Unlikely To Pay (UTP) exposures seem to be the hotspot of italian NPE market with upcoming deals worth more than 20Bn of Gross Book Value
Intesa Sanpaolo has recently reached a binding agreement with Prelios to form a strategic partnership in respect of loans classified as unlikely to pay (UTP).
The agreement consists of a 10-year contract for the servicing of UTP Corporate and SME loans of the Intesa Sanpaolo Group to be provided by Prelios initially covering a portfolio worth around €6.7 billion of gross book value, and the disposal and securitisation of a portfolio of UTP Corporate and SME loans of the Intesa Sanpaolo Group worth around €3 billion of gross book value, at a price of around €2 billion which is in line with the carrying value.
SGA, the credit management firm fully owned by Italian Ministry of Economics and Finance, is about to launch the Covee project an investment fund focused on real estate backed UTPs that will involve banks like BancoBpm, Mps, Ubi Banca, and Carige and will be run in partnership with Prelios.
As far as we know, the banks will basically trade the ownership of UTPs with shares of the fund and, since none of them will have the majority of the shares, they will be able to offload the NPEs from balance sheets.
New GACs scheme as explained by KPMG and PWC recent reports, is likely to be a relevant driver for a new wave of NPL deals in future months as the tack record of this tool points out. After GACS introduction, 21 transactions were completed between 2016 and 2019 for a total GBV of € 62.1 bn; 9 deals on total number of transactions had a deal size ranging from € 1 to 5bn. Around 60% of securitized loans are backed by mortgages on real estates properties.
Source: GACS tool in the Italian Non-Performing Loans space
Main differences between “old” and “new” Gacs scheme have been summarized in PWC report
Finally we can consider that securitization schemes with the support of GACs for NPL and a large use of outsourcing for UTPs (with some “share the risk to derecognize” framework to come) are quite addressing the NPE reduction problem of Italian banks.
Once claims have been transferred to SPV the challenge remains to properly manage them in order to collect money in line with committed business plan and this will be the focus of following posts (hopefully after August).
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GLG – Gerson Lehrman Group – Council Member