In the ever-evolving financial landscape, the role of private credit has become increasingly important, offering flexible and innovative solutions where traditional banking falls short. One such strategy gaining momentum is note purchases—a method where private lenders, like Peachtree Group, step in to acquire loans from banks and other institutions looking to manage their risk and liquidity.
In this Q&A, we speak with Michael Ritz, Executive Vice President of Investments at Peachtree Group, to delve into the world of note purchases. Michael explains how private credit is filling gaps left by traditional banks, and the increasing relevance of note purchases in today's market. Michael Ritz is currently responsible for strategy, capital allocation and credit for Peachtree’s debt and equity investments.
Q&A with Michael Ritz, EVP of Investments at Peachtree Group
Q: What are note purchases?
Michael Ritz: A note purchase occurs when we buy a loan from another lender who currently owns that loan. Instead of originating a new loan within our credit business, we're acquiring it from someone else who initially originated it. Essentially, we’re stepping into the shoes of the original lender and taking over the loan.
Q: What is the opportunity with note purchases?
MR: The opportunity arises from the reasons why a current lender might need to sell a loan. There are several motivations behind this. One common reason is capital allocation—banks, particularly those that are federally regulated, may need to reduce their exposure to a certain product type if it poses more risk than they’re comfortable with. By selling the loan, they can reallocate their exposure to more favorable areas.
Another driver is timing, especially related to loan maturities. If a loan is approaching maturity and the borrower isn’t in a position to refinance or is struggling to do so, the lender may lose confidence in the borrower’s ability to repay and decide to sell the loan to the private market. This is where we come in.
From a broader perspective, the current environment of heightened interest rates has strained liquidity in the financial markets. Lenders are now looking to create liquidity, and we believe that in the near term, note purchases will present a much larger opportunity than they have in previous cycles—likely the biggest since 2008 and 2009.
Q: How is Peachtree Group uniquely positioned to capitalize on this trend?
MR: Peachtree has been actively purchasing debt from other lenders since the 2008-2009 financial crisis. We have a dedicated servicing and asset management department in-house, and we're also an active lender. When we engage with potential sellers of loans, especially larger banks, they feel confident in our ability to manage the loan, service it, and take care of the borrowers. We've built a system internally that has proven effective, and we have a solid track record of buying loans, managing the assets, potentially modifying them, and guiding them to a successful payoff.
When we purchase a loan, our first goal is to meet with the borrower, understand their current situation and the status of the asset, and then work toward a capital solution that bridges the gap between their current capabilities and what they ultimately need. In most cases, that’s time.
Additionally, note purchases offer us a unique opportunity to scale our investments. For instance, we could purchase 24 loans in a single month, whereas originating 24 new loans in the same timeframe would be much more challenging.
As the financial markets continue to adapt to new challenges, the role of private credit in filling the void left by traditional banks has never been more prominent. Note purchases, in particular, have emerged as a significant opportunity for investors seeking to capitalize on the shifting landscape.
Learning about private credit through the perspective of seasoned professionals is the best way to understand its potential. If you want to learn more about Private Credit follow our “What is Private Credit in CRE” series on the Peachtree Group YouTube Channel or listen to the full series below on the Peachtree Podcast channel.
THIS IS NOT AN OFFER OR SOLICITATION TO PURCHASE ANYSECURITY. AN OFFERING IS MADE ONLY BY THE PRIVATE PLACEMENT MEMORANDUM.