Bulk notes

5 Replies

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. 

Hello Sean,

From what I have learned, in order for you to purchase bulk notes, you would need to be a credible and experienced loan investor.   Also these notes would be sold in large pools that could cost millions of dollars and were normally sold to the highest bidder.

I hope this helps. 

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.  

If you have not done a few notes on a one off basis then notes in bulk would be a real challenge especially if you are going to keep some or all in your own portfolio.

I agree with Dion on what bulk as a term means.  Big funds do tend to pick up the premium notes usually, and you will never compete with them unless you have tens of millions to spend.  A lot of these notes will however trickle down and be sold a few times cause they don't fit into the risk parameters of larger funds.  Think of it this way, a huge fund only needs to make 10% a year cause all of their money is coming from pension funds, ucits, insurance companies, and banks.  They work on a 2% management and 20% of the profits platform so they don't take risk.  Smaller funds that raise money from High net worth individuals have more room to take risk and therefore parameters are different.

Do you have the money available to buy a pool?  

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