Not that he has created a workers' paradise. The work, those involved concede, is repetitive and grueling. And Bartmann, preternaturally hard-driving even by entrepreneurial standards, can turn apoplectic when CFS's performance is subpar. "There's an incongruity between Bill's vision and what he reverts to when the going gets tough," says one former employee who asked to remain anonymous. "His management style has been characterized as management by intimidation. One day he's very friendly; the next he's chewing your ass like it's never been chewed."
The pressure-cooker atmosphere wears on many, but operations director Learned is unapologetic. "We position ourselves like the Marine Corps," he says. "It's hard to get in, and it's very demanding once you're here, but if you're good enough, boy, what a ride."
The Next, Bigger Thing.
New Year's Day, 1994. The Mirage hotel, in Las Vegas, where Bartmann holds an annual planning session with his top officers. (Bartmann loves the blackjack tables.) "This year," he announced to them, "we're going to do a securitization."
The small audience sat stone-faced. "We didn't even know how to spell the word," recalls Learned, much less grasp what a far-fetched notion Bartmann was proposing.
The problem with their business, Bartmann proceeded to explain, was the extended time lag between the purchase of millions of dollars in bad debts and their actual collection. To get through the interval, CFS had to take on expensive bank financing. Not only were the interest costs a drain on the bottom line, but the perennial shortage of cash was a major speed bump for growth because it prevented CFS from buying yet more debt.
So Bartmann proposed to do what had never been done before: take thousands of nonperforming debts, bundle them together, and serve up the package to investors as a bond. By turning the bad debts into a security--"securitizing" them, in Wall Street parlance--CFS could generate immediate cash and then use the liberated money to buy more bad debts. It would be a slingshot for growth. That is, if Bartmann could get Wall Street to swallow the idea.
The ensuing trip to Manhattan was even more harrowing than that initial visit to the Muskogee bank. Sitting white-knuckled in the imposing lobby of a gold-plated investment bank, Bartmann suddenly and acutely felt like a high school dropout from Dubuque. "It was like going to a foreign country," says Bartmann, who, for all his scrappy assertiveness, still gets overawed by titles and pedigrees. "These were guys with M.B.A.'s, the elite of the world, the rocket scientists, brighter than the sun."
Once Bartmann was inside the banker's office, the meeting was depressingly short. Plenty of small assets, such as home mortgages, had been bundled and securitized before, the banker noted. But those debts were both performing and collateralized. The debts Bartmann was talking about had the doubly unpalatable distinction of being nonperforming and unsecured. How could they provide a predictable payment stream to investors? "This can't be done," the banker told Bartmann bluntly. "It will never be done." The next six banks sent Bartmann packing as well. But the seventh, Banc One Capital Corp., of Columbus, Ohio, listened. It could be done, the bankers believed, because Bartmann's systematizing had yielded a collection-industry miracle: margins that were not only huge but also predictable.
It took more than a year to pull off, but in May 1995, CFS completed its first bond issue, selling it to two institutional investors in a private-placement deal. Today the company has done 10 such securitizations, totaling more than $1 billion, which have consistently received "A" ratings from Standard & Poor's. (The issues bear average returns of a modest 8%.) The effect on the balance sheet is immediately evident. "See that? That's cash on hand," says Bartmann, repeatedly tapping a blue pen on a line that reads a stunning $147,054,045.
Securitizing paved the way for a second, crucial masterstroke. Ever since the FDIC's inventory had dried up in the early 1990s, Bartmann had been buying bad loans from the Resolution Trust Corp., the entity responsible for sifting through the rubble of the savings-and-loan debacle. But by 1995 that source, too, was a dwindling pool. So Bartmann began spending millions to research an untapped reservoir: consumer debt. "Nobody else," says Sheerin of Duff & Phelps, "had deep-enough pockets to do that." Bartmann had observed that banks were issuing credit cards to just about anyone with a mailing address, creating a huge volume of charge-offs--bad accounts that had to be written off banks' balance sheets after 180 days of nonpayment. Occupied with managing assets, not recovering them, bankers suddenly found themselves overwhelmed by the blitzkrieg of charge-offs.
Bartmann moved with the land-grabbing urgency of a Sooner. He'd found little data to suggest how collectible those credit-card debts were--and at $3,500, the average balance was much smaller than what CFS was used to--but Bartmann went with his best guess. Raising the money through securitizations, he bought billions' worth. "It was a very bold, very brilliant move," says Manny Occiano of West Capital Financial Services Corp., a smaller competitor based in San Diego.
