Bulk notes

[Sean M.]

excuse me if it's here and I missed it but I can't find much on bulk notes.  What constitutes a bulk note purchase for unperforming paper - a few million or a few hundred million?  How are the funds that buy these doing it? As all things bank, I'm sure there is a well worn path, just curious what that path is.  Seems like the big guys have almost exclusive access to the premium notes.  I'd love to see how and figure out if there is a way to horn in on that. 

[Dion DePaoli]

A "bulk trade" is any trade that consists of more than one loan.  The Selling party can be any type of entity including institutional and private.  He who has the loans can sell them in bulk or one at a time.  

Does selling in bulk mean the loans are premium notes?  No.  Not at all.  It is merely a quantification of the number of assets that trade in one transaction.  Buying in bulk also does not mean some greater discount.  It's not Costco.  Trading more than one loan allows the capital allocation from the sale proceeds for both the Seller and the Buyer to simply allocate capital to suit their balance sheet needs a little better than a one asset trade.

As with any asset, including real property, establishing a market value for price is important.  Typically a pool will be put in front of more than one potential buyer for pricing.  This is a function of flushing out a good price as a Seller.  

Do the big guys see the more often?  Yes, for a variety of reasons.  Many institutional bulk sales will be a barrier of entry for a private street level investor as those trades will be in the millions, so capital is a barrier.  In addition, counter-party risk is a barrier, where the institution does not wish to sell to the inexperienced note buyers for fear of legal liability if the inexperienced buyer does something to create such liability.  The first entity to be looked at will be the large institutional investor behind the inexperienced guy, since more than likely, the institution has more capital to pursue for restitution, etc.