New horizons at each step in the process
The seller invites a very limited number of possible investors, exclusively on the basis of their existing relationships with them and their perception of market appetite at that particular time.
The seller prepares what is known as a data tape, a database of information on the portfolio borrowers, current loans, guarantees, properties and procedures.
Each bank has its own data tape standard, and the quality and comprehensiveness of the data is very varied and very often low.
Potential investors access and analyze the data tape through a preliminary due diligence, applying their own recovery curves and drawing up an initial non-binding offer.
The seller then selects a number of competing investors from the non-binding offers received, and gives them access to a sample of documents relating to the individual loans. After a highly detailed due diligence, the investors present their binding offers (which are often significantly lower than the non-binding offers) and the seller selects a buyer. The whole process can often lack transparency.