This is equally true in respect of the countrys banks extensive volumes of UTP loans

This is equally true in respect of the countrys banks extensive volumes of UTP loans

Target rates are typically at relatively higher levels for unsecured NPLs with almost half (48%) of buyers and financial advisors setting the IRR target at 20% or more for an Italian NPL.

Looking forward, the pressure on Italian banks to deleverage the huge stock of NPLs will lead to other sales opportunities during 2019 and 2020.

Italy: top deals in 2018

From a legal perspective, UTPs are a more delicate form of asset class than NPLs and require more complex treatment and management in order to preserve their validity when being traded.

Their attraction to investors is that they do extend to cover all industries. Selling institutions are, however, likely to need to deploy significant resources to prepare stocks of UTPs for sale. In most cases, the most effective strategies are likely to be outright sale processes or the outsourcing of the management of UTP portfolios to specialised servicers.

Where an outright sale strategy is adopted, the fundamental nature of UTPs means that it will not be possible for sellers to group them into large, granular portfolios. Instead, UTP credits will need to be dealt with as single-name sales or small, high-value portfolios which, advantageously, is the composition of portfolio that investors report they were most actively seeking.

“Italy will keep investors busy for at least the next two years. As the survey shows, smaller, less granular portfolios with good-quality connections are preferred by buyers. While we will still be witnessing transfers of large NPL portfolios and GACS securitisation schemes to reduce the non-performing exposure (NPE) ratios, the upcoming UTP deal flow will offer to investors single names and small portfolio opportunities.”

Spain: Deals under the radar

After years of heavy restructuring and consolidations, over the past 12 months Spanish banks have been looking to reduce their NPL ratios at pace. The country saw 27 deals undertaken with a total gross book value of €43.2bn in 2018.

Notwithstanding this, there have been examples of significant bank distress such as the collapse of Banco Popular, which was eventually sold to Banco Santander in 2017 for €1. However, after a market that has been active for many years, the Spanish banks are now emerging in better financial health and stability and with increasing levels of international business.

While the sale of NPL portfolios have proceeded with a steady flow of competitive auction processes over the last 18 months, certain banks have taken advantage of the sellers market and negotiated large-scale transactions on a bilateral basis outside of traditional auction processes.

Illustratively, in 2017 Santander ran a streamlined process to sell Banco Populars €26.6 billion real estate assets portfolio. The process was open to a small group of selected bidders only. In some cases, sellers did not hold competitive auction processes at all. Notable sellers who have adopted this approach include BBVA and CaixaBank. These tailored processes avoided the expense involved in competitive processes for the sellers and avoided uncertainty for the bidders.

Spain: top deals in 2018

Most of the portfolios sold in competitive processes involved land and developments under construction. Several investors subsequently bought their own construction companies to restart development.

As a mature market with an established population of strong purchasers, we are expecting to see an increase in the volume of secondary portfolio sales in Spain going forward. This trend is already becoming more prevalent together with the increasing use of acquisition debt to leverage acquisitions of NPL portfolios.

A further interesting development in the Spanish market is the return to structures whereby non-performing loans are sold by way of direct asset transfers to a purchaser. This reflects a move away from hive-down structures that were first used in 2017 under which NPLs were transferred to a transaction special purpose vehicle (SPV) which was itself then sold to investors in order to implement an NPL sale.

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