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Debt Sale Update

by Doug Fuller on 05/2/08

As most lenders’ know, Prosper had been planning to execute a debt sale during the month of April. To this end, a “bid file” was cut on April 11th. This bid file contained all loans that were more than 120 days past due as of that date that did not have a bankruptcy indicator or an open “Promise to Pay”.

In keeping with Prosper’s debt sale process, this file was sent to a list of approved bidders who have expressed interest in buying charged off Prosper debt. In addition, this file was placed with one of the largest debt auction/broker firms in the business. This firm has been in business for more than 15 years and hosts one of the premiere debt sale auction sites. The firm averages five portfolio sales a week – with portfolio sizes ranging from $2.5MM to $500MM.

As a result of these efforts, Prosper received a record number of bids on the sale file (eight). Unfortunately, all of the bids were extremely low. As I mentioned in my last update, the debt market was “flooded” by credit card issuers in March. That backlog has not dissipated.

At this point, we have not accepted a bid to buy the portfolio. We are actively soliciting alternative bids and proposals and are working through the alternatives. We are working to get the best price possible and appreciate your patience in this matter. Without compromising the status of negotiations, we will keep you informed on the process.

Doug Fuller is the Vice President of Operations at Prosper.


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15 Responses


xraider | May 4th, 2008 at 12:17 pm

What is an “open promise to pay”?

How did the bids compare to those you got 4 months ago? How did THOSE bids compare to prior bids?

When do you expect the backlog of bad debt to dissipate sufficiently that you try another debt sale?

Thanks.


Doug Fuller | May 4th, 2008 at 2:34 pm

In order for something to qualify as a “Promise to Pay”, the promise must include a specific dollar amount that will be received within a specified period — normally less than 30 days.

In round numbers, the bids that we received were approximately 1/3 the prices bid in December. The price difference between the August and December represented about a 20% reduction.

Prosper has not cancelled the debt sale; rather, Prosper has not accepted a bid yet — while working to find an alternative buyer or deal structure that would result in more money for the lenders.


taxnut | May 4th, 2008 at 4:25 pm

Will these unsold delinquent loans just sit there idle or will the collection agencies continue to make collections contacts? If so, at what frequency?


Chrisfs | May 4th, 2008 at 5:06 pm

The news is filled with debt that can’t find buyer. Thanks for keeping us informed.


mothandrust | May 4th, 2008 at 8:21 pm

Thanks for your continuing hard work.

Please sell all the 4+ late loans now at the best offered price.

Maybe the credit markets will improve in the coming months, maybe they will get worse; no one knows the future.

All I know is that these debts lose value the longer the age, so please sell them now.


NewHorizon | May 5th, 2008 at 9:46 am

Let me agree with mothandrust. Indeed the prices received during the irrational sub-prime days may never return. And now that the JDBs have had some experience with Prosper loans (a hurdle with the CTO mentioned a while back), their bids are likely to be a more accurate indicator of the true value of the “bid file” now than ever before.

I appreciate your diligence. But there comes a time where the law of diminishing returns (the return on effort spent levels off at some point) compels us to move on….


christoofar215 | May 5th, 2008 at 9:49 am

I would like Prosper to separate the loans that only had 0 or 1 payments before they went into default and reserve those for legal action and investigation for ID theft/fraud, especially some of these that had AA/A/B credit.

It is one thing to fall into a debt hole and not be able to climb out of it; it’s another to take out a Prosper loan premeditated on the basis of intentionally not making a single payment on it.


RateLadder | May 5th, 2008 at 9:59 am

@taxnut

Yes loans are still being worked by the collection agency for the loan.


Chrisfs | May 5th, 2008 at 10:46 am

@Christoofar215
According to the Prosper days video, loans like that are already screened for ID theft/fraud.


printans | May 5th, 2008 at 6:47 pm

I wish it were better news, but appreciate the update.


kd | May 5th, 2008 at 10:55 pm

Maybe you can break the late loan portfolio into small pieces and then let individual consumers buy parts of it.

I bet they are willing to pay a substantial part.

I personally look forward to buying up some late loans and do some door to door visits.


Teddie33 | May 6th, 2008 at 1:55 pm

I sure hope doug keeps us updated on this issue.


mothandrust | May 25th, 2008 at 2:59 am

Since my May 4th response asking that you please sell the defaulted loans now at the best price, one of my 4+ month late borrowers has filed for bankruptcy.


Mark | April 11th, 2010 at 8:46 pm

It’s been about 3 years since the last debt sale. At some point you just have to face the piper. Give us a chance to write these things off on our tax returns. Currently the only option we have is to show charged off loans on schedule D. However I will warn all prosper owners that this is not a good idea. Showing written off non business debt and a home office are two red flags monitored for by the IRS. They dramatically increase your chance of being audited. So again please just get rid of these things. I dont care if you have to give them away for free.

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