USA Micro Distressed Debt Assets
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 | Expected return 45% - 70% p.a. |
Goal:
To acquire small balance distressed debts in the USA for profitable collection. These delinquent debts at an average balance of USD 500 consist of:
- Delinquent Demand Deposit Accounts (pre-agreed overdraft facility)
- Defaulted Payday Advance Loans
- Overdue Stafford Student Loans.
Objective:
To purchase small delinquent loan accounts to profitably collect on these debts. With past due account collections, lenders and collection companies prioritize larger accounts. For lenders the risk is greatest on large balances and for collection companies the easiest risk-reward is for larger accounts. Most delinquent debtors will pay their small debts first to remove creditor pressure. Therefore, the fund will only purchase small balance debts, in most cases under $700, that have had no more than one attempt at collection, i.e. recent small debts have highest chance of collection success.
Fund Details:
- $5,000,000 maximum subscription
- Funds will be invested only in the United States
- Download plan
fact sheet - Private placement memorandum
- Application form
- Outline of profit return
- Structure of share holdings - Limited Liability Company
- Term 12 months
- Minimum Investment $100,000
- Accredited Investor Requirement – 30 Exemptions
- No management fee
- Early redemption allowed after 6 months
- Performance fee for managers is 35% i.e. 65% of profits distributed to investors at end of term
Investment Returns:
Based on past performance by the fund manager, collection rates will average 8% to 21% of the account balances. This would result in returns of 20% - 70% p.a.
Return Illustration:
These numbers are based on past experience but no way guarantee future results.
Press release.
| Ref. | Description | Calculation | |||
|---|---|---|---|---|---|
| a. | Investment total | ||||
| b. | Set up charges | ||||
| c. | Available investment | a - b | |||
| d. | Debt purchase cost ratio | ||||
| e. | Value of debts purchased | c / d | |||
| f. | Collection rate (est.) | Low 14% | High 19% | ||
| g. | Gross revenue | $10,500,000 | $14,250,000 | e x f | |
| h. | Net collection after 43% agency fee | $5,985,000 | $8,122,500 | 0.57 x g | |
| j. | Uncollected debt sale proceeds | $1,935,000 | $1,822,500 | (e - g) x 3% | |
| k. | Total net receipts | $7,925,000 | $9,945,000 | j + h | |
| l. | Net profit | $2,925,000 | $4,945,000 | k - a | |
| m. | Investors profit share | $1,901,000 | $3,214,00 | l x 65% | |
| n. | Investor yield : 12 months | 38% | 64% | m / a | |
About Payday Loans:
- Videos on Payday Advance Loans
Articles on Payday Loans
- Payday lenders scuttle financial reform amendment to limit such loans
- Is a Payday Loan the Right Personal Cash Advance option for you?
- A payday loan is a temporary financial instrument that is secured against your future paycheck.
- Dealing with Payday Loan Collection Agencies.
- Collection Agency guideline
How does the fund work?
Delinquent demand deposit accounts DDA (Checking and ATM/ check accounts with pre-agreed overdraft limits) and Payday Advance Loans PDAL (small, unsecured short-term loans that are intended to cover a borrower's expenses until next payday) and Stafford Student Loans are bought for 5% - 8% of value. Third party collection agencies are used to collect these debts. Expected Fund performance
Past experience indicate a 14% - 18% collection rate of these has a 95% statistical confidence. The success fee to third party collecting agencies is 30% - 45%. An important source of revenue is that uncollected debts can be sold onwards for approx half of their cost i.e. 3% average. Net of the fund managers fees, the fund should earn 50% - 70% per annum with a 95% confidence.
What quality of bad debt is purchased?
Only zero or one agency debt is purchased. This means, at most, one attempt at collection has been made. Bad debts with the least amount of unsuccessful collection attempts have a much higher probability to be collected. After one unsuccessful collection attempt, the bad debts can be sold for about 50% of their cost if sold within 9 months.
About Student Loans - SLL
Delinquent SSL debt is a student loan that is currently non-performing. The student has been unable to make current payments and banks are ill-equipped to collect such loans. SSL debt is much different from any DDA/ PDL accounts because it is treated similar to IRS debt. The debt never goes away as debtors cannot wipe out SSL debt with bankruptcy. The collection process has a longer recovery cycle, but liquidation rates are higher. The Supreme Court allows social security checks to be garnished for delinquent SSL debt. The key is SSL debt will always liquidate when a student loan debtor passes away. The required forms plus death certificates are filed by third-party collectors upon death and paid by state agencies within 60 days.
How are small debt collections maximised?
The key is to use specialty collectors that cater for this type of collection. Most collection agencies specialize in credit card debts due to its large balances with large fee potential. Collection agencies generally ignore small balances. The fund managers feel the opposite and opine that debtors will rather pay off small debts quickly to relieve the legal threats and annoying calls from debt collectors.
What is chance of the fund losing on the debt portfolio?
The fund needs to collect only 6% on the portfolio to break-even. The fund manager over the past decade has always collected at least 11% on zero agency debt.
How difficult is it to collect on low grade debts?
Sub-prime debt has a bad name because consumer loan debtors disappear easily. The exact opposite is true of DDA/ PDAL debt. In order to get a bank account, the account holder must provide substantial information. Even more so with especially Payday Loans. The debtor gives details for home, work, supervisor and 3 references.
Why doesn't the creditor merely pay the collection agency to collect the debt, as the fund does?
Financial institutions excel at vetting loans. However, once a loan becomes delinquent the financial institution quickly sells this off its books because they are so profitable in other areas and do not want to reflect non-performing assets. The average cost for DDA debt is 7%. Some financial institutions do hire 3rd party collectors or attempt in-house collections. This is also favorable for us. If the bank unsuccessfully tries to collect once on the debt, it is the rated agency-1 the price goes down dramatically.