Putback Rights

How Putback Rights Work

After a portfolio sale closes, the buyer typically has a defined review period (ranging from 30 to 180 days, depending on the PSA) to examine the acquired accounts and identify any that do not conform to the seller's representations. If an account meets a putback trigger, the buyer notifies the seller and returns the account in exchange for a credit or refund of the proportionate purchase price.

The putback process is governed by the PSA, which specifies the qualifying triggers, the notification procedure, the review period, and the remedy (typically a dollar-for-dollar refund based on the account's allocated purchase price). Some agreements cap the total putback amount at a percentage of the purchase price.

Common Putback Triggers

The most frequently negotiated putback triggers include:

• Missing or incomplete documentation. The seller represented that certain documents would be available but they cannot be produced.
• Ownership issues. The account was not owned by the seller at the time of the transaction, or there is a break in the chain of title.
• Duplicate accounts. The same account appears more than once in the portfolio.
• Active bankruptcy or insolvency. The debtor was in an active bankruptcy or consumer proposal at the time of the sale.
• Material balance discrepancy. The actual balance differs materially from what was stated on the data tape.
• Settled or paid accounts. The account had already been settled or paid in full before the sale.

Negotiating Putback Protections

Putback rights are one of the most heavily negotiated sections of the PSA. Buyers prefer broad triggers, long review periods, and uncapped putback amounts to maximize their protection. Sellers prefer narrow triggers, short review periods, and caps to limit their post-sale exposure. The final terms reflect the parties' relative bargaining power, the portfolio's characteristics, and industry conventions. Thorough due diligence before closing can reduce the need for putbacks, but they remain an essential safety net for portfolio buyers.