Monday, August 27, 2007

Distressed credit buyers opportunity?

They say it's an ill wind that blows nobody good - meaning that even in times of turmoil, there's often someone who's situation is improving.

With that thought in mind, I recalled the recent turmoil in the credit markets, and wondered what companies might benefit from this situation. Leafing through my investment scrapbook, I came across an entry I made some two years ago, suggesting that if the US debt situation imploded, that a beneficiary might be those whose business profile sound like this ...

... provides outsourced receivables management and related services in the United States. It engages in the purchase, collection, and management of portfolios of defaulted consumer receivables. The defaulted consumer receivables are the unpaid obligations of individuals to credit originators, including banks, credit unions, consumer and auto finance companies, and retail merchants. It also provides collateral-location services for credit originators, collections and revenue administration, and audit and debt discovery/recovery services for government entities.
... in other words, those who benefit from a higher default level on any type of consumer debt, since a higher level of delinquency is inevitable, given the negative savings rate of the average American family. Given that, opportunities to load up the balance sheet for these companies with cheaper than ever defaulted debt, at favourable prices, appears better than in recent memory. This could fund very profitable growth for these companies for some years to come.

Some names in this space include:

Portfolio Recovery Associates - PRAA
Encore Capital Group - ECPG
Asta Funding - ASFI
Asset Acceptance Capital - AACC
First City Financial - FCFC

This is an idea worth exploring more for your own portfolio, if you think, as I do, that the ill wind is blowing towards these companies right now.

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