NPL and Whole Loan Valuation

I've made it past 2 rounds of interviews with a medium-large distressed credit shop (~$20bn AUM). They have a small but rapidly growing structured products group and the position is for an analyst/pm/trader with some light dev work mixed in. I have a modeling test next week but have no experience with NPLs and Whole Loans. I work in muni housing so my knowledge is more on the financing side and tax related. Does anyone have suggestions for resources to brush up on valuation of whole loans and specifically NPLs?

 

I don't know many web sources to value whole loans. The way PERFORMING whole loans are valued is pretty simple. You PV the cash flows after defaults, prepayments and recoveries at your required return. The other way of doing in is pricing it to a required return, meaning, what do I need to pay to get a 12% IRR on this portfolio of whole loans.

The way we have approached non performing paper is simply by valuing it as we were modifying the loans to make them current.

One very important aspect is the quality of the collateral. You never want to pay more than what the collateral is worth.

 

Oaktree and Rialto both do NPL securitizations. I think I remember that Rialto was the first to do a post-crisis NPL deal through JP in late 2011 so my guess is that there have been like 4-6 of those done between the two of them. Don't quote me on that because it's not my area of expertise, just kinda guesstimating based on a quick and dirty guess of their funding needs.

You should be able to pull like prosups and annex a-1s for those deals and see how they value them. If you don't have access to the docs, you can pull the presale reports from the agency websites if you make a free account. The most recent was an oak tree deal that was Kroll only rated I believe, but I think that S&P might be the leader in the space. Just check Kroll and the big 3 an you should be solid.

 
Spreadsheet_Ninja:
If you're looking at a sale of NPLs or NPAs, it will almost exclusively be inside the FIG world. Look at the FDIC's website. You can track bulk sales of NPAs from failed banks.

Yes thanks. The problem, as you said, it's that there are almost exclusively deals in the FIG world...

I'm grateful that I have two middle fingers, I only wish I had more.
 

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