Debt Buyers Getting Creative to Fund Portfolio Purchases

The heightened level of scrutiny has led many purchasers no option but to get creative in attracting attention.

Major debt buyer Collins Financial Services announced late last month that it had secured debt financing from LBC Credit Partners, a mezzanine fund that provides privately negotiated loans to middle market businesses, (“Collins Financial Services Secures Debt Financing to Support Growth,” Nov. 25).

Collins CEO Robert DiGennaro told insideARM that his company had to go the extra mile to attract funding. “We had to create a good story for the funders,” he said.

DiGennaro hired an outside advisor to create a “book” on the company to pitch to funding sources. Even after all that effort, it still 3 to 4 months before they attracted attention. DiGennero noted that Collins’ reputation and longevity in the ARM industry was what ultimately tipped the scales on the deal.

While he said that it’s a “good sign that money is coming back into the [debt buying] industry,” DiGennero thinks that private equity and other capital sources are missing an opportunity by sitting on the sidelines.

“If you’re looking to round out an investment portfolio with specialty finance, debt buying is probably the best industry to put money into,” he said.

Mark Russell, director at ARM advisory firm Kaulkin Ginsberg, concurs. “Funding sources are eyeing debt buyers with too narrow of an outlook,” he said. Russell noted that investors are looking at horizons of 12 to 18 months. But debt buyers will see returns for years down the road on portfolios they buy today.

“Debt prices have been coming down for some time now,” said Russell. “It’s ironic that money was being pumped into this industry when prices were at historic highs, and now that prices are low, no one wants to fund debt purchases.” He said that there is plenty of money to be made on purchases made right now because when the economy recovers, collection rates will go back up.