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Collins Financial Services, Inc. 31
OSI Portfolio Services 32
PRS Assets 33
The Sagres Company 34
UniFund 35
High 5
Debt
Buyers
Play to Win
By Richard S. Buse
as importantly, the RTC was bringing closure—in a relatively short
period of time—to an immense administrative headache.
If the concept of selling distressed loans was working for the
government, could it not also work within the private sector where
companies faced a continual supply of distressed consumer debt?
Out of that thinking, private sector sales of debt portfolios began
to grow in popularity. Banks and other credit card issuers now view
debt portfolio sales as a means for resolving long overdue loans.
Because those accounts have been charged off, the
proceeds from those debt sales can have an immediate
positive impact on company financial statements.
The company also is rid of the costs associated with
overseeing recovery efforts.
Banks have used that concept for other bad loans for
the same reasons. Automobile loan financing companies
have followed suit, as have, for example, retailers, fitness
clubs and providers of student loans. The concept is
applicable to virtually any company or industry that
issues some form of credit to its customers.
On the purchasing side, collection agencies and law firms that
specialize in recovery efforts also have begun to view buying debt
portfolios as a financially attractive alternative to working solely on
a contingency-fee basis with credit issuers.
The growing popularity of debt portfolio sales doesn’t mean an
end for traditional recovery efforts. What debt sales do, however,
is give both credit issuers and collectors another tactic to use in
improving their financial performances.
The following reviews of debt-buying companies provide insight
into the history of this concept, and the ways it has been applied
by both credit issuers and those in the collection and recovery
industry. The reviews provide examples of the different markets that
sell debt portfolios, and illustrate the different tactics or strategies
applied by debt-buying organizations.
The reviews also provide some differing perspectives as to how
the whole concept of debt-buying will grow and mature. Those
perspectives can help all of us understand the impact that debt-buying
will have on the recovery industry.
HIGH
5
Debt Buyers Remember the savings and loan scandal that
unfolded in the eighties? In exchange for
providing the billions of dollars needed to
guarantee depositor accounts and to stabilize
the industry, the federal government acquired
a myriad of distressed loans from hundreds of financial
institutions. It turned all of those loans over to the newly
formed Resolution Trust Corporation (RTC), which began bundling
those loans into debt portfolios and selling them to investors,
rather than trying to recover those debts itself.
In comparison to the balances on those loans, the prices
the RTC was accepting for debt portfolios seemed quite low.
Critics charged that the RTC was promoting fire sales that were
shortchanging the taxpayers.
There were two factors, however, that caught the attention of the
financial services industry. First, the RTC was getting money for so
many bad loans that had sunk so many financial institutions. Just
30 Collection Advisor January/February 2004
Reader Service Card No. 13

2. Collection Advisor January/February 2004 31
HIGH
5
Debt Buyers
Collins Financial Services, Inc.
(CFSI), of Austin, Texas., was
founded in 1996 by Walt Col-lins,
its chairman. Originally, Collins
gained experience in purchasing debt
portfolios from the Resolution Trust
Company (RTC). Realizing that the sup-ply
of commercial loans being marketed
by the RTC and FDIC was finite, Collins
began looking for additional opportuni-ties.
He determined that there was a large and grow-ing
supply of distressed consumer accounts, and that
banks and other creditors would soon begin to sell
those accounts in large volumes. Collins followed his
hunch, and today CFSI has 125 employees, with plans
to hire an additional 75 in the next
few months.
The company’s president, Gary
Wood, Ph.D., says virtually all
banks that issue credit cards or
consumer loans are prospective
customers for debt-buying companies, as are retailers
that arrange customer loans. Utilities, communica-tions
companies and healthcare organizations also
sell debt portfolios.
CFSI currently focuses on purchasing debt port-folios
from banks, but also wants to begin buying
portfolios from communications companies. Wood
adds that a bank or other creditor will typically use
traditional collection tactics in addition to selling
debt portfolios.
“Each issuer is an ad-hoc player here,” he says.
“Their decisions are based on internal needs at the
moment, and the reason they sell debt is to manage
cash flow.”
While portfolio prices are low compared to the
cumulative value of the individual debts, the creditor
receives cash for loans that had already been charged
off, Wood explains. By selling debt portfolios, compa-nies
also avoid the time and financial costs associated
with administering or overseeing collection efforts.
Such sales are initiated by creditors who usually
negotiate directly with debt buyers. “It’s always the
creditor who will approach the market; they sell the
paper themselves,” he says.
When CFSI considers a purchase, it uses
its proprietary DebtScrubber software to
analyze the thousands of debts that com-prise
a portfolio. The software assesses the
size of the average individual debt, the last
payments on individual debts, the average
charge-off, last charge-off, the time remain-ing
before debt statutes make collection
impossible, and other factors.
“It’s impossible to analyze a portfolio on an Excel
spreadsheet. With DebtScrubber, we have a 10-min-ute
turnaround time,” says Wood. “Once the portfolio
has passed that initial screening, it undergoes further
analysis before a purchase is made.”
A fraction of the individual debts that CFSI pur-chases
as part of a portfolio are resold within a net-work
of 600 collection law firms that specialize in
collecting debts incurred within various states. Some
of the remaining debts are worked by CFSI’s own
collection agents, while others are placed with col-lection
attorneys for legal action.
Wood regards CFSI’s reputation for integrity and
professionalism as a crucial factor in the company’s
sustained growth. CFSI has never failed to purchase
debt when it has promised to do so, he says, and adds
that CFSI handles all media documents, such as credit
card statements or loan applications in a professional
and confidential manner. Put-backs—debts that are
linked to deceased debtors or those who have filed
for bankruptcy—are likewise treated carefully and
returned to the creditor. Wood added that CFSI also
is quite diligent in complying with all applicable
consumer credit laws. That diligence greatly reduces
potential legal exposure for both the company and its
customers, he says.
With aid from that reputation, Wood sees continual
growth for CFSI. Consumer debt continues to rise,
and more companies are viewing debt portfolio sales
as a supplement to recovery efforts.
Collins Financial Services, Inc.
www.cfsi.net
800-570-5007
CFSI Purchases
Debt Portfolios
From Banks
“It’s
impossible
to analyze
a portfolio
on an Excel
spreadsheet.
With Debt-
Scrubber, we
have a 10-
minute turn-around
time.”
—Gary Wood,
Ph.D.,
President
By Richard S. Buse

3. 32 Collection Advisor January/February 2004 OSI Uses Research
Techniques to
Determine Portfolio Value
OSI Portfolio Services, Inc.
(OSI PS), headquartered in
Atlanta, employs 200 collection
agents, with an additional 300 outsourced
employees servicing the company’s
acquired debt portfolios. OSI PS is one
of 16 operating companies that comprise
Outsourcing Solutions Inc. (OSI), which
is based in St. Louis.
Bryan Faliero, corporate executive vice
president and chairman of OSI Portfolio Services, says
OSI acquired Account Portfolios in 1995 because it
viewed its debt-buying expertise as a valuable part of
a suite of credit management and accounts receiv-ables
services. “The strategy all along was to provide a
full range of receivables tools for our clients,” he says.
Today, OSI PS purchases debt portfolios from credit
card issuers, automobile loan companies, retailers,
healthcare providers, student loan
companies, governmental units
and utilities.
Some of those portfolios are
acquired in sales arranged by
brokerage services, while others
are purchased directly from cred-it
issuers. OSI PS also maintains
an in-house sales department
and seeks buying opportunities
within industries that might be
under-served by other debt buying organizations.
Faliero says that OSI PS conducts extensive research
to determine whether a debt portfolio purchase is
worthwhile. “We have built sophisticated pricing
models to review a portfolio. We are very disciplined
in sticking to those models,” Faliero explains.
The prices OSI PS offers for debt portfolios are
based on that analysis. Because of that practice,
Faliero says that OSI PS will only acquire 5-10
percent of the portfolios for which it has submit-ted
bids.
The first step for OSI PS in servicing acquired
debt is to almost always use its own in-house collec-tion
agents to work accounts, followed by placing the
portfolios with one of 26 certified collection agencies
managed by OSI PS. Other debts are placed
within OSI PS’s legal network of 53 certi-fied
law firms that specialize in debt recov-ery.
Some of the remaining debts are sold in
portfolios to secondary debt purchasers.
Faliero says creditors will sell debt port-folios
for a variety of reasons. For example,
there can be considerable time and cost
associated with repeatedly contracting with
contingency fee-based collection agencies
to recover the same debts.
Companies also can gain an immediate boost in
cash flow that will reflect positively on quarterly or
annual earnings statements, he says. And, by selling
debt, companies distance themselves from those debt-ors.
That distance can maintain or enhance a positive
company image.
“The debt portfolio industry offers considerable
opportunities for growth,” says Faliero. “This really
started with the savings and loan crisis, but once
credit card companies began selling their debt as an
ordinary course of business, other industries saw this
as a tool they could use.”
That expansion plays to OSI PS’s strengths. “I see
the market continuing to expand into new industries,
and we are willing to acquire debt across all indus-tries.”
The company’s willingness to purchase debt
from a variety of industries is aided by its long term
visibility in the marketplace, as well its capabilities for
determining the value of debt portfolios.
“We believe we have stronger pricing models, and
because of that, I believe we make fewer acquisition
mistakes,” he says.
Faliero cited as an additional strength OSI PS’s
abilities to support the portfolios it acquired. That
support includes the ability to internally handle
portfolios that include fraud cases, deceased debtors,
bankruptcies and other exception items. “Being able
to offer such support can further set OSI PS apart
from other debt buyers,” says Faliero.
Outsourcing Solutions Inc.
www.osioutsourcing.com
800-487-2005
HIGH
5
Debt Buyers
“We have
built sophis-ticated
pric-ing
models
that we use
to review a
portfolio, and
are very dis-ciplined
in
sticking to
those models.”
—Bryan
Faliero, corpo-rate
executive
vice present
and president.
By Richard S. Buse

4. Collection Advisor January/February 2004 33
PRS Assets
Focuses on Price,
Composition
PRS Assets, LLC, in Denver,
Colo., was founded in 2001 as
a separate entity from its parent
company, Professional Recovery Systems,
LLC. Today, PRS has 15 in-house employ-ees,
and outsources work to 25 collection
agencies and three networks of law firms
that specialize in collection efforts.
J.P. Kelso, president of PRS Assets,
explains that his organization focuses
solely on acquiring debt portfolios, rather than
engaging in any collection efforts itself. Because of
that focus, PRS Assets was established as a separate
organization.
PRS acquires portfolios for law firms or collection
agencies that specialize in recovering debt based on
state or region, industry, or the type of debt that was
incurred. Some portfolios also are acquired for indi-vidual
or institutional investors who then seek PRS’s
consulting expertise in
managing those port-folios.
“We purchase a wide
range of receivables,”
says Kelso. “The major-ity
of those receivables
are credit card debts
from primary and private label issuers, and are sup-plemented
by installment contracts issued by retailers
and health clubs, as well as loan deficiency contracts
from automobile loan companies, debts incurred by
customers of check-cashing centers, and Chapter 13
bankruptcy debts.”
“PRS Assets focuses on the price and composi-tion
of the portfolios and whether they would be a
good fit for its customers, providing the company a
great deal of flexibility in determining which types
of portfolios would be appropriate,” says Kaye Drei-fuerst,
vice president. “We’re not stuck into a box: we
make decisions based on price and fit. We are a bit
more nimble.”
Kelso adds that many of those acquisitions origi-nate
with referrals made to creditors on PRS’s behalf
by collection agencies and the other entities for
which the company purchases portfolios.
For creditors, there are a variety of ben-efits
associated with selling debt, as opposed
to trying to recover it. “Banks know their
portfolios better than anyone,” says Kelso.
“They can predict charge-offs and base
their interest rates on that. Once those
charge-offs have been taken, the bank can
immediately improve its bottom line by
selling that debt.”
Selling debt also is less distracting to company
operations than recovery efforts. “It’s key for these
companies to stay focused on their core businesses,”
he says. “They issue credit, and are not in the collec-tion
business.”
The debt portfolio industry is becoming more
refined and profit margins are becoming thinner;
customers also are expecting more from debt-buying
organizations. “I see a continual emphasis on service,”
says Dreifuerst.
Barbara A. Bader of B.A. Bader and Associates, P.C.
says PRS Assets’ emphasis on offering greater exper-tise
and service was crucial in helping her establish a
law firm that specializes in debt collection.
“Their expertise is truly valued by us, and it was
a pleasure to have PRS consult with me in prepar-ing
for the opening of my law firm that specialized
in collections,” she says. “I was extremely impressed
with Mr. Kelso’s working knowledge of the subject of
debt collection in the purchase of debt, as well as the
day-to-day operations of the business and personnel
management.”
While the market is becoming more sophisticated,
Kelso also sees considerable opportunities for expan-sion
and growth. “I think it’s an ever-growing market,
expanding into different industries. As the industry
continues to refine itself, many with bigger pockets
are becoming involved.”
PRS Assets, LLC
800-308-5101
HIGH
5
Debt Buyers
“We’re not
stuck into a
box: we make
decisions based
on price and fit.
We are a bit
more nimble.”
—Kaye
Dreifuerst,
vice president.
By Richard S. Buse

5. 34 Collection Advisor January/February 2004 Sagres Works in
Consumer Deficiency
Balance Contracts
The Sagres Company of San
Diego, Calif., was founded in
1993 by Chief Executive Officer
Tom Ferris with seed capital provided by
investors. Within five years, those investors
were paid back, and Sagres now oper-ates
independently, purchasing portfolios
independently and occasionally, with joint
venture partners from the industry. Sagres
employs 50 people at its headquarters
facility, and is considering adding an equity partner
to fund further expansion.
Ferris became interested in founding a debt-buy-ing
business while raising investment dollars for West
Capital, an organization involved in purchasing the
assets of distressed financial institutions through the
Resolution Trust Corporation (RTC). While the
RTC had a limited amount of remaining portfolios
to sell, Ferris foresaw an ongoing commercial market
for debt sales.
Today, 80 percent of the debt portfolios
Sagres purchases are comprised of con-sumer
deficiency balance contracts. Fer-ris
feels this market offers considerable
opportunity for his company. “The busi-est
part of the industry has been credit
cards, but there are all types of customers
across the United States who have been
extended credit,” he says.
Sagres typically purchases its portfolios from large
banks or financial companies, as well as some portfo-lios
from trade schools, automobile loan providers and
other small businesses. Its portfolios are comprised of
debt accounts from across the United States. Sagres
then sells many of those accounts based on state,
region or product, to collection attorneys, collection
agencies and investors. Portions of portfolios also are
sent to Sagres’ in-house collection department for
recovery. The remaining accounts, considered ware-housed
product by Sagres, are later resold at market
price to other debt buyers.
Ferris says that debt selling is not a replacement for
traditional collection efforts, but another option that
companies which extend credit can employ. “I don’t
believe debt selling is an either/or situation;
it’s just another tool in the toolbox for a
successful recovery effort.”
According to Ferris, the primary benefit
companies derive from selling debt is an
immediate improvement in cash flow. “Many
times, it makes sense to sell the accounts in
order to make quarterly or annual results,”
he says. “Selling debt also enables organiza-tions
to focus their time and attention on
other efforts. It allows the recovery department to
concentrate on what’s most important.”
Since founding Sagres, Ferris has seen grow-ing
awareness and acceptance for selling and buy-ing
debt portfolios. “I think this industry has gone
mainstream. You see not only investors involved now,
but you also have the collection attorneys and the
contingency collection agencies participating.”
As part of that growth, he says the industry must
become legislatively active to ensure that privacy
statutes or other related legislation is fair to both
businesses and consumers. He also sees tremendous
market opportunities in insurance subrogation and
healthcare debt, and debt portfolio sales could pro-vide
many cash-strapped local and state governments
with a means for combating budget shortfalls.
Sagres’ status as a privately held corporation
enables it to capitalize on opportunities in a rapidly
changing marketplace. “We’re largely driven by our
own capital,” says Ferris. “That gives us flexibility, and
one of our hallmarks has been creativity.”
Ferris adds that Sagres’ emphasis on engaging in
fair financial dealings with all of its customers guides
future growth, and what promotes that fairness is
the attention the company devotes to analyzing the
portfolios it buys and sells. “The Sagres Company
has the ability to evaluate a debt portfolio as well as
any competitor,” he says. “We’re very disciplined in
our evaluation methodology. That enables us to resell
debt at a very fair price.”
The Sagres Company
www.sagresco.com
800-347-3981
HIGH
5
Debt Buyers
“I don’t
believe debt
selling is an
either/or situ-ation;
it’s just
another tool in
the toolbox for
a successful
recovery
effort.”
—Tom
Ferris,
CEO.
By Richard S. Buse

6. Collection Advisor January/February 2004 35
David Rosenberg established
UniFund in 1986 in Cincin-nati,
Ohio, and was only 20
years old when he began this company
for the sole purpose of buying distressed
accounts receivable. UniFund was one of
the first companies to explore this niche
of the collection industry.
As founder and CEO, Rosenberg mod-estly
describes UniFund as a company
that buys and liquidates distressed assets, but in real-ity,
the company does much more than simply “buy
paper.” UniFund currently owns millions of accounts
worth billions of dollars. Using internal departments
comprised of 50 employees, the company offers
collection analysis with a mission to maximize the
recovery potential
of these accounts,
and assist other
companies with
existing and potential portfolios.
Consumer credit is a booming business. More than
$1.8 trillion in consumer credit debt exists in the
United States alone. Assuming an expected default
rate of 4 to 6 percent clearly predicts the continu-ing
rise of distressed receivables. UniFund currently
purchases in excess of $4 billion in distressed accounts
annually, and offers a variety of services for outside
collection and portfolio acquisition companies.
UniFund uses more than 7,000 proprietary pro-grams
to analyze and rate portfolios. Portfolios are
segmented based on industry or customer request.
Specialized systems are available for outside custom-ers
to evaluate portfolios before purchase. Outside
customers also use these programs to rescue existing
challenged portfolios.
Another niche market served by UniFund involves
distressed and challenged collection portfolios. Col-lection
and credit companies, along with portfolio
buyers, use internal systems to attempt collection.
After exhausting all efforts, a high volume of the
accounts can remain uncollectible. UniFund offers
an alternative to write off the existing debts by pro-viding
analysis to rescue potential bad debts based on
a review of existing company policies and
procedures. Recommendations are then
made for changing policies and procedures
to increase collection efficiency. UniFund
includes recommendations on handling
accounts based on proprietary analytical
programs. Recommendations are made on
which accounts to rework internally, or
send to litigation, call centers or third-party
collection agencies.
The company offers outside customers a unique
regenerative ability based on successful philosophies
and practices developed for internal use. According
to Rosenberg, most collectors limit their ability to
collect by attempting to shorten the collection life
cycle. Shortening the cycle has historically resulted
in lower collection rates. By analyzing the accounts,
UniFund helps collection clients determine when a
debtor may be able to pay.
Rosenberg believes a vast majority of debtors are
unable to pay due to changes in circumstance. For
example, a debtor loses his or her job, has an ill-ness
or accident, or experiences some other major
life change. Although the debtor is currently unable
to pay, there still is a desire to pay the debt. Such
accounts require a long-term strategy to be effective.
Using the UniFund philosophy allows collectors to
focus efforts on determining the timeline for pay-ment
rather than overwhelming debtors with collec-tion
calls. Rosenberg believes collection calls during
the detrimental life change only serve to complicate
the collection process.
Tools developed by UniFund allow portfolio buy-ers
and collection professionals to become more
intellectual than clerical. By using technology to
handle clerical tasks, collection professionals have
time to analyze data for increased efficiency.
UniFund
www.unifund.com
513-489-8877
UniFund Uses
ProprietaryTechnology to
Rescue Distressed Assets
HIGH
5
Debt Buyers
UniFund
offers an
alternative to
write off the
existing debts
by provid-ing
analysis
to rescue
potential bad
debts based
on a review of
existing com-pany
policies
and
procedures.
By Mona B. Tidwell