Two quite different businesses
Consumer NPL purchase is a volume business. Banks and lenders sell books of defaulted credit card, personal loan and utility debt at a few pence in the pound to firms that specialise in collection. The economics are statistical: buy a £100m face-value book for £6m, collect £11m over several years. In the UK this activity is FCA-regulated, and conduct rules on how debtors may be treated are strict and enforced.
Corporate distressed investing is the opposite: concentrated, legal, and adversarial. A fund buys the debt of a struggling company at a discount, often deliberately acquiring a blocking position in a particular tranche, then negotiates a restructuring in which debt converts to equity. Done well, the fund ends up owning a deleveraged business it bought at a discount to liquidation value. This is where the phrase "loan to own" comes from.
Why the pricing is hard
The value of a distressed claim depends on where it sits in the capital structure, what security it holds, which jurisdiction governs the insolvency, and how long the process takes. Two claims on the same company can be worth 90p and 2p.
UK restructuring practice — schemes of arrangement, and since 2020 the restructuring plan with its cross-class cram-down — makes London a significant venue for these fights, and the outcome often turns on court decisions rather than on the business's cash flows.
The reputational dimension
Debt purchase touches vulnerable people, and the sector's history includes serious misconduct. The current regulatory framework is much tighter than it was, but anyone assessing this market commercially should understand that collection practice is both an ethical question and a live regulatory risk to the business model.
How you would actually trade it
Not a retail activity in any direct form. Exposure for individuals comes through listed debt purchasers and specialist credit funds, or distressed strategies inside multi-asset alternative funds.
Institutional participation requires legal capability more than trading capability: the returns are earned in restructuring negotiations and courtrooms, not on a screen.
What goes wrong
- Binary outcomes. Restructurings produce winners and zeros within the same capital structure.
- Long, uncertain timelines. Cases run for years, with capital tied up throughout.
- Legal risk dominates; an adverse court ruling can eliminate a position's value.
- Regulatory and reputational risk in consumer collections, including redress orders.
- Collection curves on purchased consumer books are forecasts, and they have been wrong before.
This entry describes how a market works. It is not a recommendation, a price forecast, or advice about whether this belongs anywhere near your money. How entries are written.