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Message: <blockquote data-quote="Jaysen" data-source="post: 350" data-attributes="member: 1">We did a lot of work with NPLs in structured finance. A bank will have some borrowers who don't pay their loans or fall behind on payments. They don't like it because it's costly to keep on their balance sheet. So they sell it to private equity firms/banks/hedge funds at a big discount. They may predict that borrowers will resume paying the loans or try to enforce repossession if the borrowers default on the loan.  Firms will often raise money to buy up this bad debt - by taking a loan from a bank or selling bonds. That's loan-on-loan financing; they're borrowing to buy up debt. Sometimes the NPLs are securitised i.e. many bad loans are pooled together and sold. If firms need to buy up a lot of securitised debt there's even more reason to borrow.</blockquote>

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