About 20 business cases for a total of around 2 billion euros of problem and restructured loans and hybrid capital instruments will be put together by Intesa Sanpaolo and Unicredit in a unique pot in order to be managed through an industrial restructuring process by US private equity giant KKR and Alvarez&Marsal (A&M) restructuring experts, MF-Milano Finanza writes today.
The two Italian banks, KKR and A&M published a rather short press release yesterday confirming market rumors about a commun bad bank project (download here the English press release). They said they “have signed a memorandum of understanding to jointly develop and implement an innovative solution to optimize the performance and maximize the value of a selected corporate loan portfolio under restructuring through proactive management and additional funding at the asset level. Discussions related to the formation and operations of the partnership are ongoing”.
The news has been anticipated by the Financial Times, who wrote on Monday April 21st evening that the two Italian banks, KKR and A&M were going to announce the project with a press release in the next few hours. The FT stressed that “the move is a rare example of European banks teaming up with one of the many private equity houses and hedge funds circling the continent’s financial system in search of opportunities to snap up assets from capital-starved lenders”.
More in detail, MF-Milano Finanza writes that the two Italian banks are choosing now a credit portfolio to be allocated to the project. Credits will be versus a commun group of debtor companies in order to reach for each company a credit exposure giving banks the stenght to influence companies’ governance and push forward an industrial restructuring process supported by new equity injection. Credits will regard industrial and services sectors, avoiding real estate companies and financial holdings. Credits will be chosen among problem loans and restructured loans (not among non preforming loans).
KKR and Alvarez & Marsal (advised by Paul Hastings law firm) will manage the restructuring process through a newco which will be capitalized by the two for a total value of less than 500 million euros. KKR will put the majority of the money (a proportion might be 90/10). Intesa Sanpaolo and Unicredit might partecipate toowith a minority to the newco capital, but this is a point to be decided yet.
The two banks will allocate to the newco their exposures (senior and junior loans and hybrid capital instruments) . For each allocated exposure each bank will receive two notes back (one for senior loans and one for junior loans) and a small portion of cash. The newco will become creditor versus each company and debtor versus the two banks and will be in charge of the restructuring process.
It won’t be a securitization of a loan portfolio then as notes issued by the newco will be all different from each other and each referring to a specific credit allocated by a specific bank. The structure has been studied in order to allow new credits to be added to the portfolio in the future by Intesa Sanpaolo and Unicredit or by other Italian banks who will want to partecipate to the project.
The whole strucutre might be ready for operations just after next Summer.
