A Purchase and Sale Agreement (PSA) is a legal contract that outlines the terms of a debt sale between a creditor and a debt buyer or between debt buyers. This is the foundation of the debt buying process, so both parties have a clear understanding of what's what and what's being transferred.

What is the PSA in Debt Buying

A PSA is the official record of the ownership of a debt portfolio. It includes all the details of the sale, purchase price, condition of the accounts and any warranties or representations made by the seller.

• What type of debt is being sold (consumer loans, credit cards, medical debt etc.)
• Account balances, delinquency status, geographic distribution

Purchase Price and Payment

• Purchase price of the portfolio and payment terms (upfront or installment)

Representations and Warranties

• Sellers will represent and warrant account information is accurate and compliant with laws.
• Buyers may have to sign off that they are buying the portfolio “as-is.”
• Details of the transfer process, including delivery of account data and any associated documents.
• Both parties will comply with laws such as FDCPA and state laws.

What is the PSA in Debt Sales

The PSA provides transparency and accountability in the debt buying process by:

• Chain of title for the accounts being sold.
• Sets out the rights and obligations of the seller and buyer.
• Protects both parties from disputes by warranties and indemnities.

How does a PSA work in the debt buying process?

• A creditor sells a charged-off portfolio to a certified debt buyer.
• The PSA documents the transaction and transfers ownership of the accounts to the buyer.

Debt Buyer to Secondary Buyer

• After liquidating or partially collecting on a portfolio, the original debt buyer may sell the remaining accounts to another buyer.
• A new PSA is created for this transfer.
• Every subsequent sale of the portfolio requires a PSA to maintain chain of title.

Why a PSA in Debt Buying

• The PSA protects both parties by outlining the terms of the sale.
• Both buyer and seller have a clear understanding of the value and condition of the portfolio.
• Both parties will comply with debt sale and collection laws.
• Each PSA adds to the chain of title.

Key Components of a PSA

A Purchase and Sale Agreement (PSA) is a legally binding contract that outlines the terms and conditions of a real estate transaction. Here are the key components typically included in a PSA:

• Identification of Parties: Clearly identifies the buyer and seller involved in the transaction.
• Property Description: Provides a detailed description of the property being sold, including its location and any improvements.
• Purchase Price and Payment Terms: Specifies the purchase price and the terms of payment, whether upfront or in installments.

Contingencies: Includes any contingencies such as financing and inspection requirements that must be met for the sale to proceed.

• Closing Date and Location: Sets the date and location for the closing of the transaction.
• Allocation of Closing Costs: Details how closing costs will be allocated between the buyer and seller.
• Representations and Warranties: Lists any representations and warranties made by the seller regarding the property.
• Indemnification Provisions: Outlines indemnification provisions to protect both parties from potential liabilities.
• Dispute Resolution: Specifies the methods for resolving any disputes that may arise during the transaction.

In the context of public storage, a PSA would be used to facilitate the purchase and sale of properties such as self-storage facilities. The agreement must be carefully drafted to ensure it accurately reflects the terms and conditions of the transaction and protects the interests of both parties.

Balance Sheet Impact of a PSA

The balance sheet impact of a PSA can be significant, affecting a company’s assets, liabilities, and equity. When a company enters into a PSA, it may need to make a down payment or cover other upfront costs, which can reduce its cash balance. Additionally, the company might assume certain liabilities, such as mortgages or other debt obligations, increasing its total liabilities.

On the flip side, acquiring a new property can boost a company’s assets, particularly its property, plant, and equipment. The specific impact on the balance sheet will depend on the terms of the PSA and the company’s overall financial situation.

For Public Storage, the balance sheet is heavily influenced by its debt and equity structure. As of 2025, the company’s total debt stands at $9.47 billion, with an equity ratio of 0.73. The current ratio is 1.05, indicating potential challenges in meeting financial commitments as they come due. A PSA could impact these ratios, depending on the agreement’s terms and the company’s financial health.

Equity Ratio Considerations in Debt Buying

When engaging in debt buying, companies like Public Storage must carefully evaluate their equity ratio to ensure they have sufficient equity to support their debt obligations. The equity ratio, calculated by dividing total equity by total assets, measures a company’s ability to meet its debt obligations.

Generally, a higher equity ratio indicates more equity to support debt obligations, making the company more attractive to lenders and investors due to perceived lower risk. Conversely, a lower equity ratio suggests higher leverage and potentially higher risk.

Public Storage’s equity ratio of 0.73 indicates a significant amount of debt relative to its equity. This could make it more challenging to secure financing or attract investors, as the company may be seen as riskier. However, the debt-to-equity ratio remains within a reasonable range, and Public Storage has a strong track record of generating cash flow to support its debt obligations.

PSA Use Cases

Example 1: Initial Sale by Creditor

A bank sells a charged-off credit card portfolio to a debt buyer. The PSA includes:

• Total face value of the accounts.
• Warranties about account data.
• Purchase price and payment terms.

Example 2: Secondary Debt Market

• Adjusted account balances.
• Changes to the accounts since original purchase.

Risks and Considerations

When entering into a PSA, companies like Public Storage must carefully consider various risks and factors:

Market Risk: The property’s value may fluctuate based on market conditions, impacting the company’s return on investment.

Financing Risk: The company may struggle to obtain favorable financing terms, affecting its ability to complete the transaction.

Operational Risk: Integrating the new property into existing operations may present challenges, potentially impacting cash flow generation.

Regulatory Risk: The company may face regulatory requirements or restrictions that could affect its ability to operate the property.

To mitigate these risks, companies like Public Storage must thoroughly evaluate the PSA’s terms and conditions and ensure a comprehensive understanding of the property and the market in which it operates.

Purchase Sales Agreement - PSA FAQs for Investors

Q: What is a Purchase and Sale Agreement?

A Purchase and Sale Agreement (PSA) is a document that documents the transfer of a debt portfolio from a seller to a buyer.

Q: Why do I need a PSA in debt buying?

A PSA provides transparency, legal protection and compliance and chain of title for the accounts being sold.

Q: What goes into a PSA?

A PSA should have details about the debt portfolio, purchase price, reps and warranties and conditions of sale.

Q: Can I use a PSA for multiple transactions?

No, each transaction requires a new PSA to document the transfer of ownership and chain of title.

A Purchase and Sale Agreement (PSA) is a must have in the debt buying process, whether buying direct from creditors or buying portfolios in the secondary market.

Looking for expert guidance on PSAs? Ensure your agreements are comprehensive and compliant with industry standards to protect your investments. 🚀