059

Total Debt:           $217,829

Market Value:       $224,500

Sold to 3rd Party: $200,000

Bidder

Net Proceeds:      $190,830

Net Profit:           $34,034

I would definitely buy from Revolve again in the future.

Chris Seveney · Answer

You have to do a lot of due diligence on the assets as with any seller, some of them can be very hairy. I have purchased from them in the past and will continue to buy from them. I recommend you make sure to build relationships with all your sellers and understand their processes and procedures.

Peter Halliday · Answer

@Jay Hinrichs didn’t see your comment.  The most recent one I bid on was low rate for sure. So assuming my low risk. However, since it was listed as sub performing and only showed 8/25 a f the last payments, I figured maybe others that may make those purchases could help educate me on why they would do that kind of deal.

Andy Mirza · Answer

Yes, you are correct. We will always try to work something out with a borrower when they meet us halfway, however, that doesn't happen very often. When it does, we're happy to sell it as a re-performer when the numbers make sense.

One of the risks though is when a loan goes sub-performing and you can't get pricing from either performing or NPN buyers because the note is neither one. If you buy for more than UPB you're stuck holding it until the numbers come your way.

Peter Halliday · Answer

@Andy Mirza thanks so much for the information.  Very helpful.   So I assume that you all live with the risk of the statistics leading away from things working out with the borrow.  In those very unlikely cases you’d lose but would win out over the course of the portfolio.  Does that sound right?

Anyone purchase from Revolve Capital Group?

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