Cavalry to the Rescue of Bad Debt

Andrew Zaro likes to say he went from a career in dough to a career in dough.

Zaro runs Cavalry Investments LLC, a company he founded in 1991 and has built into one of the largest buyers and collectors of consumer debt in the United States.

He used to make his living with a different kind of dough. He and his family ran Zaro’s Bread Baskets, a company that operated 15 high-end bakery shops in bustling hubs like Grand Central Terminal, the Port Authority bus station and Penn Station.

Zaro’s switch was superbly timed. The nation was on the cusp of an economic expansion fueled by an unprecedented borrowing binge. The consumers’ addiction to plastic left credit card companies and other lenders with hard-to-collect receivables that they’re willing to sell for the right price.

Zaro, 50, also started his business just after the federal government created the Resolution Trust Corp. to clean up the mess left by hundreds of collapsed saving and loan institutions. The RTC took control of the loan portfolios of those institutions and sold them to upstart companies like Zaro’s.

The credit card craze and the RTC auctions spawned an industry with 500 players buying up to $90 billion a year in debt, according to figures supplied by the Debt Buyers Association in Santa Fe Springs, Calif.

In a nation with $2.04 trillion in consumer debt, including $740.8 billion in credit card debt, there’s a profitable niche for companies willing to pay for troubled assets on the hope that they will collect enough money to make the investments worthwhile.

“There’s an opportunity here for those who know the market and are not just people trying to come in and make a quick buck,” said Dennis Hammond, chief executive of the association.

Cavalry has purchased $13 billion in debt since its founding and has a portfolio of receivables totaling $12 billion in 3.5 million accounts. About half of that is bad credit card loans, 40 percent is car loans, and the rest is divided among utility, phone and other accounts.

Cavalry is on pace to collect $210 million this year, 75 percent more than last year. It’s all debt the original lenders wrote off as too difficult or too expensive to collect.

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