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Everybody is buying UTPs. 100 billion for sale, but the price is a mystery

26 July, Il Sole 24 Ore

Italian banks are working on UTPs for 100 billion. Unlikely to pay is the new frontier. There are many operations currently going on: Intesa Sanpaolo, Mps, Cariparma-Credit Agricole and Carige. The buyers are international specialised companies such as Deutsche Bank and Jp Morgan, but also other groups are creating their own division, like Dobank. Giovanni Viani, Oliver Wyman partner, explains: “The stock of impaired loans in Italy amounts at present to 280 billion gross, representing 14% of the total. Of these, 100 billion are UTP”.

Portfolios composed of several small loans or by single names (significant holdings towards only one debtor) are being auctioned. Antonio Lombardo, Dla Piper partner, says: “Investors buy UTP to manage reorganisation processes, in some cases converting or rescheduling the credits. Generally, the investors enter an agreement with the debtor, or they opt for an agreement among creditors, although this is a longer and more complex solution”.

Cariparma has recently finalised the sell of UTP for about 450 million, partly secured by real estate. The American fund Bain Capital Credit acquired the portfolio. There are also other UTP operations currently going on: Mps is working on several scheduled transactions, while Carige is pursuing its disposal plan for 1.5-billion UTP. The Carige loans originate for one-third from shipping, for one-third from real estate and from the industrial sector for the remainder.

Last month the bank reached an agreement with the ship-building company of Ignazio Messina to reorganise his debt amounting to about 450 million euro.

The debt was curbed by Gianluigi Aponte from the Genoa group Msc with the creation of a newco which will receive the assets and the liabilities of the Messina’s group as well as the capitals from Aponte. The Carige UTPs include businesses like Marina Genova Aeroporto and Leonardo Technology. Finally, Intesa Sanpaolo has put for auction UTP for 250 million.

The approach to UTPs differs from that of NPLs. Lombardo explains: “With UTP, you have to carefully assess the collateral since it’s still an active credit. The approach is selective and not statistical as with NPLs. It’s possible to buy a number of credits of a single holding, or a majority share as a creditor, or a minority share with fewer credits. In the case a majority share is bought, it’s important that the creditors’ approval must be at least 75%”.

Some players are entering the market with ad-hoc teams. Dobank, for instance, appointed Andrea Giovanelli for the management of its Utp & Banking division.

Viani says: “Unlike NPLs, whose market is now mature and there’s a standard method for their management, UTPs are active credits on which the specialised players have just started working”.

Who buys UTPs are usually companies specialised in credits (Bain, Pimco, Credito Fondiario, Algebris, AnaCap, Davidson Kempner), as well as real estate investors (Gwm, Varde, York, Cerberus and Tpg).

There is then the issue connected with the assessment of UTP. In Italy, UTPs are less hedged than bad loans, due to their different nature: 30-40% hedge against the 60% of NPL. A lot depends on the guarantee. Alexandre Astier, Cbre Capital Markets managing director, says: “At least for the biggest holdings, UTPs are backed by development projects (residential as well as commercial) where the debtor is often a developer or a sponsor in financial difficulties and struggling with sticking to the repayment plan agreed with the bank. In fact, UTPs are for large part characterised by debt reorganisation plans with covenants or refunds at stake. Another scenario is that of industrial groups, not necessarily real estate, which had to renegotiate their loans with the banks and had to put as a guarantee operating assets or other properties of the ownership or the holdings”.

Finally, when assessing UTPs, one must consider that the debtor might return being performing. Viani continues: “Therefore, it’s a problem also for the buyers since they’re difficult to assess. Besides, we must distinguish between UTP backed by real estate and those represented by credits towards companies. Real estate credits are easier to assess, while those related to companies are about three-quarters of the total. In this case, it’s essential to understand whether the company is still operating or not”.

Source: Il Sole 24 Ore

Translator: Cristina Ambrosi