The results of the CFPB are being seen both in the sale of portfolio but also in the way they will be collected. These changes will affect financial decision making. Middle market debt buyers will have to better understand their capital structure to make sure they will be able to compete. The capital make up of their organization will determine what options they have for both portfolio and infrastructure.
Some factors that will impact the capital structure of all debt buyers’ will be the need to:
- Scale and Diversify Asset Classes
- Increase Productivity and Lower Cost Structure
- Demonstrate CFPB Compliance
Industry Uncertainty Requires More Capital Flexibility
The Need for More Capital Options
At what pace does a debt buyer have to build equity to stay in the game? The uncertainty of the industry creates greater risks for a debt buyers capital decisions. Whether it is purchasing a new asset class or spending money for infrastructure required by the new class or the CFPB, more equity is going to be required. In the past a debt buyer could use his equity (personal wealth, cashflow or self-generated profits) to obtain senior debt to purchase portfolios that “fit” how the business was set up. Middle market debt buyers are going to have to change.
The cost of senior capital is not just the interest, but the amount of equity it demands to be put into reserve. What is the opportunity cost to tying up equity, when that equity will be needed to thrive in the new environment?
The FLOCK Difference
FLOCK is interested in creating a healthy industry for both middle market asset buyers and credit originators.
Working with FLOCK is “more than a transaction”. We work with both asset buyers and originators to increase their purchases from originators.
The changes in the industry are forcing debt buyers to become more financially resourceful to balance both the funding the purchase of portfolios and the additional cost of compliance.