The Debt Trader in conjunctions with The Sagres Company presents
The Risks of buying a portfiolio and how to manage those risks.

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#	To	From	To#	Message
1	Audience			Welcome and thank you for attending today. Bad debt portfolio purchasing, like many other businesses, requires a specific understanding of the marketplace as well as a distinct set of skills. Once you learn them, you can become part of an entrepreneurial group of collection professionals who are continuing to develop this market. The party most at risk in purchasing debt is the buyer. The buyer is exchanging a known amount of cash for a portfolio of unknown value. The value is unknown because it is based on representation by the seller, who often does not know with certainty the quality of the portfolio he is offering. As a buyer, you should gather as much information going into the transaction as is possible. Today we will discuss what that information is, how to acquire it, and how to apply it to the purchase. I would like to start by polling the participants.
2	Audience	Tom		I would like to start by polling the participants. Could you please identify yourself as a buyer, seller, broker, agency or other by using the following number system: Buyer-press #1…Seller-press #2….Agency-press #3….Other-press #4
3	Audience	The Debt Trader		Welcome Thomas S. Ferris, C.E.O. of the Sagres Company
4	Audience	Darrell Musick	2	#4-- All of the above
5	Audience	Bruce		New Buyer
6	Audience	Phil		#4
7	Audience	Jim		#1 & #2
8	Audience	Jason		New Buyer
9	Audience	Mike Colby		#4 Buyer and Seller
10	Audience	SANDY		#4-- PROSPECTIVE BUYER
11	Audience	John		Broker
12	Audience	Baine		#1 Buyers and Collectors
13	Audience	Tom		The most important thing to know, is that this business is not for everyone.
14	Audience	Tom		If this is not for you DON'T DO IT!
15	Audience	Tom		Are there any opening questions?
16	TOM	SANDY	13	Why do you say that?
17	Audience	Frank		New-From R.E. Industry
18	Audience	Tom	16	This business is not for everyone because if you don't have strengths in this business and you don't understand the risks, you will be taken advantage of and you will be throwing away your money
19	Audience	Darrell Musick	13	How would one determine whether or not they are cut out for the industry, in your opinion?
20	Audience	Jason	13	Why would it not be for someone, anymore than any other business?
21	Audience	Baine		We are new. How can we verify the information we are being given by the seller?
22	Audience	Tom	19	First, you must know how patient is your money
23	Audience	Tom	19	What type of a return is sufficient for you?
24	Audience	Tom	19	In what time period do you want that returned back?
25	Audience	Phil		When did you get involved, and from what industry did you come from?
26	Tom	Darrell	24	Would you consider three times your money over 24 months realistic?
27	Tom	Phil		That last question was for Tom not Audience. Sorry!
28	Audience	Tom	21	First, do your due diligence. Verify all representations made by the salesman. If you do not have the required expertise to do this, then hire a consulting firm like Sagres or joint venture with a successful buyer who has already been down the road.
29	Audience	Tom	25	I got involved in 1993, And I was from the investment securities business. We have purchased over 1 billion dollars to date, and the first thing I did was hire experienced collections professionals.
30	Audience	Frank	21	What are some of the Risks in Purchasing a Portfolio?
31	Tom	SANDY	28	Isn't there someplace to go to verify information? I was under the impression that there was, but I am a newcomer.
32	Audience	Tom	26	The industry standard seems to be 3 times in 24-36 months.
33	Audience	Bruce		Sorry to change the subject, but where do I go to look for paper? I've had some odd responses to cold calls.
34	Audience	Tom	30	1. You own the losses. 2. Accounts are heavily worked. 3. Originator sometimes leaves only low probability accounts. 4. High legal costs. 5. Legislative Changes. 6. Traditional collection efforts may fail.
35	Audience	Andrea	34	Have you ever lost money on a portfolio purchase?
36	Audience	Tom	31	At Sagres, we believe in trust through verification. There are sources but always remember, it's your money and everybody wants it! Try the Asset Buyers' Program at the American Collectors Association.
37	Tom	Bruce	36	Are there any others, Tom?
38	Audience	Tom	33	Bruce, go to the main brokers. NLEX, Foward Flow Properties, Charge-Off clearing house, Loan Trade. As well as others. Also attend the buyers conferences, subscribe to the magazines. Most importantly call every classified ad and every name in the trade journals that deal in bad debt. Educate yourself first!
39	Audience	Tom	35	Andrea, good question. The answer is "yes." To date, we have made over 50 purchases. We've lost money on 3.
40	Audience	Tom	37	Did we answer your question Bruce?
41	Bruce	Jim		I've had luck with the Web site we're on!
42	Audience	Phil	33	Our company has had pretty good luck with the internet companies. Like the Debt Trader, Debt4sale, Debt Sale Bulletin, etc.
43	Tom	Verne		What resources are available to confirm the accurrace of information in a portfolio I am researching for purchase?
44	Audience	Tom	41	Jim, that's a good point. These web sites are so relatively new, I neglected to include them. I have a list of 18 web sites that we can provide to you for finding product. The Debt Trader is one of the leaders.
45	Tom	Bruce	40	Yes, for the most part. It just seems like people stick with the same buyers and sellers. It's hard to find new sources that are reliable and/or willing to work with a new face.
46	Audience	Tom	43	The hard copy files will verify your information, that and an on-site due diligence. Or call an experienced buyer in the business for their opinion of the seller and the product time. Try the members of the Asset Buyers Program at the ACA
47	Tom	Darrell		Hey Tom, how about the Debt Buyers' Association?!
48	Audience	Tom	45	Bruce, what we did at Sagres was dedicated an individual telemarketer to call every potential source we could think of in our focus groups. Also, order the American Bankers Assoc. members book for potential sellers.
49	Audience		47	Oh yeah! Them too.
50	Audience	Andrea	45	I've found this business to be centered around a network of individuals. This seems to work for safety reasons.
51	Audience	Tom	50`	Andrea, could you clarify that please?
52	Audience	Tom		WHAT ARE THE MAIN FACTORS TO MINIMIZING RISK?
53	Andrea	Darrell	50	Andrea, I agree. Experience has taught us over time that we can rely only upon those who have dealt with us fairly in the past as there has been no other independent source available to verify information.
54	Audience	Tom		First, know your capabilities for operating in the distressed debt market.Gain a general understanding of the price ranges for various types of packages Understand and use a confidentiality agreement Understand how to conduct due diligence Know what factors to consider for valuation and pricing Know how to set sale pricing and determine required return and time frame Know how to formulate a bid Have your own buyer’s contract and refine it for each deal
55	Audience	Phil	52	Know your sources!!!
56	Andrea	Jim	50	It seems like it's a little easier to sell than buy, but my company is still so careful about choosing those to whom we sell. We make a commitment to the originators that we will exercise caution in our reselling practices.
57	Tom	Verne	46	Thank you. However, I rarely get to reveiw the hard copies when i am just trying to perform due diligence on a potentail purchace. Does the industry have a third party confirmation process (similar to a date down on a tilte search)?
58	Audience	Tom	55	Phil is right. This started as a cottage industry in the early 90's and is still developing today. You will find that there is a small group of 50 or less companies that are expert at buying and selling this asset class. There are those of them that are willing to share their experience so that new buyers can come in and expand the business. Remember, it's the buyers who are most at risk.
59	Audience	Baine		Has anyone had the situation where someone else claims ownership of some of your accounts? We had the situation just the other day. We have the chain of title back to the bank. How should we proceed?
60	Audience	Tom	57	I've heard of some web site companies offering this service. However, The Sagres Company feels more comfortable relying on our own expertise and in-house scoring model. Perhaps Daryl can answer that question.
61	Debt Trader	Bruce		This is a general question for the site. Any chance that you could one day include another service to help buyer verify stuff about accounts?
62	Audience	Tom	59	Excellent question Baine. The answer is when you buy a portfolio, the first thing to look for is chain of custody...In other words go back to the issuer of origination and make sure you review each change in ownership, until it reaches your office.
63	Audience	Tom	59	Baine, if you're saying the bank sold it twice, your contract should have had a warranty period and an indemnification clause to prevent that form happening and allowing damages.
64	Tom	Darrell Musick	60	I am quite confident that there will soon be a centralized method of verifying information about each account's history.
65	Tom	Baine		Tom, we bought it from a company that bought it from the bank.
66	Audience	Tom		As this conversation progresses, most of you new buyers wilkl start to see that the real problems in purchasing receivables does not come from the actual sale but the post-sale issues. It is paramount that you utilize the best buyers' contract you can locate and make your own.
67	Audience	Tom	65	Baine, that's why my answer to your questions was so important.
68	Audience	Tom		HOW DO YOU VALUE A PORTFOLIO? Conduct a full review of the data . Include proof of debt, social security number, home and work addresses and phone numbers, judgments, collection notes, chain of custody, average balance, balance distribution and composition, reliability of electronic data, credit bureaus available and original credit quality.
69	Tom	Andrea	59	Have you had any negative experiences like what's being discussed? It's a little scary!!
70	Audience	Tom		WHAT DOES CHAIN OF CUSTODY MEAN? It is always good to understand the complete life of the debt. In other words, who has owned the debt, in what order, for how long?
71	Audience	Tim	68	How can you run bureaus when most confidentiality agreements prohibit this
72	Tom	Darrell Musick		More information on account verification can be obtained (after this forum, so as not to interfere!) at http://www.securityasset.com/thedebtregistry.html
73	Bruce	The Debt Trader	61	We are working with a company in development called The Debt Registry.
74	Audience	Tom	69	Andrea, good questions. Yes, we have. For example, misrepresenting agency level. It is important that you make sure it is represented in your contract as to what the real level is and have a buy back clause for the entire portfolio if you find that this was misrepresented. And, Andrea, most importantly, be willing to walk away from every deal!
75	Tom	Mike		Tom, do you remember the presentation that Donna Meier (Pres/CEO) of Asset Acquisition Group made at the F&G confernce a year or so ago on "Due Diligence"? It was subsequently published and I have lots of copies. It has always been our philosophy here at Asset Acquisition Group to ASK questions.
76	Debt Trader	Bruce	73	Ok, thanks. I'll look into it.
77	Audience	Tom	71	Tim, you're right, you cannot. However when we go onsite due diligence or even when we request file to be sent cross country for smaller portfolios, we review the credit bureaus onsite.
78	Audience	Tom	75	Mike, I remember Donna's presentation. Excellent materials. I encourage all participants to request that from Mike Colby, one of the industry's "legendary good guys."
79	Audience	Tom		WHAT ELSE IS IMPORTANT IN DETERMINING THE VALUE? Another factor in determining the value is knowing the details regarding aging of the portfolio. Know the sellers’ charge-off policy, the time since charged-off, the remaining time within statute, and the time since the account was last worked. Finally, find out the extent of the collection efforts. How hard was the account worked and who has worked the account (agencies)? How many times was it placed, and what is the geografically breakdown collection rating?
80	Tom	Darrell Musick		On a different note, is there anything new at the ACA that everyone should know about?
81	Audience	Tom	80	Absolutly Darrell, The ACA's ABP program is heating up, and kicking off their first debt buying conference titled The Collections Spectrum in Philadelphia on October 7, 2000. with some great speaker. (pardon the plug-- I'll be one of them)
82	Tom	Darrell Musick	81	If you need any other speakers, please give me a call.
83	Audience	Tom		Speaking of plugs. Did I mention that The Sagres Company is a consultant for new buyers in the industry? And is willing to joint venture with other buyer on larger purchases?
84	Tom	Frank		Regarding your consultations, are they for new comers to the business?
85	Audience	Tom	82	Darrell, please give me a call and I'll hook you up with the right person - call me at 858-554-1211.
86	Audience	Tom	84	Frank, especially for new buyers. Email me at tferris@sagresco.com and I will make sure that you get a corporate capabilities brochure as well as services offered and costs.
87	Audience	Phil	83	What is your level of participation if the deal is right? (how many figures can you go)
88	Tom	SANDY	83	Just out of curiosity, how do you price out your services?
89	Audience	Tom	87	Good question, Frank. Call me privately and I'll let you know. We have purchased as little as $5 million and as much as $150 million.
90	Audience	The Debt Trader		We have a few minutes remaining, so if you want to ask that question do it now!
91	Audience	Tom	88	Sandy, we charge like a CPA firm. $175 per hour, with and 8 hour minimum, upon engagement. Which is $1400 retainer. We assume you will use us on 3 or 4 deals, and will not need our services beyond that.
92	Audience	The Debt Trader		Any more questions?
93	Audience	Tom		I have one closing statement
94	Tom	Darrell Musick		Thank you very much for giving us your time to further the education of all industry members.
95	Audience	Tom		I have one closing statement
96	Audience	Tom		Here's my final insight. Sometimes common sense is the least common trait out there. Let me list some practical insights for new buyers. JV with a strategic partner. HIre a buyer's consultant. Stick to your core compentencies. Study liquidation rates by product type. Conduct an in-depth interview of the seller. Develop an inhouse scoring system. Have a fair, simple contract. Most importantly, develop industry allies. Thank you very much. Are there any other questions?
97	Audience	The Debt Trader		We would like to take this time to thank Tom Ferris and the Sagres Company for making this opportunity possible. If you would like to contact Tom or the Sagres Company click on the “Sagres Banner” in the far right upper corner.Thank you all for attending The Debt Forum.