Valuation of a portfolio of NPLs
Hey everyone,
I just wanted to ask if there is anyone that could explain how to go about the valuation of a portfolio of Non-Performing Loans?
For example, Blackstone's purchase of RE assets in Spain, combined with an NPL portfolio from Banco Popular. If you were told "I need you to value this portfolio of NPLs" what are the main steps to assess this?
Thanks!
Assume % recovery of par / repayment usually. Playing in these assets is a form of differentiated view already
NPL players know recovery rates by type of loan (resi vs commercial), by location (to the zip code level of detail) and by remaining payment amount, based on past experience and market data. Therefore the NPL portfolio valuation is a statistical analysis where you assume % recovery for each position and you sensitise around a range.
One thing I’d mention is that though NPLs usually come in portfolios, within those there are some sizeable positions which are DD’ed separately and often portfolios are bought on the assumption that a handful of loans would cover the whole price.
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