Liberbank Sells €602M RE Portfolio To Bain & Oceanwood

23 October 2017 – Expansión

Liberbank has signed a binding agreement for the constitution of a new company together with Bain Capital Credit and Oceanwood – one of Liberbank’s current shareholders with a 12.7% stake – to which it will transfer a portfolio of real estate assets worth more than €600 million.

Specifically, the entity will transfer real estate assets with aggregate gross debt of around €602 million, of which €180 million (40%) corresponds to land and work-in-progress projects; €80 million to tertiary assets; and €342 million to residential products, according to a report submitted by Liberbank to Spain’s National Securities Market Commission (CNMV).

As a result, Liberbank will hold a 9.99% stake in this portfolio of foreclosed properties, whilst Bain Capital Credit will hold 80% of the new company, and Oceanwood will hold the remaining 10.01% stake.

Bain Capital Credit will be responsible for managing the assets in the new company following the completion of the operation, scheduled for before 31 December 2017, once the terms of the agreement have been fulfilled. According to its reports, Liberbank held sufficient provisions as at September 2017 to cover the impact resulting from the sale of this portfolio.

In this way, taking into account the direct sales of gross debt relating to real estate assets amounting to €209 million that the entity undertook during the third quarter, Liberbank has “already” fulfilled its objective of reducing its exposure to real estate assets by more than €800 million during the second half of this year, which the entity revealed when it announced its capital increase.

During this year, Liberbank plans to sell more than €510 million in non-performing assets on the retail market and, whereby, reduce its exposure by more than €1,000 million. So far this year, that figure amounts to €1,045 million, excluding the direct sales forecast for the fourth quarter.

The bank led by Manuel Menéndez decreased its portfolio of non-performing assets by 29% during H1 and by December, that decrease will have increased to 43% in two years thanks to the operation signed with Bain and Oceanwood.

Through this agreement, Liberbank expects to achieve a non-performing asset coverage ratio (NPA) of 49% (…) a Texas ratio of 94% and a CET1 (fully loaded) ratio of 12.2% as at the end of September, including the transfer of assets and the capital increase approved by the General Shareholders’ Meeting on 9 October.

€500 million capital increase

A few weeks ago, Liberbank’s shareholders approved a €500 million capital increase, which the entity will launch following the presentation of its results for the third quarter, which will take place on Tuesday 24 October (…).

Original story: Expansión

Translation: Carmel Drake

Liberbank & Bain Negotiate Finishing Touches To Portfolio Sale

19 October 2017 – Expansión

Liberbank is hoping to complete the sale of its portfolio of foreclosed assets to the fund Bain Capital within the next few days. The two entities are continuing their exclusive negotiations to put the finishing touches to the operation, which is due to be signed before the bank begins its €500 million capital increase.

Financial sources explain that the parties are finalising the terms relating to the perimeter of the portfolio. The CEO of Liberbank, Manuel Menéndez, speaking a few days ago, said that the entity will sell a maximum of €600 million in foreclosed assets to the fund.

These operations with funds tend to require significant discounts. The same sources indicate that the entity will have to recognise losses amounting to more than €100 million as a result of the sale of this portfolio, which means that the discount will exceed 55% if the perimeter is not expanded above €600 million.

Other sources familiar with the deal are not ruling out the possibility that Liberbank will start negotiating with other funds again if the conversations with Bain do not end up proving fruitful.

Original story: Expansión

Translation: Carmel Drake

Blackstone To Merge Popular & Sabadell’s Hotels To Create Tourism Giant

18 October 2017 – El Confidencial

Blackstone has surprised the market once again with the purchase of the hotel company HI Partners from Banco Sabadell for €630.7 million; the operation will turn the fund into one of the major players in the Spanish tourism sector overnight. Nevertheless, this acquisition is actually just the tip of the iceberg of a much larger objective, which is directly linked to the largest real estate operation seen in Europe in recent times: the €30,000 million in toxic assets that Blackstone acquired from Santander-Popular in the summer.

That huge portfolio, comprising foreclosed properties and non-performing loans, contained €800 million linked to hotel assets, some of which Blackstone wants to use to fatten up HI Partners’ portfolio, according to sources in the know. Those same sources define that move as a medium-term strategy, which will allow it to create a hotel giant, capable of competing with other large platforms such as Hispania, before debuting it on the stock market in a few years time.

Although the fund analysed its purchase of Sabadell hotels as a stand-alone operation, Blackstone’s roadmap forecasts the possible generation of synergies with its other large portfolio of hotel assets in Spain, in other words, those proceeding from Banco Popular.

As El Confidencial published, when Blackstone definitively closed the purchase of 51% of the Santander-Popular portfolio, the fund’s objective was to gradually divide it up, taking advantage of the range of vehicles that it already owns in Spain, such as the Socimis Fidere, Albirana and Corona Patrimonial, and undertake direct sales of both assets and debt portfolios.

HI Partners now forms part of that same strategy. The plan is to transfer only those hotels that comply with the group’s business model, which focuses on high category coastal hotels and very selective urban establishments. The Hilton Inn Sevilla, Gran Hotel La Toja in Pontevedra, Tamisa Golf in Mijas and Hotel Ayre in Oviedo are some of the assets that were held under the Popular umbrella.

Nevertheless, given that the bulk of this portfolio is debt whose collateral are these establishments, the transfer of the assets chosen to form part of HI Partners will have to be performed gradually, on an asset by asset basis, depending on the progress of the negotiations regarding the loan status in each case. Blackstone has time on its side since its objective with these acquisitions is to take advantage of the growth curve of the Spanish tourism sector and to do so through an asset repositioning strategy.

Management team

After selling HI Partners, along with its 14 best establishments, Sabadell will now continue with more than a dozen lower category hotels under its umbrella, which it plans to transfer gradually. All of the bank’s debt secured by hotel collateral also remained inside its perimeter for the time being; until now that was being managed by the team led by Alejandro Hernández-Puértolas and Santiago Fisas, and it will probably end up being sold off through Solvia.

The HI Partners management team will continue to be linked to the hotel group even after the completion of the sale to Blackstone, once the operation has received the green light from the Competition authorities. The team will face the challenge of continuing to make the company grow by repositioning the hotels, like they have been doing since 2015, in line with Blackstone’s plans for Popular’s establishments.

Original story: El Confidencial (by R. Ugalde)

Translation: Carmel Drake

Blackstone & Apollo Vie For BBVA’s Remaining RE

18 October 2017 – Expansión

BBVA’s real estate portfolio is sparking a lot of interest in the market. The bank is holding exclusive negotiations with Cerberus to sell its real estate manager Anida along with around €4,000 million in foreclosed assets and non-performing real estate loans. But, other investment funds do not want to miss out on the assets that they consider to be juicy and so are setting their sights on the rest of the portfolio.

Financial sources indicate that other funds, such as Apollo and Blackstone, have expressed their interest in the loans and assets linked to the property that do not end up being included in the perimeter of the portfolio sold to Cerberus. BBVA has a gross exposure to the real estate sector in Spain of €20,190 million, and so Cerberus will be acquiring around 20% of the total. The entity currently has a coverage ratio of 57% over its real estate exposure after recognising provisions amounting to €11,431 million in total, according to data as at June, the date of the most recent audited accounts. Moreover, according to sources familiar with the deal, during the negotiations, Cerberus has communicated to BBVA its intention to purchase more than the aforementioned €4,000 million in doubtful loans and foreclosed assets.

Advanced phase

The conversations with Cerberus began before the summer and are now in a very advanced phase. The operation is expected to close before the end of the year, explain sources in the sector.

BBVA’s real estate activity is grouped around Anida. The bank is one of the few entities that retained full control over its real estate business. During the crisis, several banks sold their managers to specialist funds to accelerate the divestment of their problem assets. BBVA’s plans now involve the deconsolidation of its real estate risk.

Some of the sources indicate that Cerberus decided to bid aggressively to acquire Anida after failing to get past the first round of the bidding for Popular’s toxic real estate. Its desire is so great that even the most senior figure at the firm, John Snow, met with the President of BBVA, Francisco González, to make their interest clear. In fact, Cerberus is hoping to acquire 100% of Anida, according to sources in the sector.

More than a dozen large international funds are currently buying real estate assets and loans in Spain. They include Blackstone, which reached an agreement with Santander to acquire 51% of the company created for shelving Popular’s problem assets. Meanwhile, Bain Capital is holding exclusive negotiations with Liberbank to purchase a portfolio of property worth €700 million.

Original story: Expansión (by R. Ruiz and R. Sampedro)

Translation: Carmel Drake

Project Inés: Deutsche Finalises Purchase Of Sareb’s €400M Portfolio

17 October 2017 – Voz Pópuli

Sareb is at a critical point in one of its most important transactions of the year. The bad bank is negotiating with Deutsche Bank regarding the sale of the largest portfolio it has brought onto the market in the last 12 months. The portfolio in question is Project Inés and it was initially worth €500 million, but its final perimeter will amount to €400 million, according to financial sources consulted by Voz Pópuli. Oaktree and Bank of America also participated in the bid until the final round, but their offers were lower than Deutsche Bank’s bid. Sources at Sareb declined to comment.

Those three international investors were the final candidates after dozens of other funds interested in the operation fell by the wayside. One of the last candidates to be ruled out was KKR.

The portfolio comprises unpaid loans secured by residential assets in Madrid, Cataluña, Andalucía and Zaragoza. The inclusion of assets in Cataluña, despite everything that is currently happening in that autonomous region, caused many of the funds to hesitate and deduct value from their bids, according to the financial sources consulted by this newspaper.

These types of operations are key for Sareb to accelerate the rate of asset sales, given that it has been given the mandate of divesting €50,000 million of problem assets within 15 years; that period started at the end of 2012. The latest figures show that the cumulative divestment to the end of 2016 amounted to almost €10,000 million, leaving a balance of €40,134 million on the books.

Other operations

Project Inés is not the only operation that Sareb has underway. It has also put a portfolio worth €400 million on the market through an online platform for funds. On the portal, investors can bid for loans on an individual basis (Project Dubai), like they did with Haya Real Estate last year.

Moreover, it has just put another portfolio, known as Project Tambo, on the market through CBRE. That portfolio contains non-performing loans to property developers, worth €300 million.

Sareb normally accumulates lots of operations of this kind at the end of the year. In 2016, it sold seven portfolios after the summer, for a total combined value of almost €1,300 million. The largest portfolio was Project Eloise, which was awarded to Goldman Sachs.

Deutsche Bank and Bank of America are two regulars in these types of operations. In fact, the German bank already acquired two small portfolios from Sareb at the end of last year, known as Project Sevilla and Project Marina, for a combined total of €160 million.

Original story: Voz Pópuli (by Jorge Zuloaga)

Translation: Carmel Drake

Bankia Considers Rapid Sale Of BMN’s Property Portfolio

13 October 2017 – Cinco Días

Bankia is currently considering how it will deal with the exposure to real estate through BMN that it will end up with following the planned integration of the two entities at the beginning of 2018. The bank chaired by José Ignacio Goirigolzarri is considering the rapid sale of BMN’s problem assets to one of the opportunistic funds that typically participate in these types of operations.

Goirigolzarri’s entity has already made contact with several of the intermediaries that typically advise on these types of transaction, according to sources familiar with Bankia’s intentions, to sound out the options available. These intermediaries include large consultancy firms and several investment banks. The bank has reportedly asked all of these companies to share their ideas about how to best handle a potential sale.

Bankia’s initial idea involves carrying out a rapid operation, similar to the deal undertaken by Santander in August, with the sale of the portfolio that it inherited from Popular that it transferred to the fund Blackstone in just six weeks. That agile move was very well received by the market.

Unlike in the case of Popular, BMN’s exposure to property is considerably less. The entity owns around €1,100 million in net foreclosed assets, according to data about the merger of both entities reported by Bankia in June. The entity has a coverage ratio of 28% over its foreclosed assets and 40% in the case of its doubtful debts (somewhat lower than the average for the sector, which stands at around 50%).

Moreover, of the total net foreclosed assets, 64.4% correspond to finished homes and 19.1% relate to land. In terms of the entity’s total loan book, which amounts to €21,900 million, only 2.7% relates to property developer loans.

The merger of Bankia and BMN was approved by the General Shareholders’ Meetings of both entities in September. The authorities are expected to declare their approval of the union in December and the definitive integration is forecast to take place at the beginning of 2018. The operation will be articulated through the handover of 205.6 million newly issued shares in Bankia to the shareholders of BMN, which effectively means assigning a value of €825 million to the latter (0.41 times its book value).

As such, BMN’s shareholders will hold 6.7% of Bankia’s share capital. Following the merger, Bankia will be the fourth largest entity in the country, behind Santander, BBVA and Caixabank (…).

Another of the differences compared to the operation involving Popular is that BMN does not have its own servicer. In the case of the bank acquired by Santander, it repurchased the 51% stake in Aliseda that was held by the funds Värde Partners and Kennedy Wilson, to subsequently include it in the operation that was then sealed with Blackstone.

In 2014, BMN sold its real estate asset management company Inmare to the servicer Aktua (controlled by the Norwegian fund Lindorff), to become strategic partners in the management of those assets.

The most likely scenario is that Bankia will execute the sale of the assets proceeding from BMN as the single transfer of a portfolio, given that it no longer owns a servicer. The entity chaired by Goirigolzarri declined to comment on any possible operation given that the merger has not yet been approved by the authorities (…).

The potential buyers will presumably include the usual suspects, such as Apollo, Oaktree, Bain, Cerberus, Blackstone, Lone Star, Castlelake, Värde Partners, Lindorff, TPG and Goldman Sachs.

Original story: Cinco Días (by Alfonso Simón Ruiz)

Translation: Carmel Drake

Liberbank Agrees To Sell €750M RE Portfolio To Bain

11 October 2017 – El Confidencial

Liberbank has agreed to sell a portfolio of foreclosed properties worth €750 million to the fund Bain Capital, after ruling out a rival offer from KKR. According to sources familiar with the situation, the transaction will be closed at a price of between 45% and 48% of the initial value (the final figure is the only matter that still needs to be agreed), in other words, with a discount of between 52% and 55% of the book value. That haircut is lower than the 66% that Santander had to apply to divest Popular’s property portfolio in the summer.

The aforementioned sources explain that, in the end, this portfolio does not include any non-performing loans, but rather contains foreclosed assets only. The sales price implies a higher discount than the net value (after provisions) at which Liberbank recognises these assets on its balance sheet (around 40%, albeit based on their appraisal value as at 2017), which means that the entity will have to recognise an additional loss as a result of this sale. But it will cover some of that loss with funds resulting from the €500 million capital increase that it approved on Monday and to which its main shareholders have already signed up.

The fact that Liberbank has had to offer a lower discount than Santander did for the sale of Popular’s assets is explained by three factors. Firstly, the size and urgency of the operation: the bank chaired by Ana Botín sold a much larger portfolio, amounting to €30,000 million, which it wanted to divest from its balance sheet as soon as possible, and whereby shield itself from the possible legal annulment of its purchase of Popular.

The second is that Santander sold only 51% of its portfolio, in other words, in that case, the bank will continue to receive income from the rental or sale of the assets in its remaining 49% stake. A better price can always be negotiated when the buyer acquires the rights to all of the revenues associated with a given portfolio. The third reason is that “not all of the assets are the same, and Popular’s portfolio contained a lot of poor quality properties”, according to one of the sources consulted. In other words, Liberbank’s portfolio contains better quality assets.

Ensuring survival on its own

(…). As El Confidencial has reported, both this real estate operation, as well as the capital increase, are consequences of demands made by the (Spanish) Government and the Bank of Spain to strengthen Liberbank’s solvency for fear of a repeat of a collapse like Popular’s (a fear that also led to the supervisor imposing a ban on the short selling of the entity’s shares, which still continues). In the face of interest from Abanca, Unicaja and CaixaBank to acquire Liberbank, the entity led by Manuel Menéndez decided to undertake these operations to ensure its survival as an independent player.

Moreover, the entity sold another €215 million in real estate assets unrelated to this portfolio during the third quarter. In that case, it sold the assets at their net book value, in other words, without the need to record any additional losses. In this way, Liberbank will easily exceed its objective of decreasing its property portfolio by €800 million this year, with most of the fourth quarter still remaining. In addition, during the same period, it decreased its non-performing loans by a further €230 million thanks to recoveries and foreclosures.

Original story: El Confidencial (by Eduardo Segovia)

Translation: Carmel Drake

Cerberus Cools Off Negotiations With BBVA Due To Political Climate

10 October 2017 – Eje Prime

The negotiations between Cerberus and BBVA are being cooled down by the political climate in Spain at the moment. The banking entity acknowledged a couple of weeks ago that it was holding negotiations with Cerberus Capital regarding the sale of its real estate business in Spain. Now, according to sources close to the process, the political instability could lead to a reduction in the price of that portfolio.

Conversations between the two parties were already very advanced; they just needed to agree the price, but then the events of 1 October in Cataluña threw the cat amongst the pigeons on the markets and unleashed an instability that could end up dictating the future of the operation, according to El Confidencial.

Sources at BBVA have declined to comment on how the Catalan market may affect the closure of the sale of the entity’s real estate subsidiary, but observers in the sector speculate that it could trigger a reduction in BBVA’s price expectations. Nevertheless, they don’t rule out that the entity will wait for the waters to temper before resuming the process.

The bank will need an offer of, at least, €8,760 million to be able to transfer its entire portfolio to Cerberus without recording any losses. Nevertheless, the entity indicated that it could not say whether the negotiations will end in an agreement or not, or what the terms and conditions of such an agreement might be.

Original story: Eje Prime

Translation: Carmel Drake

The ECB Demands Higher Provisions For Doubtful Debts From 2018

10 October 2017 – Cinco Días

The ECB has proposed a tightening of the provisions required by banks for any loans that they classify as doubtful from 1 January onwards. The ECB has subjected the draft legislation, currently posted on the body’s website, to public consultation. The standards that the supervisor is preparing complement those published in March of this year. In this way, banks will have to set aside more money from 2018 onwards to cover 100% of the loans that they reclassify, in other words, those that go from being standard to doubtful. The ECB will establish different terms depending on the type of loan: those that are secured by a real estate asset may be provisioned at 100% over seven years from the date of their reclassification. For loans without any type of guarantee, entities will have just two years to constitute the 100% provision.

The provisions will be applied on a linear basis from the date of recognition of the doubtful debt until the date the coverage ratio equals 100%, but national supervisors may require the recognition of provisions more quickly in certain cases. Moreover, loans that are partially covered by real estate assets must be provisions in two parts and with two doubtful rates.

In March, the ECB published a handbook for doubtful loans to be applied to portfolios of doubtful loans already in existence. It demanded that entities undertake procedures to reduce this load that, in its opinion, is restricting banks’ ability to grant new loans. The handbook is not binding, but banks will either have to “comply or explain”. In other words, they will have to comply with the handbook or explain why they are not complying with it. It also requires that they set specific objectives to reduce their existing portfolios.

Based on the response from entities and the evolution of doubtful balances, the supervisor will present new proposals,at the end of the first quarter of 2018, to attack the excess volume of toxic loans in the banking sector. According to the supervisor, the so-called “significant entities” (almost all of the banking system in Spain and 130 in total in Europe) held €865,000 million in doubtful assets during the first quarter (after that balance decreased by almost €100,000 million in one year). “Many entities have made significant progress and have submitted credible strategies that include reduction plans, but others still have a way to go to improve”, said the ECB.

In March, doubtful loans accounted for 47.05% of the total bank loan book in Greece, 17.75% in Ireland, 19.82% in Portugal and Italy. Based on this criteria, the figure for Spain amounted to 5.86%, but its level of foreclosed assets was very high.

Original story: Cinco Días (by Nuño Rodrigo Palacios)

Translation: Carmel Drake

The IMF Commends Sareb’s “Effective” Management & Divestment Progress

10 October 2017 – El Diario

On Friday, the International Monetary Fund (IMF) commended the “effective” management of Sareb and its progress in the asset divestment process, which has enabled the real estate company to liquidate 22% of its portfolio and 20% of its debt in its four years of life.

“To date, Sareb has fulfilled its objectives quite well, and the review of its business strategy seems to be well designed”, acknowledged the supervisory body in its latest report evaluating the Spanish financial sector.

Nevertheless, it adds that the company, created in 2012 to help with the clean-up of the banking sector, will face challenges in the future.

In its report published on Friday, the IMF refers to: the highly sensitive nature of Sareb’s activity to the evolution of real estate prices; the financial expenses that the entity must pay to service the debt that it took on to purchase assets back in the day; and the “stiff competition” from the banks, which are also divesting their real estate portfolios.

Even so, the body endorses the progress that Sareb has made to reduce the perimeter of assets received from the financial institutions by so much, as well as to service its commitments to repay its debt, which is guaranteed by the Spanish Treasury.

For the IMF, behind this progress, is the “effective” approach that Sareb applies to managing the portfolio, and which includes strategies for “the transformation of loans into properties, the recovery of loans, the sale of assets and the reactivation and sale of suspended projects”.

In the opinion of the institution, which is headquartered in Washington, Sareb is continuing to play a “critical role in the preservation of financial stability”, and therefore recommends greater involvement of the authorities in the preparation of the entity’s business plan.

The report that the IMF published on Friday focuses on analysing the weight that doubtful loans still play in the Spanish banking sector, which is still high despite the transfers that were made to Sareb when it was created.

In this sense, the international body echoes the initiative that the so-called “bad bank” has launched to give greater dynamism and transparency to the sale of loans, through an online platform, which is now operational, albeit in the pilot phase, on the company’s website.

Original story: El Diario

Translation: Carmel Drake