Issue No. 12

For this month’s newsletter I’m excited to remind our broader community the type of transactions we fund here at Pier. See below for details. We appreciate any and all deal referrals!

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- Jillian

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We are struggling to figure out how to provide credit facilities collateralized by credit card products. Here's the primary risk: If the deal goes south and we have to take over of the portfolio, there is no natural amortization out of the portfolio.

Credit cards are revolving lines of credit and designed to keep balances open as long as possible, not the opposite. But, private credit vehicles generally have fixed maturities and expected liquidity. It is not a natural fit for non-permanent capital.

Generally speaking, you cannot easily change the terms on a card agreement later on, increasing a borrowers monthly payment. When a minimum monthly payment is, for example, $20, a balance of $4800 could take 20 years to pay off. And that's without paying any interest.

Last year, we tested and confirmed this. We bought a credit card portfolio from a fintech company that was shutting down. The card lines had been closed, so no new draws or card charges could be made. The minimum monthly payment was in place, but nothing further had been instituted. For some, the minimum monthly payment did not even cover the interest rate.

Because we purchased the portfolio at a significant discount, we were able to try a variety of tactics that would incentivize payoff, without providing any worse terms to the borrower. So, at worst, they would have to keep making their minimum monthly payment. But, we allowed a variety of settlement options where they could pay a larger % of their balance in exchange for forgiveness of the remaining balance. The results were mixed, but we definitely confirmed that it is very difficult to get credit card payors to pay off a balance quickly. Even with incentivization to pay off more or faster, many cannot or will not.

So, how can we easily provide a credit facility to a credit card lender? We have some ideas we are working on, but in all actuality, I think revolving card facilities are best for banks.

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- Conor