Northern Rock’s Bad Debts purchased by Debt Collection Agency

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A debt collection business that takes non-payers to court has emerged as the buyer of £450 million of Northern Rock’s bad loans.

Marlin Financial, which describes itself as the UK’s “leading litigation specialist debt buyer”, has won the auction to purchase the book of unsecured loans from UK Asset Resolution. The government agency is winding down Northern Rock and Bradford & Bingley after their nationalisation.

Marlin is understood to have paid about £100 million for the loans, a deep discount to their original value. Among the portfolio that Marlin is taking on are people who have not made payments for years and some cases of bankruptcy.

UKAR also confirmed yesterday that it had sold a separate £450 million book of Northern Rock loans, where customers are repaying their debt, to JC Flowers, the American private equity firm. Flowers is thought to have paid about £300 million through One Savings, its small regional lender.

At £900 million in total, it is one of the largest books of unsecured loans to be sold and carries with it associations with the dramatic events that led to Northern Rock’s collapse in 2007 and nationalisation in 2008.

The emergence of Marlin as the buyer of the bad loans may surprise observers. The company’s business model is to seek out books of loans where it believes it can analyse which individuals could pay but are not paying. Then it threatens legal action.

Ivan Lawrence, an executive director of Marlin, who was formerly head of business development at Barclaycard International, said the company only “talks about litigation with the customer if we have the data to support it and think it is the right route to go down”.

The company pursues other means of getting people to repay, including using debt collectors. Individuals can also pay directly through its website.

A spokesman for UKAR said: “The continued fair treatment of customers was a key consideration in selecting the buyers of these loans.” UKAR was advised by Morgan Stanley, the investment bank.

Marlin, founded in 2002 by the Irish entrepreneur Martin Dunphy, is 58 per cent-owned by Duke Street Capital. The business has an £80 million bank facility from Royal Bank of Scotland and Investec.

Marlin did not say who was financing its purchase of the Northern Rock loans. There has been speculation about the involvement of Apollo Global Management, an American private equity firm that specialises in buying distressed debt, in the auction.

Apollo employs Adam Applegarth, Northern Rock’s former chief executive, as an adviser. Mr Applegarth presided over Northern Rock’s creation.

Apollo could have been interested either in buying the non-performing loans directly or acting as a financial backer for another buyer. The New York-based firm is not thought to have been part of the winning bid.

UKAR made a small profit from the deal. The agency has been trying to sell portfolios of loans as well as winding them down so that it can repay the Government’s £43.5 billion loan more quickly against its total £68 billion in outstanding loans.

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