Hi, my name is Thomas Edwards. I am Marketing Director at Debexpert. Last time, I talked about why we believe that an auction is the best way to sell delinquent debt. Today, I’m going to talk about what types of auctions there are and how to use them to get the most out of a debt sale.
English debt auction (ascending)The most popular auction in the world is the English auction. This is an auction with the classical mechanics that we all know very well. The English auction is when the seller sets the initial price of a pool and the buyers bid, thus raising this price. As you know, anything can be auctioned — art, luxury cars, or, as in our case, debt portfolios. The highest bid wins. It’s very simple. The English auction is also known as an open-outcry ascending-price auction. Sometimes, the bidders are not very active, and the closing price is not that different from the initial one. In this case, the debt seller can cancel the auction or move it to another day. Generally, auction organizers know very well when to sell various types of debt and how best to inform buyers about your portfolio in order to generate interest in the auction. Thus, you should trust their recommendations. But I digress. Usually, the English auction lasts no more than an hour, which is enough time for everyone who is interested in the portfolio to bid.
Dutch debt auction (descending)The English auction is very prevalent. However, there are other mechanics, such as the Dutch auction, in which everything works the other way around. At the beginning of the bidding, the seller of an item names the desired price for which they are willing to sell their item right away. As a rule, this is a fairly high price. During the course of the auction, the price begins to go down until one of the buyers makes a bid. At this point, the auction can be considered to be over. This type of an auction is also known as a descending price auction. It is quite a gambling mechanics which takes a lot of perseverance, and you need to have nerves of steel. As a rule, this type of auction is used when the goods are in high demand and many people want to buy them. The duration of such auction can be anything from a few seconds to several days.
Sealed-bid debt auction (hidden bids)The third type of auction that is used when selling debt is called a sealed-bid auction. In this type of auction, all bidders simultaneously submit sealed bids so that no bidder knows the bid of any other participant. The highest bidder pays the price that was submitted. As you have already noticed, a sealed-bid auction is based on the English auction, the only difference is that the bids are not public. Simply put, if a bidder bids too low, most likely they won’t get the portfolio. Sealed-bid auctions are used when there are several buyers for an item who know the features of a pool and each other’s capabilities well.
But that’s not all.
Hybrid debt auctionOur website also offers a hybrid auction. This is an advanced version of the classic auction. Usually, only the buyers are active during an auction, while the debt seller is kind of invisible. In a hybrid auction, both parties are active. Buyers can ask the lender any questions to justify their price. The lender, in turn, can also justify their price. Not all sellers want to bid, but there are some who like to prove their case. The more persuasive the lender, the higher the closing price will be. Hybrid auctions can last for a week or even longer.
What type of auction should I choose when selling a debt portfolio? This question can only be answered after analyzing a masked file. In most cases, the English auction will get you the highest market price. However, there are situations in which other types of auction work better. Sometimes, a portfolio is sold in two rounds. For example, the first round is a sealed-bid auction and the second round is the English auction. There are a lot of ways to do this. That’s all for today, this is Thomas Edwards of Debexpert signing off. Stay tuned.
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