NB sells NPL portfolio to US fund for €215 million

Novo Banco has sold a portfolio of soured loans or Non-Performing Loans (NPLs) to the US fund Burlington Loan Management.

The announcement was made by the bank on 6 March. “Novo Banco informs that after the conclusion of a competitive sale process, Novo Banco signed a purchasing and sale contract with Burlington Loan Management DAC, a company linked to and advised by Davidson Kempner European Partners LLP, for a portfolio of non-productive loans (NPLs) and assets with a nominal value of €216.3 million in December 2020” states the institution led by António Ramalho which is owned by the US fund Lone Star.
According to the bank, this operation should have a direct (and positive) impact on the results and capital of the institution this year.
Novo Banco also added that credit default and related assets which are included in this portfolio are not part of the capital contingent mechanism.
An agreement that created the contingent capital mechanism, set at €3,89Bn, defined the perimeter of toxic assets for the losses of which it would respond and that had a net value of €7,9Bn.
“This transaction represents another relevant milestone regarding non-productive assets, helping Novo Banco pursue its strategy of focusing on the domestic bank market,” states the bank.
Burlington is a Dublin-based company set up by Davidson Kempner to finance distressed assets acquired by the US hedge fund since 2009. In recent years it has seen its level of Irish holdings decline.
Accounts filed for the ultra tax-efficient vehicle, Burlington Loan Management, which has been behind the purchase of assets such bonds in failed Irish banks and a Portuguese bank, loans to Spain’s bad bank SAREB, and debt secured on the Titanic Quarter in Belfast, show that its Irish assets fell to 5 per cent of the total portfolio in 2016 from 7 per cent a year earlier.
The company saw its total level of assets fall to $6.93 billion (€5.85 billion) at the end of December 2016 from $8.04 billion year-on-year.
Burlington Loan Management is among hundreds of so-called section 110 companies in Ireland, which were set up under 1997 laws designed to make Dublin more attractive for international companies to set up financing tax-neutral financing vehicles. The company took a €136,123 tax charge in 2016, albeit up from €125,000 for 2015.
Portugal’s sovereign debt crisis in 2011-2014 caused a rash of bad, or Non-Performing Loans, which are loans either in default, or close to defaulting. These bad loans were a lead weight for the economy, and were a major source of investor concern due to the fragility of Portugal’s banks. Today, Portugal’s banks are in a better state, but still fragile compared to other banking sectors within the Euro Zone.
Reduction of these loans has been a significant part of Portugal’s recovery and financial reform.
Currently, Portugal’s comparative NPL ratios still exceed the European average, and are higher than Italy’s. However, Portuguese banks have recently accelerated their reduction of these bad loans, and until the Coronavirus pandemic were on course to solve the problem altogether.
The number of NPL’s in Portugal hit their highest number in the midst of Portugal’s bailout in 2011-2014, the state banks could no longer use state support without exposing shareholders and bondholders to losses. This is different from lenders in Spain and Ireland, who were able to benefit from such support.
Bank of Portugal reported that to 2019 about €4-5Bn worth of bad loans were being cleared every six months, which at the time was a demonstrably fast rate of clearance.