EXECUTIVE SUMMARY FROM THE MBSD GROUP
A Portfolio Management Tool for Bulk Sales of Distressed Commercial Loans.
Actual recovery rates for distressed middle market commercial loans were explored, using a sample of Sanwa Bank California’s (“Sanwa’s”) distressed middle market commercial loans. The purpose of this management report is to evaluate the viability of bulk sales of distressed middle market commercial loans (generally, criticized loans) as one tool in reducing the level of problem loans and in assisting with portfolio risk management at a commercial bank. Statistics from an actual bulk sale of loans also provided a comparative view. An estimate of traditional problem loan management costs and recovery results for this sample was compared to the bulk loan sales alternative.
What resources are available to commercial banks that wish to establish bulk loan sales programs? Who are the purchasers of distressed commercial loans, and what are their objectives? How should bulk loan sales be identified for sale, and how should they be stratefied into sales pools? Based on the Sanwa sample of distressed middle market commercial loans, how does the bank’s experience using traditional collection methods compare to expected outcomes from a bulk sale? What should reasonably achievable goals and expectations consist of in a distressed loan sales program from both sellers’ and buyers’ perspectives? Interested in bulk loan sales, then please contact the MBSD Group today.