Tag: Bank of America Merrill Lynch

Blackstone Obtains a c. €2bn Mega-Loan for Testa

19 December 2018 – Expansión

The Socimi Testa held an extraordinary General Shareholders’ Meeting on Tuesday, where it reduced the number of members of its Board of Directors from 11 to 5. The new governing body includes three people proceeding from the new majority shareholder, the investor group Blackstone.

Testa Residencial is going to sign a mega-loan amounting to €1.943 billion, which it had already agreed in principle after the US fund Blackstone takes control of the rental home Socimi with the purchase of 80.6% of its share capital within the next few days.

The loan, equivalent to the amount that the purchase of the firm has cost the fund (around €1.52 billion) along with the debt held by the Socimi, has been agreed with Bank of America Merrill Lynch, Société Générale and Santander itself, Blackstone’s partner in Testa with 18% of its share capital.

This bank financing was agreed during the first meeting of Testa’s new Board of Directors following the restructuring of the management body conducted hours before, at the General Shareholders’ Meeting, when entry was granted to Blackstone.

By virtue of this restructuring, Testa’s Board has been reduced to five members, from the previous number of eleven. The fund has appointed three representatives to the Board, one of which, Diego San José, will also be the President of the Socimi, a role held until now by Ignacio Moreno.

The other two chairs at the table will continue to be occupied by the current CEO, Wolfgang Beck, and the director Miguel Oñate. In this way, the Board seeks to ensure continuity in the management of the real estate firm and to continue benefitting from Oñate’s experience and knowledge.

New strategy

Despite this continuity in management, at the first meeting of Testa’s Board, with Blackstone in the driving seat, a resolution was taken to approve a new strategy for the company, which had been planning to invest €550 million in the purchase of new rental homes to add to its existing portfolio of 10,700 flats.

The new strategy involves “analysing the eventual purchase of new homes depending on the circumstances at play in each case”. Moreover, Blackstone has raised Testa’s current leverage limit, situated at 35% of its asset value, and has reduced the dividend payment to the “legal minimum”.

In terms of the super-loan, it is being guaranteed by the assets of the Socimi itself, worth €2.3 billion in May when it was considering making its debut on the main stock market, and which will be signed with a two-year term, with the possibility of three annual extensions.

Dividend

Before changing the dividend policy, the Board also agreed to distribute a payment to the shareholders leaving the Socimi as well as to the new shareholders.

Specifically, it is going to pay €7.612 per share to the shareholders that leave the company after selling their stakes to Blackstone, in other words, to BBVA, Acciona and Merlin and to Santander for the proportion of shares that it has also sold.

Moreover, Testa will pay €0.035 per share to those players that will be its shareholders once the sale and purchase agreement has been signed within the next few days, in other words, to Blackstone and Santander, as well as to a group of minority shareholders who own 0.5%.

With the acquisition of this Socimi, Blackstone is strengthening its position as the largest owner of rental homes in Spain, with around 24,000 homes through its various firms and Socimis. Moreover, it is consolidating its position as one of the largest real estate owners in the country, with an asset portfolio worth more than €20 billion.

Original story: Expansión

Translation: Carmel Drake

Santander Values its Stake in the JV with Blackstone at €1.566bn

16 May 2018 – Expansión

Santander has recorded on its balance sheet its 49% stake in the company that it has created with Blackstone for a value of €1,566 million. The stake has been recognised in the portfolio of investments in joint ventures and associated companies. The bank and the US fund, which controls the remaining 51% of the JV’s share capital, constituted the company on 22 March. The alliance, a conglomerate of companies grouped together under the parent company, Project Quasar Investments 2017, brings together the former real estate portfolio of Popular. It contains gross assets worth €30 billion, which have been appraised at €10 billion net under the framework of the transaction.

Meanwhile, the two partners have now agreed on the configuration of the Board of Directors for the joint venture. The governance body will comprise seven members. In line with the distribution of the share capital and its control of the management of the assets, Blackstone will have a majority of four positions on the Board, including that of Chairman.

Santander will be represented by three directors. One of them is Javier García Carranza, the executive to whom the entity chaired by Ana Botín has entrusted the process to clean up Popular’s balance sheet. García Carranza is the Deputy CEO of Grupo Santander and a member of Popular’s Administration Board, a transition body that will disappear once the legal merger of the two banks has been completed. García Carranza also represents Santander on the boards of Sareb, Metrovacesa and the real estate manager Altamira, amongst other companies.

The other directors linked to Santander that will sit on the Board of the joint venture are Carlos Manzano and Jaime Rodríguez-Andrade, specialists in real estate investments and asset recoveries, respectively.

Meanwhile, Diego San José, Head of Blackstone’s Real Estate division in Spain is going to be the Chairman of the company. Eduard Mendiluce, Jean Francois Bossy and Jean Christophe Dubois are the other directors who have been appointed by the fund.

In order to launch the company, Santander and Blackstone have subscribed a syndicated loan amounting to €7,332 million. Several banks have participated in the loan, which is led by Morgan Stanley and Deutsche Bank, including Bank of America Merrill Lynch, JP Morgan and RBS, as well as Blackstone itself, which has contributed €1 billion. The financing has been signed over a 5-year term and matures in 2023.

The sale of Popular’s real estate portfolio and the deconsolidation of the assets have resulted in a 10 point improvement in Santander’s core capital ratio. Its solvency now stands at 11%, the target for 2018.

Original story: Expansión (by M. Martínez)

Translation: Carmel Drake

Blackstone Includes its own RE Manager in the Popular Divestment Deal

3 May 2018 – La Información

Blackstone’s real estate platform, Anticipa, is going to collaborate with Aliseda – founded at the time by Popular – in the management of its voluminous property portfolio. The US fund acquired Anticipa in 2014 when it was awarded Catalunya Caixa’s portfolio, and it has just taken control of Aliseda, as part of the mega-operation signed with Santander. The Cantabrian group included the real estate platform, together with a dozen real estate companies, in the €30 billion gross portfolio of properties that it transferred to the new company, in which Blackstone owns 51% of the capital and Santander held onto the remaining 49%.

Blackstone decided not to merge the companies but they are going to collaborate together, according to information submitted to the market about the syndicated loan signed to close Popular’s transaction. The toxic exposure divested by Santander in the deal known as “Project Quasar” has been valued at €10 billion net, given that there was a provision cushion amounting to 63% of the original value in the case of the foreclosed assets and 75% in the case of the loans.

The transaction was structured with the contribution of 30% in capital and 70% in debt. The bank and the fund are going to contribute almost €3 billion in capital and the remaining almost €7.333 billion will proceed from a financial structure led by Bank of America Merrill Lynch, together with Deutsche Bank, JP Morgan, Morgan Stanley, Parlex 15 Lux, The Royal Bank of Scotland and Sof Investment. The operation has been advised by the law firm Allen & Overy, amongst others.

The “Neptune” portfolio constituted to obtain the financing includes Aliseda in the perimeter along with numerous real estate companies and stakes held in them by Popular, including Tifany Investments, Corporación Financiera ISSOS, Pandantan (Mindanao), Taler Real Estate, Vilarma Gestión, Marina Golf, Popsol, Elbrus Properties, Cercebelo Assets, Eagle Hispania, Las Canteras de Abanilla and Canvives. A large proportion of the assets transferred are plots of land, together with residential homes, industrial warehouses, commercial properties, offices, garages and almost €1 billion gross exposure in hotels.

This operation is going to allow Santander to dramatically reduce its exposure to foreclosed assets from €41.1 billion to €10.4 billion – a figure that is reduced to a net of €5.2 billion thanks to the provisions it has recognised amounting to 50% of the initial value – but enabling it to benefit from the divestments as a shareholder of the company receiving the portfolios with a 49% stake.

The plan includes the use of Socimis

The fund’s divestment plans include constructing or transferring some of the assets to Socimis, a vehicle that Blackstone has made use of for previous operations because it offers tax benefits such as avoiding the need to pay Corporation Tax if they distribute dividends. In gross terms, residential assets accounted for almost one-third of the perimeter of the original properties involved in the transaction.

After leaving the Popular portfolio in the hands of Blackstone, Santander still has €4 billion net in foreclosed assets and €1.2 billion in doubtful financing that it wants to get rid of soon. The bank plans to repackage the assets by batch and put them on the market, where half a dozen entities and Sareb are exploring how to get rid of almost €48 billion gross – the bad bank alone is looking for a buyer for the €30 billion whose sale is being managed by Haya Real Estate, and Sabadell has several batches up for sale amounting to almost €11 billion.

The Cantabrian group acquired Popular when it had closed the chapter to clean up its real estate and now it wants to return to that position quickly. It was its real estate division to leave behind the “red numbers” this year or by the early stages of 2019 at the latest.

Original story: La Información (by Eva Contreras)

Translation: Carmel Drake

Hammerson Set to Buy Intu, Owner of Xanadú & Puerto Venecia

6 December 2017 – Expansión

The Boards of Directors of Hammerson and Intu Properties, two of Great Britain’s largest property developers, have reached an agreement regarding their merger, which will result in the creation of a group with assets worth GBP 21 billion (€23.7 billion, in euros), mostly comprising shopping centres in the United Kingdom, France and Spain. The operation will be instrumented through a public takeover bid (OPA) of Hammerson’s shares for Intu’s, valuing the share capital of that company at GBP 3.4 billion (€3.85 billion). Intu’s shareholders will receive 0.475 newly issued Hammerson shares for each current share they own.

If the deal goes ahead, it will have a significant effect on the Spanish market, as it would see a change in the owner of the country’s three largest shopping centres. Intu controls 50% of Xanadú (Madrid), Puerto Venecia (Zaragoza) and Parque Principado (Asturias). Funds from Canada and the USA are the company’s partners in those centres. Moreover, Intu has plans underway to develop other leisure and shopping complexes in Málaga, Valencia and Vigo, for a combined investment of more than €1 billion.

Hammerson, meanwhile, holds stakes in Value Retail and Via Outlets, which operate luxury brand outlet centres such as Las Rozas Village (Madrid), La Roca (Barcelona), Mallorca Fashion and Sevilla Fashion.

According to a statement from Hammerson issued today when it announced the purchase “the incorporation of Intu’s portfolio in Spain fits with our strategy of placing our focus on consumer growth markets as it involves adding three of the country’s largest shopping centres. It will also allow our commercial partners to have exposure to a new European market”.

This British company is committed to developing Intu’s projects in Spain. It says that the group resulting from the merger “will be in the best position” to undertake those investments. Following the integration, the group plans to sell some of its centres in the United Kingdom for around GBP 2 billion, which will give it “the financial flexibility it needs to invest in more profitable opportunities in Spain and Ireland, as well as in the outlet centre segment”. The combined debt of the new Hammerson group will amount to GBP 8.2 billion.

The property developer hopes to generate annual savings of GBP 25 million as a result of joining forces with Intu.

Intu’s share price on the London Stock Exchange rose by 20% (after the deal was announced), taking the company’s market capitalisation to GBP 3.2 billion, whilst Hammerson’s share price fell by 2%, taking its market capitalisation to GBP 4.15 billion.

Analysts are interpreting the operation as a defensive move by the two companies to protect themselves from the possible impact of Brexit, which is slowing down consumption in the United Kingdom and which may harm the value of their shopping centres. “The merger represents a coalition of two weak businesses, which will result in an amalgam of assets without any great possibilities for generating incremental profits”, argues Mike Prew, from Jefferies. “The interesting areas of growth are Intu’s Spanish business and Hammerson’s outlet centres”.

The merger still needs to be approved by the shareholders of the two companies and by the British competition authorities, which means that it could take a year to complete. Peel Holding, the investment company owned by John Whittaker, which is Intu’s largest shareholder, has already agreed to approve the takeover. Following the operation, it will hold a 15% stake in the resulting group.

The banks Deutsche Bank, JPMorgan and Lazard have advised Hammerson. Meanwhile, Intu’s managers have engaged the services of Bank of America Merrill Lynch, Rothschild and UBS.

Original story: Expansión (by Roberto Casado)

Translation: Carmel Drake

Europe GRI 2017: 11-12 September, Paris

12 July 2017 – Press Release

Aura REE & GRI Club have come together for Europe GRI. Senior real estate investors, developers, lenders, asset owners, major corporates and planners connect, share ideas and strengthen relationships. The collegial discussions enable you to interact and engage – much like an after-dinner conversation in your own living room. Identify like-minded peers, build relationships, and continue the conversation afterwards.

Members and non-members are welcome. If you would find it useful to join your peers at this exclusively senior-level club meeting, you can register here.

Register | Programme

Confirmed Participants include:

Brian Betel, Managing Partner, ASG Iberia Advisors
Steven Broch,  CIO, Aerium Group
Hunt Doering, Managing Director, Baupost Group International
Michael Zerda, Managing Director, Blackstone
Dale Lattanzio, Managing Partner, DRC Capital

Pedro Abella Langa, General Manager, H.I.G. Capital
Gregory Clerc, Managing Director, Bank of America Merrill Lynch
Duncan MacPherson, Managing Director & Head of Debt, Starwood Capital Europe Advisers
Cristina Pérez Liz, Managing Director, Kennedy Wilson
Norbert Müller, Managing Director, Deutsche Pfandbriefbank

Manuel Holgado, Partner, VKronos Investment Group
Tom Rowley, Managing Director, Angelo, Gordon Europe
Trish Barrigan, Senior Partner, Benson Elliot Capital Management
Michael Abel, Managing Director, TPG
Tavis Cannel,  Managing Director, Goldman Sachs International

Manuel Enrich, Investor Relations Director, Sareb
Miguel Pereda, CEO, Grupo Lar
Nic Fox, Partner & Head of Middle Europe, Europa Capital
Fraser Denton, Managing Director, UK & European Investments
David Matheson, SVP, MD Director Investments-Europe, Oxford Properties Group

Jeffrey Dishner, Senior Managing Director,  Starwood Capital Europe Advisers
Chris Evans, Founding Partner, Hamilton Hotel Partners
Ekaterina Avdonina, Managing Director, Delin Capital Asset Management
Christian Nickels-Teske, Head of Treasury Europe, Prologis Ian Worboys, CEO, P3 Logistic Parks 

Peter Cole, Chief Investment Officer, Hammerson
Carrie Hiebeler, Senior Investment Officer, Ventas, Inc.
Gordon Black, Senior Managing Director, Co-Head Europe, Heitman
Gregory Lanter,  Vice President Global Development, Club Méditerranée

Sessions Include:

Residential in Spain – Is product scarcity solved by the acquisition of developers?
NPLs – The last chance saloon?
Retail in Spain – Primary vs. Secondary cities
Co-Investment – As deals mature, will partners get their hands burnt?
European Gateway Cities – Where’s the smart money heading?
The Global Shift Towards Mediterranean Hospitality – New regions or new money?
Modern Retail – Convenience, leisure, technology or community?
Residential Alternatives – Are great operating partners essential or overrated?
What is Real Estate These days? – Financial asset or a service?

For event participation, contact:

Loredana Carollo | Club Director Spain
+44 (0) 20 7121 5089 | loredana.carollo@griclub.org | www.griclub.org

Original story: Press Release

Edited by: Carmel Drake

Popular Offers RE Portfolio To 4 Investors For €495M

16 May 2017 – Expansión

Banco Popular has decided to put a portfolio of real estate loans and assets worth €495 million on the market. The package, known as Icaria, contains mostly doubtful loans (known as non-performing loans), linked to real estate assets. There are only a few loans, but they are large and secured by hotel assets and residential developments. In addition, around 10% of the portfolio comprises foreclosed assets.

To carry out this divestment, Popular has engaged the real estate consultancy firm Irea, which has organised a very restricted process with only a handful of large international investors. It has chosen four candidates: Apollo, Oaktree, Bank of America Merrill Lynch and Bain Capital.

The selection of just four candidates reflects the bank’s intention of undertaking a rapid process. The aim is to close the sale in June “no matter what” and that objective has been communicated to the potential buyers.

If the transaction is closed during the first half of the year, as the bank intends, Popular would be able to register the reduction in damaged assets in its accounts for the first half of the year and add new improvements in its capital ratio, which is in a very tight situation and close to the minimum requirements demanded by the ECB. At the end of the first quarter, the entity’s solvency ratio stood at 11.91%, very close to the level of minimum level of 11.375% demanded by the European Central Bank.

Real estate

The sale of large portfolios of assets to institutional investors is a key part of the strategy of the new President, Emilio Saracho (pictured above), as he tries to re-float the bank. Popular wants to focus on wholesale divestments to accelerate the divestment rate of its non-performing assets, which compromise its standalone viability.

Including loans and foreclosed assets, Popular still holds a portfolio of non-performing assets worth €37,000 million.

Despite the efforts made to strengthen its provisions since last year, with new provisions amounting to more than €6,000 million, the coverage of these assets amounts to 45%. That figure is four percentage points lower than the sector average (which stands at around 49%) and makes it very difficult for Popular to divest at a faster pace.

Popular’s CEO, Ignacio Sánchez-Asiaín, said during the presentation of the results for the first quarter, that the aim was to close the year with sales of €2,000 million, extrapolating the reduction of around €500 million achieved between January and March to the year as a whole. Nevertheless, he said that this figure may increase in the event that the entity closes an “anchor sale”, such as the sale of the Icaria portfolio.

In January, Popular sold a portfolio of debt worth €220 million and secured by hotel assets to Apollo. Moreover, it sold loans worth €400 million to Blackstone, which were secured by residential assets (homes, parking spaces, storerooms).

Sánchez-Asiaín said that the entity is analysing what the “appropriate pace” of asset divestment would be for the entity, along with the valuation adjustments that would have to be applied to the assets to achieve it, with the consequent impact on the income statement and share capital.

This scenario, as well as the demands of the supervisors, will condition Popular’s manoeuvre room and its roadmap. Alternatives include its absorption by another entity, an option that the market seems to be increasingly leaning towards, or another capital increase, which now appears less feasible.

Original story: Expansión (by R. Ruiz and M. Martínez)

Translation: Carmel Drake

Spain’s Banks Have €6,200M In Toxic Assets Up For Sale

25 April 2017 – El Mundo

Spain’s banks want to take advantage of the improving conditions in the real estate market to accelerate the clean up of the non-performing assets that are still weighing down on their balance sheets, almost 10 years after the burst of the bubble. The main entities currently have €6,200 million in toxic assets of all kind up for sale, including land, doubtful loans, hard to recover loans, homes, hotels, industrial warehouses…

Spain’s banks have been working on this process for at least five years, and with particular intensity for the last three. Bankia, for example, has sold €10,000 million since 2013 and CaixaBank has sold €5,000 million in the last two years. The most recent major operation was closed by Banco Sabadell, in January, for €950 million.

Now, in addition to Banco Popular, which has a large volume of toxic assets still to clean up, entities such as Ibercaja, BBVA, CaixaBank and Bankia are offering investment funds assets worth thousands of millions of euros, because they prefer to sell them at a loss, than maintain them on their balance sheets. The entities are accepting losses to improve their default ratios and doubtful client figures. For the funds, the aim is to take advantage of the discounts on offer to obtain very high returns from the subsequent recovery or resale of the underlying assets. (…).

The €6,200 million currently up for sale on this wholesale market, which has a low profile despite its volume, increases to €7,800 million if we take into account the operations completed during the month of January by Banco Sabadell, BBVA, Deutsche Bank and Bankia.

Based on the operations currently on the market, Ibercaja, BBVA and Sareb (…) are the entities with the largest volume of assets up for sale. The bank chaired by Francisco González is planning to conduct a significant cleanup of its balance sheet in 2017 and is currently offering assets and secured and unsecured loans to small developers amounting to €860 million. During the first quarter of 2017, it sold 14 buildings in Cataluña and Valencia and a portfolio containing 3,500 properties to the fund Blackstone.

Meanwhile, last year, CaixaBank completed the sale of two portfolios to funds such as Apollo and DE Shaw, amounting to €1,400 million, and this year it has a portfolio of non-performing loans to property developers, amounting to €600 million. The default rate of the Catalan bank has decreased from 11% at the peak of the crisis to 6.9% now and its doubtful clients have decreased by 47% since 2013.

Nevertheless, the market expects more supply to come onto the market. The European Central Bank (ECB) is putting pressure on the entities to conduct a comprehensive clean-up in order to dispel the myths regarding how profitable they are. Bank of America Merrill Lynch considers that the volume of foreclosed assets held by the main banks still exceeds €34,000 million and that more than €10,000 million still needs to be sold in terms of land alone, which puts the sector’s capacity to clean itself up in real doubt.

The strategy that Banco Popular is following in this regard, which has to get rid of at least €16,000 million, is considered definitive. The prices that it sets and the outcome of its crisis may influence the plans of the other entities, especially those of the smallest, unlisted firms. (…).

Original story: El Mundo (by César Urrutia)

Translation: Carmel Drake

Blackstone Puts €400M Of Catalunya Banc’s Mortgages Up For Sale

27 March 2017 – Expansión

The banks have put a red circle around 2017 in their calendars, as the year when the doubtful portfolios that have hurt them so hard in the past and that are still denting their balance sheets even now, will show signs of life. Some of the entities may end up generating more profits than they initially expected.

And Blackstone is leading the way. The US giant has created a securitisation fund containing some of the non-performing loans with a nominal value of €6,000 million that it purchased from Catalunya Banc in 2015 for almost €3,600 million. Two years later, and after restructuring many of the credits, the investment group has decided that the time has come to capitalise on its investment.

It will do so with the sale to investors of a portfolio containing €403 million of these formerly delinquent loans. It represents Blackstone’s second foray into this field. Last year, the firm opened fire with the first securitisation of structured loans in Europe, although now it is redoubling its efforts given that the volume up for sale is 52% higher.

The fund comprises 3,307 residential mortgages granted in Spain, with a loan to value (credit over the value of the home) of 60.9%. Almost 80% of these mortgages have been restructured and many of the borrowers are up to date with their repayments. Meanwhile, there has been no change to the rest, according to information that Blackstone has provided to Moody’s to allow the risk ratings agency to make its assessment.

Profits

Blackstone’s aim is to sell this portfolio to investors in order to materialise some of the gains obtained from the management of the non-performing loans. In all likelihood, the securitisation fund will be placed below its nominal value, but at a much higher level than Blackstone paid when it acquired the mortgages from Catalunya Banc, before the State intervened entity was acquired by BBVA.

In exchange, Blackstone will offer different coupons to investors, depending on the type of mortgages that they take on.

The fund has been divided into five tranches, depending on the risk. The first has a very high level of solvency and so will pay annual interest of 3-month Euribor plus a spread of 0.90%.

The second and third tranches, which still have high or intermediate solvency ratings, will pay premiums over Euribor of 1.9% and 2.5%, respectively. The fourth tranche is ranked below investment grade and will pay a return of 2.6%.

The objective of Blackstone and the three banks that it has engaged for the securitisation (Credit Suisse, Bank of America Merrill Lynch and Deutsche Bank) is that the operation will be completed next week.

A new market

This second securitisation by Blackstone is clear confirmation that a new market has opened up for buyers of delinquent portfolios from the banks. In fact, sources from several investment banks are confident that there will be a significant volume of secondary operations of this kind this year, where the new owners of the bank’s non-performing loans will sell their positions to other funds and to the market alike, through securitisations. (…).

Original story: Expansión (by Inés Abril)

Translation: Carmel Drake

Habitat To Start Negotiating With Investment Banks

2 February 2017 – Expansión

The property developer Habitat is getting ready to grow. The company has convened a General Shareholders’ Meeting on 8 March 2017 to authorise the Board to start negotiating its growth plans with investment banks such as Goldman Sachs, Morgan Stanley and Alantra. Sources in the sector indicate that the property developer is currently working to define its corporate strategy. Habitat faces a phase of expansion after, in 2014, it signed the first major modification to a creditors’ agreement in Spain with a discount of 85% on its debt of €1,200 million.

The company was unable to meet the payment plan established by the agreement that allowed it to file for creditor bankruptcy in 2010 and which saw the following entities become shareholders after they capitalised their debt: Bank of America Merrill Lynch, SP101 Finance Ire-land, Capstone, CCP Credit Acquisition Holdings Luxco, CSCP II, Arvo, Goldman Sachs and Melf. Habitat has promoted housing developments in several of Spain’s major cities since the modification to the agreement was signed.

Original story: Expansión (by G. T.)

Translation: Carmel Drake

Deutsche Will Partially Finance Popular’s New RE Firm

21 November 2016 – Expansión

Popular has taken a new step in the constitution of its real estate company, a key project in its attempt to try to recover investors’ lost confidence, which it hopes to have ready by the first quarter of next year. According to financial sources, Deutsche Bank has reached a preliminary agreement to finance this company.

In total, up to six banks and funds have expressed interest, which does not mean that they will all end up participating. However, according to sources close to the process, “these players are being offered provisional agreements to invest between €200 million and €500 million”. The same sources state that they have also held talks with the giants Apollo and Cerberus, who declined to comment about the process.

Popular wants to transfer assets with a gross value of €6,000 million, primarily finished homes, to the new entity. Specifically, for this reason, executives at the entity feel uncomfortable that the project is being referred to as the bad bank in financial circles because it will also incorporate high quality assets.

On the liability side, the company will initially have share capital contributed by the bank, which will then be distributed amongst all of its shareholders in the same proportion as their existing shareholdings. In addition, the company will issue subordinated debt, which Popular will subscribe to, as well as senior debt.

It is expected that the banks and funds that want to participate in the financing will do so through this latter (senior debt) tranche.

According to a report from Bank of America Merrill Lynch last Thursday, in which the firm reduced the target price from €1.30 to €0.75, the company’s liabilities will be constituted as follows: the share capital will amount to €975 million, whilst the senior debt will amount to €2,200 million and the subordinated debt will amount to €1,400 million. The US bank’s analysts predict that the players who finance the senior debt tranche will request an IRR of 10%.

Deutsche Bank, which together with EY, is acting as financial adviser to the project, as well as Apollo and Cerberus, have been active in the Spanish real estate market in recent years. The former acquired two portfolios from Bankia, between the end of 2015 and this summer, comprising loans, both real estate and property developer related, worth almost €1,000 million. Meanwhile, Apollo has acquired several portfolios (it recently bought a hotel portfolio from CaixaBank) and controls the former platform (servicer) of Santander, Altamira. And Cerberus, which hired the former CEO of BBVA, Manuel González Cid in 2014, owns the real estate arm of Bankia, now Haya Real Estate, and the Cajamar platform.

Assets on the balance sheet

Popular has damaged assets on its balance worth €33,000 million before provisions, which amount to another €15,000 million. According to Bank of America, this high volume (of assets and provisions) eliminates many potential interested parties from a merger. Besides constituting this company, Popular also wants to accelerate the sale of these assets through both its wholesale and retail channels.

The bank earned €94.3 million during the first nine months of 2016, 66.1% less than during the same period in 2015. Nevertheless, its banking activity (when separated out from its real estate business) generated profits of €817 million.

Original story: Expansión (by D. Badía)

Translation: Carmel Drake