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DebtX Scoring with U.S. Loans, Bank Failures
WASHINGTON, 07/08/2002
By Nicole Duran
A Boston company that survived the dot-com implosion is thriving on auctions of government loans and failed banks' assets.
Debt Exchange Inc., or DebtX, has conducted six auctions for the Federal Deposit Insurance Corp. of loan portfolios from failed banks. Five of the auctions were live on the Internet.
On Dec. 3 the three-year-old company's Web site and loan-sale technology platform will be used by a New York real estate firm, Insignia ESG Inc., to auction $700 million of loans guaranteed or made directly by the Small Business Administration.
DebtX chief executive J. Kingsley Greenland 2d describes his service as a secondary marketplace that provides sellers with liquidity and gives them faster and otherwise better results than they get offline.
A big advantage is that sellers can find more buyers and finish transactions faster, Mr. Greenland said. A standard loan auction, in which the FDIC, for example, sends out boxes of information and waits for sealed bids to arrive, can take 90 to 180 days. Using DebtX shortens that by 25 to 60 days, he said.
Buyers can view all the paperwork needed to conduct due diligence online before the actual auction, usually two to three months beforehand, he said.
Banks, insurance companies, and the government use DebtX for portfolio management and to sell nonperforming loans.
"A bank might decide its portfolio is too concentrated in one area or another, or it may just want to exit a business," said Mr. Greenland, whose lending background includes a recent stint as the president of Boston Capital Mortgage Co.
The SBA sold $408.2 million of loans through an Internet auction in January and will put another $600 million to $700 million on the block next month. It picks the auctioneer through a competitive bid process; KPMG conducted the first and Cushman & Wakefield will oversee next month's sale.
The Dec. 3 auction will be the SBA's first using the DebtX loan sale platform. Insignia ESG will manage the sale.
When DebtX is hired to manage an entire auction - preparing the files, contacting the buyers, and closing the sale, it gets a percentage of the proceeds. In the SBA sale, Insignia will pay DebtX a flat rate.
Like the SBA, the FDIC favors live auctions because they let bidders compete in real time for pools of assets or for individual loans. The transactions are completed entirely online, except for the closing, which is done the traditional way - through document exchanges and wire transfers.
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