Due Diligence in the NPL field is the most important driver that characterizes the disposal
of portfolios of impaired loans;
is used to analyze the portfolios of NPL, in order to estimate their value, pricing and
duration of management is essential to the transferor both for the calculation of the internal
price and to provide an appropriate information set with different levels of analysis
(personal data, income and / or balance sheet) which aims to stratify and value the
portfolio, filling the information asymmetry and reducing the gap between supply and
demand as much as possible, instead guiding an investor, who, before quoting a deal,
uses various criteria to identifying and classifying the credit correctly, predetermining how
long it will last to manage, predicting the management costs and quantifying expected
In high-performing non-performing credit auctions, due diligence often remains the main
measure of the buyer with respect to the assets being acquired, generally the sellers offer
very limited contractual protections to the buyer in the sale and purchase agreement. The
results of DD processes are essential to enable bidders to determine their prices.
The seller will routinely provide a data set that provides key information for portfolio loans
on a given date (usually the effective date of transfer of the portfolio to the buyer). Key
data points will include pending amounts, interest rates, deadlines and unused
commitments. The data set will be the key information used by the bidders to determine
the purchase of price offers. Consequently, the contractual protections in the form of solid
guarantees with respect to the information in the data set should be included in the sales
and purchase agreement.
Where complete reports of legal due diligence are provided, they may be too narrow within
the scope of application or subject to minimum liability limits to provide considerable
comfort to the purchaser.
As a result, an adequate due diligence on the part of the buyer remains the main activity of
The purpose and the extension of the DD carried out by a buyer and his consultants is
– The risk appetite of the buyer, taking into account the general level of comfort with the
transaction and the seller;
– Sensitivity to costs;
– The extent and quality of the seller’s due diligence;
– Transaction structure;
– The degree of contractual protection proposed in the sales draft of the seller and
In all cases, it is likely that the purchaser would like to make sure that DD is efficient and
targeted at an early stage, in order to allow it to determine its attractiveness to the portfolio
and if its strategies are proposed to process the post. – closing of the portfolio.
Where multiple jurisdictions are involved, it is essential for the acquirer to make use of
transaction advice in order to be able to take on a coordinating role, perfectly integrating
the advice from the main local consultants in the competent jurisdictions.