Bad-debt market insiders report that fresh credit card charge-off portfolios are selling for between 4 cents and 7 cents on the dollar after steadily declining from a 10-year high mark of 14 cents seen in late 2007 and early 2008.
"The larger percentage declines have taken place in the past six months or so as the economy has continued to struggle," says Mike Varrichio, president at Global Acceptance Credit Co. (GACC), an Arlington, Texas-based debt buyer.
The trend, Varrichio and several other buyers tell Collections & Credit Risk magazine, applies to all asset classes, not just credit cards. "They are all behaving the same way. Prices are coming down and liquidation rates are lower than in the past," he adds. Collections & Credit Risk is a CCR Newsline sister publication.
Al Zezulinski at NCO Group Inc., says that despite the downward price movement there is a gap between what buyers and sellers believe debt portfolios are worth.
"Fewer deals are coming to the market. Pricing expectations on the part of the buyer are not matched by the pricing expectations of the seller," says the executive vice president at the Horsham, Pa.-based accounts receivable management company. "The gap in some cases is so large that it's hard to bridge it."
NCO is the top collection agency in Collections & Credit Risk's 2009 rankings with nearly $1.5 billion in 2008 revenue. The company is the No. 10 debt buyer with $18.4 million in revenue from purchased debt in 2008.
More potential buyers are waiting despite the favorable prices. Some are betting portfolios will come cheaper later; others are unable to get the financing they need to make purchases; still others are struggling trying to liquidate high-priced loans they purchased before prices dropped.
With unemployment and defaults on the rise, large public buyers such as Portfolio Recovery Associates (PRA), Encore Capital Group and Asset Acceptance Capital Corp. (AACC) are among those holding out to see if they can snag portfolios at deeper discounts later this year or in the first quarter.
For more about this subject and expectations for the market in the coming months, see Collections & Credit Risk.