11/07/2014 – Expansion
In total, the Hercules Project portfolio includes mortgages valued at €6.5 billion which are backed by 41.000 real estate assets. Among them, 38.000 corresponds to dwellings and the rest to retails, offices, parking spaces and storage rooms.
The international bidders have it clear already what to do with the loans: they will restructure the debt with relatively solvent debtors and sign with the rest of them settlements on overtaking the properties in exchage for the debt release.
With this view, the funds have analyzed the real estate portfolio which backs the loans for sale and they are delighted to discover that great majoroty of the homes stand in the regions experiencing the fastest recovery. For example, the province of Barcelona accounts for a half of the Hercules lot.
Enormity and complexity of the portfolio inclined several investors towards joinging forces up. Thus, Apollo, Centerbridge and Lone Star allied up, as well as Pimco, Marathon, Oaktree, Deutsche Bank and Finsolutia, Cerberus and Goldman Sachs, Blackstone and TPG, Soros and Värde. N+1 and Baker & McKenzie were named the advisors.
Depending on their quality, the mortgages embraced by the Hercules are divided among the three groups:
1. Outstanding: they are regularly redeemed loans. In total, they amount to 35.000 agreements worth €2.76 billion, backed by 18.700 properties. In spite of being still performing, around 90% of them are restructured or refinanced, “many of them floating”. Therefore, a part of these credits might receive the “unpaid” label in short-term. The funds study each case separately and forgiveness for debtors with ability to pay is not ruled out. “The alternative can be considered by funds but not by banks, as many other people would demand the same from their lenders”.
2. Sub-performing: this slice includes loans which were failed to pay or redeemed with delay for once. This happened any time in case of 11.000 contracts valued at €975 million. The bidders estimate around a half of this cluster may be renewable via debt restructuring with the rest apt for execution.
3. Non-performing: The worst-quality portion valued at nearly €2.77 billion. Out of the 48.000 unpaid loans, two thirds are in the course of proceedings. However, the funds would rather avoid this measure and go for out of court settlements, such as in lieu payments when possible. Thus, they will be able to foreclose the houses as soon as possible. The auction winner will be obliged to follow the Code of Good Practice requiring an affordable rent after the in lieu payment execution.
Original article: Expansión (by Jorge Zuloaga)
Translation: AURA REE