Consultant Zone

Loan portfolio trades; the importance of Due Diligence

There has been some recovery in the trading of mortgage assets over the past five years, particularly in the non-performing sector. The improving trend has continued, and we have seen numerous loan book trades in the UK and Europe and many commentators report that they expect even more activity in the next 12 months.

Clearly carrying out appropriate due diligence (DD) on portfolio trades remains important, but of equal importance for both vendors and purchasers is the selection criteria supporting the appointment of the DD supplier to establish its credentials, history and financial standing. That should involve establishing how long the company has been trading, reviewing its business structure and corporate governance, looking at the credibility of the board and assessing its financial position. In short, carrying out appropriate DD on the DD supplier!

A further key aspect is ensuring no conflicts exist with the supplier and a base principle here is independence. More than ever, investors, banks, lenders and hedge funds are looking for independent help when investigating potential loan book trades. With increasing regulatory influences coming into play, including the issue of single supplier risk, it is vital to seek the support of professionals with subject matter expertise and local market knowledge.

One thing that has changed significantly over the past decade is the price which is now being paid for the assets. Higher prices can generate greater risk for the purchaser and the role of the DD provider should be more than a simple “tick box” exercise for most purchasers.

The “one-size fits all” report is history and does not now satisfy the requirements of investors. Increasingly portfolios can consist of many different asset classes, requiring the engagement of different types of experts. That will only come from credible, experienced providers of this type of service.

If you are looking for a truly independent supplier that can add real value to transactions by providing a truly independent support service, give us a call.