PWCC Marketplace recently established a $175 million asset-based credit facility with WhiteHawk Capital Partners, a private credit investment manager. The trading-card auction house and storage vault plans to use the funding to expand its capital lending program.
News of a middle-market lender providing capital to PWCC’s commercial financing arm is noteworthy because it proves that marketplaces and lenders can value trading cards as assets like they would art or coins, according to Jesse Craig (director of business development, PWCC Marketplace). “It opens up banks’ eyes that this is a viable, tangible asset class,” he said.
The funding agreement also helps to “legitimize this specific niche of an asset class,” Craig said. And “for someone who likes to use leverage, it really opens up the door for them to come in and take a look at trading cards.”
Both outcomes are expected to drive future growth—and values—in the industry. Nearly all of the money PWCC lends or advances gets reinvested back into cards and a wider pool of collectors and investors should increase spend and demand.
According to Craig, the PWCC projections have the trading-card market increasing tenfold in the next five years.
JWS’ Take: Trading cards have historically been relatively illiquid compared to other collectibles. “There simply wasn’t any data to confidently project the market or the price of individual assets,” Craig said.
Marketplaces such as PWCC, eBay, MySlabs, Alt and COMC have emerged over the last 25 years or so in part to bring liquidity to sellers. In the process, they have helped to create those missing data sets.
But PWCC took it to the next level in 2019 with the introduction of its capital lending program, which provides current and prospective clients with loan and cash advance options using trading cards as collateral. “If you tie up your money into an investment and then another deal comes up, or you have [something] that you need to do, having the liquidity for that via lending is critically important,” Craig said.
There are other collectors and investors who want to use leverage to build a larger card portfolio. “They’ll buy something, put it in the vault and then they’ll want to lend on it; they’ll want to get some of the cash back out,” Craig said. “It’s not different than thinking about a HELOC on a house if you’re going to do a home improvement project.”
Of course, the rates on PWCC loans—1% per month, according to Craig—are higher than consumers would likely incur on a home equity line of credit. The duration on PWCC loans is also going to be much shorter—two-month terms with the ability to renew twice.
WhiteHawk did not dictate the lending guidelines. However, Robert Chimenti (managing director, WhiteHawk Capital Partners) said it did “take comfort in the short-term nature of the loans and the company’s history and track record.”
The company’s interest in lending to the sector is driven by a desire find new and misunderstood industries where it can achieve strong risk-adjusted returns for its investors. “WhiteHawk recognized the opportunity to support and work with a strong operator, first mover with scale in a growing asset class,” Chimenti said.
Why did the company go down the institutional funding route? Over the last three years, PWCC has sold “notes to the public at [around 9%] to fuel these vault loans, and it got to the point where it [became too] difficult to manage,” Craig said. PWCC funds roughly $50 million a month in short-term financing deals. Having a $175 million line of credit means PWCC no longer needs to worry about raising capital each time it fields a request for $5 or $10 million.
It is logical to wonder why demand is so great for short-term, high interest loans. Presumably, most individuals with valuable card collections own homes and other assets they could borrow against. Craig said for many, PWCC’s collateral-based solution is simply easier. It does not require credit checks or the extensive paperwork associated with a HELOC.
PWCC can take a simplified approach because it is only lending up to 40% of the asset’s value. “And since it is only two-month terms, there would have to be some unbelievable volatility to actually have that [loan] be at risk,” Craig said. The company has never had a borrower default.
In the event that one did, PWCC would sell the asset through one of its marketplaces, pay off the loan and award the remainder of the proceeds to the owner.
Modern and ultra-modern cards are far more volatile than their vintage and blue-chip counterparts, so PWCC will only lend 20% or 25% of the value on those cards.
It wouldn’t be surprising if one of the competitors cited were to introduce comparable financing options within the next 6-12 months. Presumably, the competition amongst lenders to fund that effort would result in lower rates for the borrower.
Despite the high fees consumers pay, commercial lending is not a big revenue driver for PWCC; at least not relative to its various marketplaces. “It’s another suite of services that we can offer our clients,” Craig said, one with a strong downstream effect.
PWCC’s Capital Lending Program helps the company to sell its vault service. “[The knowledge that] when you need money, you can turn a nob, that it’s there,” can sway collectors and investors considering storing their collection with the company, Craig said.
It also serves to drive PWCC’s marketplaces. “If somebody has a million-dollar card to auction and needs a half-million dollars up front, and we’re confident in the value, we can do an advance on that card and give them access to capital immediately while they’re waiting for the card to sell,” Craig said.
PWCC data, like the PWCC 500 index, and low LTVs helped to convince WhiteHawk that the loans were secure. Chimenti said his firm was “supportive of [a] management team that has proper policies and procedures in place with proven strong risk assessment fundamentals.”
The PWCC 500 index has increased 855% since January 2008. By comparison, the S&P 500 is up 175%.