Boston, MA, USA
November 19,
2002
The Debt Exchange: Bringing Liquidity to
Secondary Loan Trading
Report Published by Celent
The
economy’s current state and recent corporate woes have encouraged
increasingly risk-averse banks to explore new ways to prevent portfolio
deterioration and financial loss. The answer for many lenders has been
careful portfolio management through the sale of under-performing and
non-performing loans in the secondary loan market. While still immature,
the secondary loan trading market has experienced a 31% compound annual
growth rate over the last 10 years. Celent expects trading volumes in
this market to exceed $200 billion by the end of 2005.
 Trading
platforms, such as that hosted by The Debt Exchange (DebtX), have emerged,
thereby increasing liquidity. These exchanges are focused primarily on the
needs of the buy-side. Using these platforms, institutions can conduct
full due diligence, make more educated bids, and participate in trading
transactions. Sellers benefit from greater reach and faster closings than
can be achieved offline.
"As with other new technologies, uptake has
been slow, but conducting loan sales online is likely to become an
important portfolio management tool going forward, as well as a way to
reach desired levels of liquidity within the marketplace," said Christine
Barry,
wholesale banking analyst at Celent and author of the report.
"Today less than 2% of US secondary loan
trading is conducted online, but these platforms have great potential and
using them is the market’s logical next step," said Barry.
This report analyzes the secondary loan trading
market and presents a case study on DebtX’s success in increasing
liquidity in the marketplace. It describes the platform’s capabilities
as well as how financial institutions are using it today and how they will
use it in the future. Finally, it presents the benefits of online trading
and compares the buy-side experience in the offline world to the DebtX
experience. The DebtX platform is a good example of how the Internet can
be used to advance the secondary loan trading market toward maturity.
A Table
of Contents is available online.
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