Figures from the New York Fed are balances outstanding, not sale prices. Bands cited from DebtMarket’s pricing study are conversation ranges, not offers. This note is education for operating companies and creditors. It is not legal advice.
A buyer earns a spread when the cash collected, settled, or otherwise realized on a portfolio is more than the price paid plus the cost of working it. The price is usually a percent of unpaid principal. The cost is people, letters, data, legal filings the buyer chooses to bring, and the accounts that pay nothing.
A simple frame, not a forecast
Take a card file offered inside the desk’s 3 to 8 percent conversation range. A bid at 5 percent of face means five cents per dollar of unpaid principal, before expenses. If the buyer’s own model needs eight cents of net cash to clear the cost of that file, the 5 percent bid can work. If the model needs eight cents and the file is old, thinly documented paper, the same 5 percent bid does not work. The pricing study band does not know your cost.
What changes the spread after the bid
| After funding | Effect |
|---|---|
| Media that does not match the sample | Fewer accounts you can work the way you modeled. |
| Exclusions that were still in the face | You paid a percent on dollars that should have come out. |
| Warranty claims | The 90-day window is the contractual path for ineligible accounts, starting after closing and funding. |
Resale is a second exit for some buyers. It is not a plan you should underwrite if the chain of title was already thin. The next buyer will read the same gap.
Do not underwrite the resale as the base case
Some buyers sell accounts again. A model that only works if a second buyer appears is a model that fails when the second buyer reads the same media gap. Underwrite the cash your own operation can realize. Treat a later sale as an option, and only if the chain of title you required at the first closing is something you can pass on.
Write the purchase price, then write the costs
Use one illustration. A credit-card file shows $1,000,000 of unpaid principal at cut-off. A discussion at 5 percent of face is a $50,000 purchase price. Five percent sits inside this desk’s 3 to 8 percent credit-card conversation range and is not an offer. The spread is what remains after the cost of working the file. Write those costs on the same page as the purchase price: letters and data, skip work, in-house payroll or an agency fee, filing costs on accounts the buyer chooses to sue, and the accounts that come back under the warranty.
A model that only works if a second buyer appears later is a model that fails when that buyer reads the same media gap. Underwrite the cash your own operation can realize. Treat a later sale as an option, and only if the chain of title you required at the first closing is a chain you can pass on. The price factors are on what moves the price.
A recall changes the file you modeled
The 90-day warranty starts after closing and funding. Paid-prior and deceased status are measured against the cut-off date, which is earlier. When an account comes back, it leaves the denominator the model used. Put a line for warranty returns on the worksheet before you treat the $50,000 as money that is fully deployed. The date rules are on cut-off, closing, and funding.