Loan portfolio sales predicted to increase this year
Legal experts have predicted that loan portfolio sales will increase this year as lenders seek to free up capital.
According to new commentary from law firm Fox Williams, lenders in the debt finance space are anticipating a rise in non-performing or distressed loan assets, as borrowers struggle to manage rising interest rates and high inflation.
As a result, the fintech experts at Fox Williams have predicted the volume of loan portfolio sales “to increase noticeably this year as lenders look to free up capital by offloading defaulted loan portfolios, and buyers interested in entering the debt market look for opportunities to purchase assets at a discount.”
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Fox Williams urged all prospective buyers and sellers to do their due diligence before considering any new transaction. This includes assessing whether the security on the loan portfolio has been correctly executed and perfected.
The law firm added that disclosure will be one of the primary obligations for a seller, and they should be sure to relay any relevant information regarding defaults, waivers, amendments and extensions relating to each loan, as well as any adjustments made in respect of the Covid-19 pandemic.
Furthermore, sellers should be clear on whether any of the loan assets are regulated agreements.
“If any customers with loans are individuals, the loans are likely to be regulated by consumer credit laws,” Fox Williams said.
“Likewise, the buyer should ensure that it has the requisite permissions to service the loans, if it intends to service the loans itself.”
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If a loan is being restructured, this can make the portfolio sale more complex, and could place limitations on the buyer in how it intends to manage and service the loans.
Finally, the tax position of the buyer will determine the structure of the sale.
“It is important that the loans to be transferred are free from encumbrances, and that there is no legal or regulatory restriction on the seller’s ability to transfer the loans – a buyer should ensure any concerns made apparent in disclosure are satisfactorily warranted against,” added Fox Williams.
“From the seller’s perspective, a number of protections should be considered, including time limitations and minimum amounts for claims by a buyer for breaches of representations and warranties, both in relation to the loan assets, and to the status of the seller.”
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