IVAs have become the subject of intensive trading on the capital markets. As the Financial Times has reported, major capital management group Pamplona recently managed to collect a whopping £100m for a vehicle containing loans connected to Individual Voluntary Arrangements from UK banks. Regardless of the underlying motivations for the move, the transaction demonstrates just how important IVAs have become as an alternative to bankruptcy, with thousands being taken out each year. It also demonstrates how closely the measure is being watched in other parts of the world: An estimated 95% of the investors involved in the above mentioned deal are living in the USA, according to the newspaper.
As Craig Gedey of the Debt Advisory Line stated, the fact that banks were shedding some of their IVA-related loans was a positive sign, really: “Banks obviously have very good reasons for wanting to sell off some of their IVA-related loans, as these burden them with high capital requirements. Getting rid of them means freeing money for potentially more lucrative investments. But what this essentially means is that these loans are highly secure rather than speculative. After all, contrary to the initial agreement, an Individual Voluntary Agreement takes the debtor’s real financial possibilities into account, significantly reducing the risk of defaulting on the new credit.“
Over the past few years, Individual Voluntary Agreements have firmly established themselves as a respected option to avoid the far more severe and far-reaching bankruptcy procedure. By applying for an IVA, a lender is declaring both his willingness and ability to pay back a significant chunk of his debts, rather than defaulting on them completely. This is reflected by the fact that the average value of an IVA loan is around £40,000, thereby taking not just the needs of the borrower, but also the interests of the lender into account. As a result, more and more are being taken out each year – 12,000 overall in 2010, according to the Insolvency Service.
So what does this news actually mean for UK citizens? As Gedey pointed out, not all that much: “Really, the idea behind the IVA-deal by Pamplona is risk management, with banks trading in less risky assets to allow for potentially more rewarding activities. If IVAs are considered as secure investment options by major financial institutions, then this only proves their validity as tool to stave off insolvency. It also goes to show that sound bankruptcy advice prior to applying for an individual insolvency may make a whole lot of a difference – in many cases, sensible debt re-structuring measures can even make an IVA unnecessary.“