Portfolio and Lender Due Diligence

Effective due diligence deploys a structured methodology and trained personnel to review key components of a financial transaction, and communicate in a timely manner related results for decision-making with regard to structuring and/or monitoring the proposed or existing extension of credit. This can be through a warehouse line of credit, term loan, securitisation, servicing platform or other means. Information obtained via objective and independent due diligence is a critical component of the lending process, and such efforts directly affect the confidence that key parties - including lenders, issuers and investors have in the credit markets.

There is growing concern, publicly and privately, about the depth, quality and timeliness of due diligence performed by financial institutions. Several questions need critical attention, such as:

• What should the scope of procedures include?
• How large should the sample sizes be?
• Who should execute the procedures?
• How often should the procedures be performed?
• What should the reporting of results consist of?
• How can we work efficiently with the borrower?

Relying on a weak methodology, unqualified or inexperienced resources, or a poorly defined project plan to conduct due diligence magnifies the risk associated with these questions. This also results in a cumbersome, untimely and ineffective process that does not produce the key information needed for effective decision-making. Effective due diligence helps interested parties:

• Objectively understand the assets and their underlying historical performance, including deviations from historical and recent trends.
• Identify key risks faced by the lender and establish a communication framework to address these risks, including potential risk mitigation efforts. This could also result in deal-structuring alternatives such as pricing considerations, collateral requirements or enhancements to required periodic reporting.
• Develop an understanding of critical policies and procedures used to prepare information used for decision-making and identify potential areas of information weakness.
• Provide a framework to address questions and concerns, allowing each party to focus on making sound business decisions.

Protiviti is a market leader in providing credit risk due diligence services in the US and Europe and has a dedicated and growing teams of professionals. We have offices throughout Europe and utilise local resources to satisfy language requirements and client/target company requests. Protiviti also has experience delivering these services in Australia, South America and Asia Pacific and will collaborate with our local offices in these regions. We have worked with dozens of leading global financial institutions, focusing on the needs of the originators, investors and other market participants. We bring deep competency in asset-backed commercial paper and securitisation conduit markets, as well as asset-backed lending.

Protiviti provides comprehensive due diligence and collateral monitoring services that help address key risks and concerns within financial institutions and/or financial buyers. Our due diligence teams assist structuring and lending organizations by providing timely and relevant information about the target company and its assets. We perform procedures that cover not only the particular assets being evaluated, but also the processes, reporting capabilities and quality of data associated with those assets. We also help clients gather critical insights and focus on key deal structuring risks. These “best practice” services help reduce potential losses to financial institutions by significantly improving the understanding of their customers and the underlying assets included in each transaction.