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NPLs, start from 54 billion

06 January, Milano Finanza

2107 was a particularly active year for the NPLs sector, concerning banks, investors, and servicers. And 2018 will be the same. According to the BeBeez database, in fact, the players of the sector are already working on transactions for a gross value of 54 billion euro, if we count also the transactions that should have been concluded last year but have been postponed to this year, such as the NPL securitisation by MPS for 26.1 billion, or the 16.8 billion for bad loans and unlikely to pay of the two Venetian banks that haven’t been transferred to Sga yet since the related operational decrees haven’t been approved yet. For the remainder, the market is expecting an increase of operations concerning unlikely to pay loans since the new accounting principle Ifrs9 that was introduced this year, forcing banks to assess the likelihood of default of the credits. With this perspective, a new macro-category of credits has been introduced, that of sub-performing loans, namely performing loans that might become non-performing. The result is an increase of the weight of impaired credits other than bad loans in terms of guarantee capital to set aside. Moreover, as highlighted by PwC in its latest report published right before Christmas, the unlikely to pay credits have reached now 73 billion euro, against the 71 billion of bad loans. Hence, the focus now is on the unlikely to pay.

Furthermore, last year saw mixed transactions composed of bad loans and other impaired loans, or of bad loans only, such as the bad loans securitisation for 2.7 billion by Cr Rimini, Cr Cesena and Cr San Miniato and underwritten by Atlante II, as well as the bad loans for 2.2 billion sold to Atlante II by Banca Marche, Etruria and Cr Chieti.

In 2017 registered closed deals for 46 billion euro over the loans gross value, among which the biggest has been that concerning the project Fino by Unicredit for 17.7 billion.

Always last year, the activity of servicers and of NPL managing platforms has been remarkable. For what concerns platforms, the new platform of Banca Popolare di Bari, Credit Management, has been recently bought by Cerved Management Group for 18 million, plus an earn-out of approximately 3 million based on the achievement of the economic results till 2021, together with a ten-year agreement for the management by Cerved of roughly 1.1 billion NPLs, over 75% of the future bad loans and 55% of the future unlikely to pay that will be generated by Banca Popolare di Bari.

Always Cerved, this time together with Quaestio Holding, obtained last July the management platform for bad loans of Mps, for 105 million, plus an estimated earn-out of maximum 66 million, based on the achievement of the economic results till 2024. The agreement was reached through a strategic partnership for the special servicing activity of the upcoming securitization of NPLs for 26.1 billion euro over a total portfolio of 28.6 billion held by the bank.

Moreover, in the past few days, Credito Fondiario has won the auction for the Carige management platform, assessed around 31 billion, along with a long-term servicing contract. At the same time, Credito Fondiario bought also an NPL portfolio for 1.2 billion and the subscription to 5.4% of the capital of Carige itself (the same quota was underwritten by Sga, that now has a right of the first offer over a 200 million portfolio that will be shortly put on auction by Carige). Together with Credito Fondiario, also Lindorff-Intrum Iustitia sent its offer for the platform, but it recouped shortly after with the purchase of Caf, the Rome-based servicer owned since 2015 by the private equity fund Lone Star. In the meanwhile, Intrum bought also an NPL portfolio for 370 million that was acquired in 2015 by Lone Star from Cassa di Risparmio di Teramo. Caf has been valued around 120 million. For Lindorff-Intrum, this is the third acquisition in Italy since the one of Gextra last May, acquired from Italfondiario and its founder Francesca Carafa and that of Cross Factor in the spring of 2016.

Whereas last July, Davidson Kempner Capital Management, through the vehicle Burlington Loan Management, signed the agreement to buy 44% of Prelios Spa for 64.25 million. While in March the American fund Varde Partners acquired for 47 million 33% of the Brescia-based Guber. In February, Bain Capital Credit bought from Hypo Alpe-Adria Bank Heta Asset Resolution Italia (Harit), along with its 90 employees and an asset portfolio for 570 million gross composed mainly of repossessed properties and performing and non-performing leasing contracts.

Finally, we must note the activity carried out by Kkr. Last April, in fact, the American giant of alternative assets acquired the control of Sistemia, a Rome-based servicer that manages today secured and unsecured credits with a strong focus on real estate, previously very active on credit collection, becoming a partner of Equitalia. Sistemia had at the end of June managed assets for a value of 5.3 billion.

Things might change, with the recent arrival in Italy of Pepper Group, the Australian group operating in consumer credit and in bad loans management. The group was delisted last December from the Sidney Stock Exchange due to a Tender Offer launched by Kkr itself, with the management of Kkr reinvesting in the Pepper’s vehicle. On the other hand, the Pepper Ceo, Mike Culhane, is not new to Italy since that in the early ‘00es he invested with the fund Oakwood in Ktesios, a company specialised in salary-backed loans, that he then sold together with the interests in De Benedetti’s Cir and of Merrill Lynch. Over the years, Culhane has been very active with Pepper, registering last June 45.3 billion Australian dollars of credits and with issued loans for 8 billion, among consumer credit, mortgages for retail and commercial properties. Alfredo Goldaniga, coming from Dea Capital, has been appointed to lead the Italian branch, reporting to the London-based head of principal investments for Pepper UK, Daniele Cittadino. At the moment, Pepper is focusing in Italy in the acquisition of bad loan management mandates, but the company has also applied to Banca D’italia for the license to issue credit. This expansion strategy is different to that adopted so far in the other European countries, where the group preferred buying the already existing services rather than starting from scratches with the business. In fact, the idea here is to buy licenses and mandates. The company can rely on Kkr’s strong experience, which is already controlling in the sector Sistemia and Pillarstone Italy, the investment platform specialised in the purchase of distressed corporate credits in the portfolios of Italian banks and in corporate reorganizations. It would be easy to assume how all these activities might be gathered one day under just one operator. A very likely chance.

Source: Milano Finanza

Translator: Cristina Ambrosi

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