5 October 2016 – Expansión
Moody’s Forecast / The US giant Blackstone has opened an alternative route for Spanish entities to accelerate the clean up of their balance sheets, through the placement of securitisation funds containing restructured credits.
This week will see the placement of the first securitised fund of problem mortgages on the market in Europe by Blackstone, in a move that is set to pave the way for Spain’s banks to replicate the model. Blackstone’s plans involve the sale of some of the assets (€265 million) that it bought from Catalunya Banc in 2015, for a nominal value of more than €6,000 million.
The ratings agency Moody’s estimates that Spain’s banks have €105,000 million in refinanced or restructured problem loans in total, primarily mortgages, which may be put on the market through securitised funds. “The banks are under pressure from the ECB to reduce this load as quickly as possible, to clean up their balance sheets and improve their returns”, said Moody’s in a recent report. According to PwC, half of the problem loans in Europe are held by borrowers in Italy, Spain and Ireland.
Assets susceptible to being securitised are those that have been modified to help the borrower pay, although they do not necessarily need to have been in arrears in the past. The original loan may have been refinanced (offering a new loan to repay the existing one) and/or restructured (changing the terms and conditions). This figure is lower than the total volume of overdue loans owing to Spain’s banks, which amount to €138,000 million and foreclosed properties (€113,000 million).
For example, in its securitised fund, Blackstone has included only those loans that have been performing (being repaid) for more than 37 months in a row, therefore, they are considered to be “high quality” problem assets. In exchange, they offer an attractive yield, more than 100 basis points above Euribor, with a discount of just 10% for those funds prepared to bear the most risk.
In order to open up this market, players have worked hard to obtain support for these types of securitisations from the regulators. Both the ECB, as well as the Bank of England and the European Banking Authority have been working to create specific pan-European regulations to facilitate more simple, transparent and standard securitisations, pending approval from the European Parliament. According to Moody’s, securitisations of refinanced and restructured credits would fall within this definition, which should facilitate their placement amongst investors.
The most active buyers of these types of problem asset portfolios in Europe may now also participate as investors in this market. According to data from Deloitte, Oaktree, Lone Star and HSH are the most active purchasers, with more than €5,000 million, followed by others such as Bain Capital, AnaCap and Apollo.
Until now, many of the portfolios sold by the banks to these funds have been transacted through bilateral operations. Nevertheless, the economic recovery means that the volume of refinanced loans that are now performing (being repaid) is increasing, which means that the sector could generate higher returns from these kinds of securitisations.
Original story: Expansión (by Daniel Badía)
Translation: Carmel Drake