BMPS aims to close NPL securitisation by year-end despite referendum outcome, subs bail-in feasible without anchor investor

05 December 2016

by Antonio Vanuzzo, and Alessia Pirolo

 

The timeline for Banca Monte dei Paschi di Siena’s (BMPS) EUR 27.6bn NPL securitisation remains unchanged despite the political turmoil following the Italian Constitutional referendum’s outcome, according to two sources close to, a source familiar with and a person familiar with the situation.

 

Today, advisers JPMorganMediobanca and banks backing the cash call agreed to wait until the political situation is clearer and a new Italian premier is appointed before meeting potential anchor investors, Italian news agency Radiocor reported. The Qatar sovereign fund retained Rothschild and Freshfields to explore a potential investment in the struggling Italian bank founded in 1472, as reported.

 

“BMPS is waiting to see what the cornerstone investors do,” commented the person familiar with the situation. “If they commit then [it] should be fine.”

 

Should a EUR 5bn capital increase – partially subscribed by an anchor investor – not go through, another option on the table would be to cover the EUR 3bn of potential losses generated by the NPL portfolio derecognition with a bail-in of BMPS’ subordinated bonds and a bridge loan provided by JPMorgan, the source familiar with the deal pointed out.

 

Prime Minister Matteo Renzi resigned after Italian voters rejected his government’s constitutional reforms in a referendum held yesterday. BMPS’s stock were down 3.5% this afternoon. Speaking before the vote Italian advisors involved in the NPL market anticipated volatility and slowdown of sales in case of such a negative outcome for Renzi, but added they were confident that transactions would continue due to the healthy pipeline.

 

“After Brexit and [US President-Elect] Trump, markets are quite used to negative or even striking results,” said Riccardo Serrini, chief executive of Prelios Credit Servicing. “I think that a rational and balanced investor who entered in the BMPS’s deal would have taken long-term view, factoring in short-term political instability.”

 

“If some investors believe in BMPS’s project, they believe in the project,” concurred Domenico Torini, a director at KPMG Corporate Finance. “And if BMPS needs help from the State, it will need help from the State, no matter what the referendum results are.”

 

In 3Q16, BMPS reported EUR 28.2bn in gross NPLs (7.3% up YoY) and EUR 15.3bn gross unlikely to pay (UTP) exposures (down 12.5% YoY). Coverage ratio of NPLs (sofferenze) declined to 61.4% from 64% as of 3Q15, but coverage on UTPs rose to 34.5% from 30.8% as of September 2015, according to the bank’s last available accounts.

 

“The size of the [current] cash call was also designed to increase the provisions on the UTP exposures, which is pivotal to avoid a new cash call in the near term,” a fund manager invested in BMPS subordinated notes pointed out.

 

“If I was Blackrock, I would contribute to the bank’s cash call and trade on the back of the related rising in Italian banks’ shares.”

 

According to a press release, out of a EUR 4.3bn securities offered as part of a liability management exercise (LME) launched by the bank last 28 November, roughly EUR 1bn will be converted into new BMPS shares.

 

As reported, part of the rescue plan of BMPS is based on a EUR 27.6bn securitisation, which EUR 1.6bn mezzanine tranche being acquired by Atlante fund. The portfolio was priced at 33 cents, or EUR 9.2bn. Senior notes will be backed by a State guarantee through GACS, while the junior tranche is set to be retained by BMPS.