Last month, a U.S. District court judge ordered the assets of debt purchaser and collector Capital Acquisitions and Management Corp. (CAMCO) to be auctioned off to the pubic in response to a suit filed by the Federal Trade Commission alleging illegal debt collection practices. Included in the assets was a $1.75 billion portfolio of consumer receivable accounts that the company had previously purchased and worked to collect.

The receiver company assigned to take control of CAMCO’s assets, Le Petomane XII, Inc., had contracted with New York City-based investment banking firm Keefe, Bruyette & Woods (KBW) to conduct the auction. Given the unique nature of the event, a lot of interest was generated in the auction around the debt purchasing industry. President of Le Petomane, Jay Steinberg, commented yesterday at the proceedings that he had no idea a public auction of a debt portfolio would cause such a stir.

Typically, debt portfolios are not offered in a public outcry auction format, a format commonly used for cattle auctions, Beatles memorabilia sales and the like. Debt purchasers use personal contacts and relationships to purchase portfolios. Even with the advent of online debt auction sites, bidders are still protected by a veil of anonymity. So when KBW ran announcements informing the debt purchasing world of a very public auction of very public assets from a very public case involving one of their own, the response was impressive.

“We had some 64 interested parties call in to pre-qualify for the auction in addition to around 25 others calling with interest,” said Mike MacDonald, managing director at KBW.

Ultimately, 34 qualified bidders attended yesterday’s auction either in person or by phone. Although only a handful of bidders were present in KBW’s offices, the immaculately appointed conference room where the auction was held was packed. Industry executives, capital sources and even KBW staffers squeezed into the room to watch the event. And the action did not disappoint.

The $1.75 billion portfolio was divided into four separate pools auctioned off individually. After the four initial auctions were completed, a final auction was conducted for the entire portfolio. If the bid for the whole lot exceeded the aggregate price for the four pools, then the entire portfolio would go to that single bidder.

The first pool auction, for a portfolio of $9.2 million in pledged accounts with cash flow, started off understandably slow with bidders greeting the opportunity with a degree of timidity. Auctioneer Joel Langer kept a light mood in the room and over the phone as he gently coerced the bidders to jump into the proceedings. Once the initial trepidation was squashed, bidding went smoothly with participants pushing the bid up in $100,000 and $50,000 increments. Finally, a winner was declared as the portfolio went to an Ohio-based debt purchaser.

With all of the butterflies out of the way, the second pool auction took off from the start. The $23 million portfolio of not pledged accounts with cash flow generated quite a bit of interest from the bidders. Big names in the debt purchasing world got into the act as the bids soared skyward. The bidding was closed with a New York-based debt purchaser taking the portfolio.

Pools three and four were a little different than their predecessors. These were large seasoned and well-worked portfolios with no real recent cash flow. Pool three consisted of accounts totaling $110.5 million and believed to still be within the statute of limitations. Pool four came in at $1.6 billion in accounts that were thought to be out of the statute of limitations.

Bidders were slightly more skittish in bidding on pool three. Langer had to drop his initial asking price just to begin bidding. Once the bidding began, several bidders got in on the action and ultimately pushed the price back to the initial asking price. The portfolio went to a well-known major player in the industry.

The fourth and final pool also had bidders a little nervous. The huge portfolio was easily the sketchiest in terms of collectability. Steinberg did note at the beginning of the proceedings that any ruling by the judge in the CAMCO case would not be applied to the winning bidder of the portfolio. The new owners of the debt would be judged on their own actions alone.

According to Mark Russell, a Senor Associate at industry advisory firm Kaulkin Ginsberg Company, the alleged problems CAMCO ran into with the FTC were not concerning the debt they were working. “Collecting out of statute debt can be difficult and yield lower returns, but it is legal. The FTC was concerned with the manner in which CAMCO went after this debt,” said Russell.

Still, bidders were slow to jump into the fray over pool four. Once the auctioneer lowered the opening bid, action began with several buyers placing bids. The winning bid actually ended up being higher than the initial opening bid lowered by Langer. The portfolio went to the same company that won pool three.

The most interesting action was saved for last. After the four pools had been sold separately, Langer opened bidding for the entire portfolio. With the aggregate price of the four pools used as a starting bid, everyone in the room and on the phone lines waited through a brief moment of tension as they all wondered if someone would swoop in and make a play for the whole lot.

A bidder raised the price $100,000 and began a bidding exchange that showed everyone present the true meaning of a public outcry auction. At a sometimes-frenetic pace, two bidders worked the price of the portfolio up in $100,000, $50,000 and $25,000 increments. When the dust settled, the whole portfolio was purchased for substantially more than the aggregate price of the four previous auctions. The winner was the same purchaser that won pool two.

A U.S. District Court judge still has to approve the winning bidder. The approval is expected by next week.

Do I hear $37 million? In his more than 30 years as an auctioneer,

Joel Langer has sold everything from a Shelby prototype convertible to a bottle of rare cabernet sauvignon to works of art.

So why not hundreds of millions of dollars of bad debt?

Langer's business venture, Chicago Debt Exchange, on Wednesday will conduct a live auction of about $500 million in commercial, credit card, mortgage and auto loan debt, including some on behalf of the U.S. Bankruptcy Court for the Northern District of Illinois.

Chicago lawyer Horace Fox, a panel trustee for the U.S. trustee's office

and involved in some matters that the auction is trying to resolve, likes the new effort to sell debt.

"Usually, you have to do it the old-fashioned way, filing a lawsuit for each claim, and that is expensive, cumbersome and time-consuming,

" the Lehman Fox lawyer said Thursday. "The thought is we'd try something that smacks of this century's technology and use the Internet and a simultaneous live auction to sell the debt."

First there was the Chicago Board of Trade Exchange in 1848, followed by the Midwest Stock Exchange in 1882 and the Mercantile Exchange in 1919. 2005 brought the Chicago Debt Exchange. The Chicago Debt Exchange founder is Joel Langer from Chicago, an affable and savvy auctioneer with thirty years of experience who is taking his concept of live bidding on debt portfolios to the online world.

His live, Internet-based approach to selling-off consumer and commercial debt to the highest bidder was launched on September 13, 2006.

"I created a live trading floor where you can buy and sell debt portfolio. By bringing together qualified buyers and sellers of debt portfolios, the fair true market price of debt portfolios will be established.

The auctions will be conducted in the live public outcry auction format, Potential buyers can connect to the auction three ways; live in person, live monitored telephone conferencing, or by live bidding on the Internet. Anything that facilitates the selling of debt at its true fair marketplace could be a benefit to creditors or holders of that debt. Creditors in a bankruptcy proceeding could conceivably benefit from the money received through the live sale of debt that goes into the estate of the bankrupt company.

Excerpts from American Banker

Auctioneer Creates a live trading floor dedicated to buying and selling Debt Portfolios.

Joel Langer, the founder of Chicago Debt Exchange, said buyers and sellers of these portfolios do not have an effective way to find out the portfolios' true worth. He is looking for global buyers and sellers to participate in the Live Auction Exchange. He said the Exchange will sell all different types of debt to include charged-off consumer, commercial and Bankruptcy portfolios Debt portfolios often change hands several times, sometimes through sealed-bid auctions. Mr. Langer said live auctions would make pricing more efficient. He was the live auctioneer for a 1.75 Billion Dollar debt portfolio auction in New York to sell the assets of the Capital Acquisitions and Management Corp., which was selling the debt in compliance with a court order.

Though consumer debt is at an all-time high, and delinquent payments are on the rise just like bankruptcies, the debt industry is a money-making proposition for some. The industry is especially appealing to companies that buy and sell debt portfolios - which include consumer and business accounts, and unpaid judgments.

Recognizing this trend, Joel Langer has created the Chicago Debt Exchange, the world's first Live Auction Exchange for buying and selling of debt portfolios. The United States Bankruptcy Court Northern District of Illinois has tasked him to implement a live global auction of bankruptcy debt portfolios on September 13. Langer has extensive experience serving as an auctioneer of debt portfolios. The live global auction on September 13 marks the first official event since he founded the Chicago Debt Exchange.

Simply put, Langer says, the Chicago Debt Exchange will be to the debt industry what the Chicago Mercantile Exchange and the Chicago Board of Trade is to futures and options. Buyers can participate in the live debt portfolio auctions in person at the Chicago Debt Exchange, by telephone, and via live bidding from the comfort in their offices thousands of miles away via the Internet. "Auctions are not new," the 60-year-old Langer said. "The niche of the Chicago Debt Exchange is that it is a live venue where sellers can communicate with a wider audience of potential buyers.

"The bankruptcy courts want to make sure there is no collusion. When you buy and sell these debt portfolios behind the scenes, it is obviously not in the open," he added. "The Chicago Debt Exchange is a live global auction, much like the Chicago Mercantile and Chicago Board of Trade. Only in this case, debt portfolios are bought and sold."

A Chicago native he has served as a professional auctioneer for 35 years. Langer was the first person to conduct a live auction of debt portfolios for the United States Bankruptcy Court. He facilitated the auction of a $1.75 billion portfolio of consumer receivable accounts that Capital Acquisitions and Management Corp. (CAMCO) had previously purchased and worked to collect. A U.S. District court judge had ordered the assets of CAMCO to be auctioned to the public in response to a suit filed by the Federal Trade Commission that alleged illegal debt collection practices."

Copyright © 2006, NewsBlaz

Sep 11, 2006

Debt seems to be everywhere these days, from a now-ebbing tide of home loans to last year's record wave of personal bankruptcy filings. So perhaps it's not surprising that an organization called the Chicago Debt Exchange is launching its first official auction this week.

Think of it as something akin to the New York Stock Exchange or the Chicago Mercantile Exchange, except what's for sale isn't stocks or wheat contracts, but loans.

Wednesday's auction focuses on debts that have gone bad - more than $500 million in all - being sold off by the US Bankruptcy Court's Northern Illinois district. Buyers will try to collect enough of the debt to turn a profit.

In itself, that's nothing unusual. In today's economy, good debts and bad alike often change hands from the original lender to a range of investors. What the debt exchange hopes to be is a new venue for such trades - using a transparent format familiar in financial markets worldwide. "It creates excitement. It creates urgency," auctioneer and exchange founder Joel Langer says of the open-outcry system. Just as in a commodity trading pit, he says, "something sells for what it's worth."

(c) Copyright 2006. The Christian Science Monitor