Creditors - consistent questions, inconsistent answers; the search to meet new requirements in debt sale

The US debt sale market has been through a turbulent period over the past 5 years, with the credit crunch impacting both the availability of funding and pricing across the market. This storm has been weathered and at first glance the market now appears buoyant, with a healthy volume of sale activity and pricing steadily improving by circa 4% in general and up to 12% across some debt types. Our discussions with over 20 issuers over the past few weeks, have however, highlighted the next storm on the horizon for the US debt
sale market; growing regulatory requirements.

The change in attitudes of sellers towards compliance of buyers post sale, originates from the clarification by regulators that the customer relationship is retained post the sale of an account. This has recently been reinforced by the Comptroller of the Currency's (OCC) best practice guidelines, (which are likely to be developed into formal regulation) which state that sellers are expected to have clearly document processes to audit and monitor their third party suppliers.

This is causing a challenge for sellers as introducing such mechanisms for auditing and monitoring a wide-scale purchaser panel is resource intensive and hence costly, with one global issuer quoting “the cost associated with auditing over 100 purchasers across the globe is huge and I am keen to explore any options that help me target my activity where truly required”. One response to this challenge, which has been seen in well publicised examples, is for sales to be delayed or even pulled from the market, but this cannot be the right answer.

A number of issuers are however, now taking a pro-active approach to responding to these growing regulatory requirements; namely by gaining greater visibility of their buyers activity. This is enabling an effective auditing and monitoring process as outlined by best practice but is resulting in sellers asking a new set of questions;

• What information should be gathered?
• How can this be obtained from buyers?
• What will be the integration costs of obtaining this?
• How can the data be utilised when it is gathered?
• What complexities does re-sale add into this challenge?

As with any market, this challenge is affecting all entities; i.e. both sellers and buyers. The solution also needs to be driven by all parties to ensure the on-going stability of the debt sale market. Our position as an industry intermediary affords us the ability to view and understand the opinions of both sides of the market. As such, we will report back shortly, to provide you with an update on how buyers are viewing the current challenges across the sector and their thoughts on the solution.

By Chris Smith, TDX North America