Possible Postponement Of BdE’s New Provisioning Circular

1 March 2016 – Expansión

The entry into force of the new provisioning circular being prepared by the Bank of Spain, which is scheduled for 30 June, may have to be delayed. Spanish financial entities have been sending their comments about the circular to the regulator since January 22. The circular represents a modification to existing accounting standards regarding provisions, in light of the entry into force of the international standard IFRS 9, which will take effect from 2018.

“We think that the Bank of Spain will accept the postponement of the entry into force (of this new circular), until at least September”, explained a senior manager at one unlisted bank. One of the main difficulties involved with fulfilling the initially-planned timeframe is that “significant software development is required for the application of the new standard”. Sources at another three listed banks share this opinion.

The sector expects minimal impact from the entry into force of the circular. The Bank of Spain estimates that the provision level for the sector as a whole will not change much, according to one source. But some entities may need to significantly increase their provisioning levels, depending on what their portfolios are like. “With this circular – an intermediate step, ahead of the introduction of IFRS 9 – the Bank of Spain is preventing entities from leaving the adjustments required by the new standard until the last minute”, according to the Finance Director of one bank. We expect the coverage requirements to be tightened, especially for consumer credit and foreclosed assets.

The entities are worried because it will be mandatory for them to update the appraisals of their loan guarantees, which may affect the loan to value ratios of some mortgage loans, and therefore the provisioning requirement, depending on the age of each portfolio. The new standard will require the elimination of the ‘substandard’ credit category, which exists only in Spain, and the creation of categories of loans that will have to be provisioned because they display certain characteristics, beyond the individual circumstances of each one.

Original story: Expansión (by Michela Romani)

Translation: Carmel Drake

Bankia Reduced Its Doubtful Loans By €2,000M In 2015

11 January 2016 – Expansión

The BFA-Bankia group reduced its doubtful debt balance by more than €2,000 million in 2015 through the sale of several loan portfolios. According to the entity, these operations allowed the bank to improve the quality of its balance sheet, raise liquidity and free up resources to grant new credit.

During the year, the bank completed four major operations involving the sale of loan portfolios with a total value of almost €2,800 million.

In May, BFA-Bankia agreed the sale of a portfolio of doubtful property developer loans amounting to €558 million to the fund Sankaty. Some of those loans were secured by real estate collateral.

A month later, the bank sold a portfolio of loans secured by hotel assets amounting to €383 million. The portfolio contained 91 operations in total, linked to 45 assets, and was sold to Bank of America and the investor Davidson Kemper.

In September, the bank closed the largest of its operations, by selling a portfolio of loans linked to the real estate sector amounting to €1,206 million, of which €986.8 million was secured. The purchasers in this case were the funds Oaktree and Chenavari.

In the last few weeks, BFA-Bankia has transferred a loan portfolio amounting to €645.1 million, all granted to the business sector and partly secured by real estate collateral, to Deutsche Bank.

Sources at Bankia highlight that, in order to maximise the prices obtained, a competitive process has been adopted for all of the portfolio sales between prestigious institutional investors and financial institutions.

Original story: Expansión

Translation: Carmel Drake

Sareb Modifies Its Loan Portfolio Sales Policy

4 January 2016 – Expansión

The accounting circular prepared by the Bank of Spain has modified the provisioning criteria that Sareb has tried to follow until now and will also force it to modify its business practices in a segment that has been generating significant income for the entity, namely, the sale of large-loan portfolios, which it used to perform at year end and which is now being replaced by individual auctions.

Sareb used to close its year ends with a volume of activity that allowed it to fulfil the objectives established in the budget each year, by completing the sale of various asset portfolios, in particular loan portfolios, during the fourth quarter of the year. This option has been radically altered following the publication and entry into force of the accounting circular that governs the bad bank.

In the circular, the supervisor established the obligation to appraise all of Sareb’s assets (at market value) within two years (i.e. by the end of 2016), to enable the new asset values to be recorded on the balance sheet. This means leaving behind the global valuation approach and moving towards knowing the individual values of each one of the assets. Sareb ended last year (2015) having appraised 60% of its assets.

Under the previous method, Sareb was able to create asset portfolios and determine their initial asking prices by approximating their values based on the amounts initially paid to acquire them. That meant that some of the values were lower than market price and others were higher, but that Sareb’s managers were able to establish overall asking prices for their portfolios that allowed them to generate margins to cover the company’s general costs.

But by appraising the assets one by one, this compensation (margin) is no longer possible and now Sareb has to try to beat the market in each one of its transactions, which is difficult and even more so in the current climate, in which operations are happening again but no significant price increases have been registered yet.

Clean up

For this reason, even though, at the beginning of the autumn, the company led by Jaime Echegoyen (pictured above) said that several loan portfolios had been created, for sale before the end of the year, those sales have not actually gone ahead, because, on the one hand, certain elements are still being removed from these portfolios so that they do not distort any possible sale, and on the other hand, individual loan auctions are being planned, which will make any sales much more difficult because the auction process takes so much longer. (…).

These new asset valuations are going to force Sareb to make sizeable provisions for the negative difference compared with the loan purchase prices, which means that the bad bank is going to record significant losses once again, which means that it will have to convert some of the convertible debt that its shareholders subscribed to in order to restore the company’s equity situation. The final amount of the debt to capital transformation will not be confirmed until the re-appraisal process has been completed.

Original story: Expansión (by Salvador Arancibia)

Translation: Carmel Drake

BFA-Bankia Sells €645M Loan Portfolio

4 January 2016 – Expansión

As a result of this operation, the entity has reduced its doubtful debt balance by €414.3 million (€410.5 million relates to Bankia and €3.8 million relates to BFA).

BFA-Bankia has sold a loan portfolio amounting to €645.1 million. All of the loans had been granted to the business sector and some had been secured by real estate collateral, according to a statement issued by the group on Tuesday 22 December 2015.

Through this operation, BFA-Bankia was seeking to achieve two objectives, namely: to increase liquidity and free up resources to grant new loans; and to reduce its default rate by selling off doubtful debts.

In fact, with the sale of this portfolio, the group has reduced its doubtful loan balance by €414.3 million, of which €410.5 million relates to Bankia and €3.8 million to BFA.

Of the total loan portfolio sold, €564.3 million came from Bankia’s balance sheet and another €80.8 million from BFA’s.

The group explained that this operation will have a “minimal (positive) impact” in terms of capital and that, to maximise the price obtained, the sale has been conducted as a competitive process between “first tier” institutional investors and financial entities.

“The entity is continuing to move forward with its commitment to divest all of its non-strategic assets”, the group said.

Original story: Expansión

Translation: Carmel Drake

Blackstone & Oaktree Compete For 5,000 Sabadell Homes

10 December 2015 – Expansión

Banco Sabadell is finalising what could be the largest block sale of homes by a Spanish bank in 2015. The Catalan entity is negotiating with the US funds Blackstone and Oaktree to transfer 5,000 rented homes, as part of Project Empire. Sources at the entity declined to comment on the operation.

Although there have been larger portfolio sales involving debt this year, all indications are that this sale will be the largest in the foreclosed asset segment, a space that only BMN and Bankinter have been active in so far in 2015. Popular considered it, but suspended its sale in the end and the portfolio sales that Bankia and Ibercaja currently have underway may be delayed until the first quarter of 2016.

Project Empire is an operation that Sabadell has been preparing for a long time and which has generated significant interest in the market. The 5,000 homes have a nominal value of €600 million. The fact that they are already rented out means that the most established funds in Spain have expressed their interest in them.

Such is the case of Blackstone, which owns the Anticipa platform – formerly CatalunyaCaixa Inmobiliaria – and which has purchased several bank portfolios. Meanwhile, Oaktree has unleashed itself as one of the major international investors in Spanish property, with the purchase of assets from Bankia, Ibercaja and FMS, the German bad bank.

Sabadell has reduced the volume of problematic assets on its balance sheet by €3,500 million since the start of 2014, down to €22,350 million by September 2015.

Original story: Expansión (by J. Z.)

Translation: Carmel Drake

Ibercaja Sells €210M NPL Portfolio To Seer Capital

6 July 2015 – Expansión

On Friday, Ibercaja closed the sale of a portfolio of non-performing loans, worth €210 million, to the US fund Seer Capital. The operation generated gross profits of almost €10 million for the Aragonese entity.

The portfolio contained doubtful unsecured loans, which were all fully provisioned, as well as non-performing loans.

Like other institutions, Ibercaja has accelerated the sale of problematic loans in recent years to devote its resources to productive assets and obtain profits on loans that it has already written off.

Ibercaja sold a similar portfolio in 2013, worth €540 million, to the US fund Yorvik and Savier Asset Management, owned by Javier Botín.

This is the first transaction that Seer Capital has undertaken in Spain. The fund was created in 2008 by Philip Weingord, former director of Deutsche Bank. The US firm manages assets worth €1,806 million, including mortgages, syndicated loans, SME loans and consumer finance with some kind of default (non-payment).

Other divestments

Moreover, Ibercaja Banco has refocused its strategy in recent months to take on a more active role in the market. Thus, the entity has engaged KPMG as an external advisor to perform the preparatory work towards an IPO in the coming years. The entity has until the end of 2018 to list on the stock exchange and so it has recently begun to explore that option in more detail.

In addition, a few weeks ago, the entity began a process to transfer the majority of the properties on its balance sheet. In total, the Aragonese group has put €800 million of foreclosed assets up for sale, including 6,900 residential units; 1,300 commercial premises and industrial buildings; and 600 plots of land. The transaction, known as Project Kite, is being advised by N+1.

Original story: Expansión (by J. Z.)

Translation: Carmel Drake

Project Kite: Ibercaja Puts €800M RE Portfolio Up For Sale

9 June 2015 – Expansión

Project Kite / The Aragonese group has engaged N+1 to negotiate the sale of 6,900 residential units, 1,300 retail premises and industrial warehouses and 600 plots of land with large overseas funds.

Ibercaja wants to forget about its real estate legacy and focus on its traditional business. After studying a possible operation for several months, the Aragonese group has now decided to sell nearly all of its real estate business. To this end, it has engaged N+1, which has distributed preliminary information about Project Kite to large international funds over the last few days.

Through this operation, Ibercaja offers investors €800 million of foreclosed assets, according to financial sources. Based on the latest available figures, as at the end of 2014, the group held more than €900 million of foreclosure homes, land and property developments on its balance sheet.

The €800 million portfolio will include 6,900 residential units (homes, garages and storerooms); 1,300 retail premises and industrial warehouses; and 600 plots of land, almost half of which have building permits. The homes are primarily located in Zaragoza, Madrid and Barcelona.

Management contract

According to sources, the operation may include a management contract for the remaining real estate assets and the transfer of a team of specialist professionals, comprising around 50 employees. The model for the transaction will be similar to the one adopted by Kutxabank last year.

With this project, Ibercaja joins Bankia, which recently put all of its foreclosed assets up for sale, in the so-called Project Big Bang. These entities are looking to get rid of the real estate assets that are weighing them down, whereby taking advantage of the interest that large funds are showing in becoming Spain’s new property companies, and thus being able to use their resources to grant new loans once more.

The political environment following the regional and local elections has caused many funds to review their strategies, although according to financial sources, they will continue to buy assets provided the misgivings about the general election do not increase.

Ibercaja already explored the possible sale of its real estate portfolio in the middle of 2014, but in the end it backed out.

In 2014, the group also studied the possibility of an institutional investor acquiring some of its share capital; it engaged JP Morgan to assist with that analysis, but ended up ruling out the option. All indications are that Ibercaja will accelerate its IPO in 2016, in line with the philosophy of the savings bank law and the wishes of the ECB.

The Aragonese entity – the result of the merger of Ibercaja and Caja 3 – generated €42.6 million during Q1 2015, up 6% from a year earlier.

Original story: Expansión (by Jorge Zuloaga)

Translation: Carmel Drake

Fortress Puts Its ‘Paratus’ Platform Up For Sale

29 May 2015 – Expansión

Project Coast / Fortress wants to dispose of one of its platforms, with 40 employees and a portfoliol of loans and homes amounting to €700 million.

(Photo: Michael Novogratz, Director at Fortress Investent Group)

Fortress, one of the first opportunistic funds to arrive in Spain has put up the ‘for sale’ sign over part of its business in Spain. The US fund has announced the disposal of its distressed debt management platform and of a portfolio of loans and homes amounting to almost €700 million.

The possible sale comes at a time when international investors are reviewing their strategies in Spain following the results of the regional and local elections. Even so, sources close to the transaction indicate that this deal was launched long before the election results were announced and that the fund remains firm in its commitment to Spain.

The investor has taken the decision after it completed the purchase of Lico Leasing from savings banks last year, with 500 employees and assets worth €600 million.

Former GMAC

Following this purchase, Fortress wants to sell its Paratus platform. The firm originated from General Motor’s former financing arm, GMAC. After being rescued by the US Government in 2008, GMAC – currently known as Ally Financial – sold its European business to Fortress, which represented the fund’s first foray into Spain. The fund started to purchase non-performing loan portfolios in Spain in 2009, and ended up managing a portfolio amounting to €4,000 million.

The opportunistic fund has engaged N+1 to advise on the sale of Paratus; several weeks ago the consultancy firm distributed information to potential investors regarding the so-called Project Coast. Following the first phase of the process, this week N+1 will announce which funds and platforms will go through to the final phase, which is expected to close at the beginning of July.

According to sources in the financial sector, this transaction is primarily targeted at overseas funds that want to establish a base in Spain. Investors such as Elliot – with Gesif -, D.E. Shaw – with Multigestión – and Cerberus – with Gescobro – have closed similar deals in recent years.

According to the information distributed by N+1, Paratus currently manages four asset portfolios and has two service contracts, which in total correspond to assets under management amounting to almost €1,000 million. The sale also includes the current team, comprising 43 professionals.

Almost €700 million of the loans and homes managed by Paratus will be transferred into the hands of the buyer. Of those, €426 million are unsecured loans without any kind of collateral; €152 million are loans secured by 866 properties; and another 500 homes are worth just over €100 million. Most of the real estate exposure is located in Cataluña, Andalucía and Valencia.

New strategy

Following this sale, Fortress will focus its strategy in Spain on Lico Leasing and on its subsidiary Geslico – where it recently undertook an ERE –, which render similar services to those offered by Paratus. Through Lico, the fund has a banking licence as a financial credit establishment, which was granted by the Bank of Spain in December 2014.

Fortress has altered its strategy in Spain after its failed attempts to buy a real estate subsidiary, such as Altamira and Aliseda, and to enter Sareb’s capital.

Following those endeavours, it completed its largest purchase in Spain, by purchasing debt in Realia amounting to €440 million, and since then, it has acquired small real estate portfolios and participated in the financing of indebted companies.

The fund in Spain is led by the banker José María Cava, founder of Gladia Capital and a former director of BBVA.

Original story: Expansión (by Jorge Zuloaga)

Translation: Carmel Drake

Servihabitat Makes Profit Of €82M In First Year With TPG

19 May 2015 – Expansión

Manages assets worth €60,000 million / The platform owned by TPG and CaixaBank is starting to selling homes from Sareb (which the bad bank inherited from Abanca) and wants to be an active player in M&A activity in the sector.

Servihabitat has closed its first year as an independent entity of CaixaBank with a positive balance and the aim of leading the M&A activity in the real estate platform sector in Spain. The property management firm – which is jointly owned by TPG (51%) and the Catalan group (49%) generated revenues of €212 million in 2014 and an EBITDA of €82 million.

The CEO, Julián Cabanillas, explained that these figures are “considerably higher” – by 25% in the case of revenues – than last year but are not comparable, since Servihabitat was incorporated as a radically new company in 2014. It went from being the owner and manager of real estate assets – foreclosed assets and loans from CaixaBank – to being only the manager of the assets.

Cabanillas highlights that the entry of TPG into the platform’s share capital “opened us up to the market and allowed us to have multiple clients”. In fact, during the last year, Servihabitat has reduced its dependency on its second shareholder to 60% of its assets under management, primarily thanks to the contract awarded by Sareb.

The platform was one of four that won portfolios – together with Haya Real Estate, Altamira and Solvia – for the management of assets from Sareb. This year, Servihabitat has been responsible for managing properties and loans from Abanca – formerly NCG -, Liberbank and Banco de Valencia.

It already administered Banco de Valencia’s assets following the acquisition of the former subsidiary of Bankia. The platform is in the process of migrating the rest of the properties and loans, and in fact, it started to sell homes from the former NCG two weeks ago. The remainder of the real estate loans from the Galician savings banks will be in its system by the summer, and the homes and loans that Liberbank transferred to Sareb, by the end of the year. According to Cabanillas, the transfer of the assets from Sareb is happening in an “ideal” way. “We have a lot of experience in this kind of process” adds the CEO.

Including these assets under transfer, Servihabitat now manages almost 200,000 homes and real estate loans, whose gross book value amounts to almost €60,000 million.

Together with the assets from CaixaBank and Sareb, Servihabitat has also started to administer homes and loans from funds, such as Elliott and from family offices.

Lines of business

To continue growing as an independent platform, Cabanillas is evaluating new lines of business, such as asset management (the construction of large buildings, commercial and hotel developments). Currently, Servihabitat is active in the following areas: the management of homes and loans; advising investors; rental; and the development and management of land.

Another one of the axis of the platform’s strategic plan is the possibility of forming part of the consolidation that the sector is expected to undergo over the next few months, which companies such as Altamira, Haya Real Estate, Aktua and Anticipa, amongst others, will participate in. Cabanillas does not rule out making any purchases to gain “efficiency” but he doesn’t expect that any transactions will be closed until 2016.

Original story: Expansión (by J. Zuloaga)

Translation: Carmel Drake

Project Formentera: Santander To Sell €170M Hotel Debt Portfolio

18 May 2015 – El Confidencial

A new portfolio of hotel debt has just come onto the market. At a time when investors’ interest in these transactions is at an all time high, Santander has put loans worth €170 million relating to 17 hotels up for sale.

A new portfolio of hotel debt has just come onto the market. At a time when investors’ interest in these transactions is at an all time high, Santander, the largest Spanish bank, has decided to pique the insatiable interest of international funds in this type of transaction through the launch of an operation known as: Project Formentera.

It involves a portfolio of loans worth €170 million, linked to 17 hotels. The majority are located in the Community of Valencia and the Canary Islands, which encourages operations with investors interested, primarily, in the holiday segment and in the (Canarian) archipelago.

The portfolio that Santander has just launched joins those being promoted by two of its main rivals, BBVA and Bankia, which have also decided to take advantage of the window of opportunity that has opened to try to offload some of their debts, which include loans that the financial entities are very keen to divest.

According to sources in the market, unlike what may happen in the residential market – a business the banks know very well, since historically they have had the best prepared teams to manage such assets when they fail – the hotel business is a very specialised segment, whose incident rate (casuística) is more difficult for financial entities to manage.

This means that their priority, in general terms, is to try and sell debt, rather than foreclose it and take ownership of assets that they are much less familiar with than residential. If we add the insatiable appetite of the large international investors for the hotel sector, fuelled by the perfect combination of low prices and a strong recovery in the tourism sector, now is the perfect time to carry out these kinds of transactions.

A string of transactions

In fact, at the end of last year, Bankia closed the sale of a batch of hotel loans to Starwood and Sankaty for €400 million (Project Amazona) and is now finalising the second part of that transaction, known as Castle, whose finalists are Apollo, Oaktree and Bank of America. BBVA has also just opened the bidding for 14 hotels it inherited from unpaid loans, a process known as Project Otelo; meanwhile Sareb has just engaged N+1 to manage the sale of a portfolio with a nominal value of €500 million, which is linked to the property developer Polaris World, in an operation known as Project Birdie.

And so the list goes on. A few weeks ago, the German bad bank FMS Wertmanagement sold the portfolio known as Gaudí to Oaktree for close to €500 million – a batch of problem loans linked to, amongst others, the iconic luxury hotel Arts de Barcelona, as well as another high-end property in Cascais (Portugal), five shopping centres, including Plaza Éboli and Heron City, several storage buildings, and residential and industrial assets.

Moreover, the large financial entities that signed the €152 million syndicated loan with the Basque property developer Urvasco, which, in turn, owns the hotel chain Silken, have spent the last few months selling their stakes both in this debt, as well as in those linked to certain establishments, including the Puerta de America hotel in Madrid; Bank of America is taking advantage of this window to enter through the ‘front door’ of what is considered to be the last great Spanish hotel chain up for sale.

Original story: El Confidencial (by Ruth Ugalde)

Translation: Carmel Drake