ESC Capital sold for €850M

The Portuguese fund ESC Capital that contained assets belonging to the former Espírito Santo Group has been sold to the US fund Davidson Kempner for €850 million.

Now awaiting approval from regulators, the news was broken on Friday by Jornal Económico.
The sale to DK is likely to be completed by the last quarter of the year, and will take place after a final agreement between the fund and a number of banks including Caixa Geral de Depósitos, BCP, Novo Banco, Santander and Oitante (vehicle created by the Bank of Portugal and holding failed bank Banif assets).
The deal involves the sale of FLIT funds (containing tourism and leisure assets) and Recover Tourism (Recuperação Turismo). It finally draws a full stop under many of the toxic assets left over from the collapse of BES in 2014 which ended up on the books of the Portuguese banking system which had to restructure them.
There had been eight international funds in the race to buy up the assets that had belonged to the Espírito Santo banking empire – Bain Capital, Brookfield, Blackstone, Cerberus, Fortress, Davidson Kempner Capital Management, H.I.G Capital and Kildare Partners.
The portfolio of assets has less assets than expected after seven assets were removed which DK said were of “residual value”.
None of the banking entities gave a comment about the sale of what had been toxic assets from a sad chapter in Portugal’s tourism sector business history that the Portuguese banking system and the overall tourism sector would rather forget.
Many of the funds involved came from the tourism sector and involved resort projects which had been over leveraged and then failed during the Great Recession a decade ago. Since then, many of the resorts, many in the Algarve, were restructured, repurposed, renamed and sold on or kept by funds as going concerns.
The banks hold three main funds (Recovery Fund, Tourism Recovery Fund and FLIT) which were for sale and were worth more than €1.5Bn (net asset value). The banks had to hold a share in the securities (unit funds) involved which were valued according to the results of each and under the guidance of the European Central Bank.
To give one example, In the case of the FLIT fund which had a maturity of 31 October 2031 (with a possible extension until 2035) this fund “invested” in companies that were insolvent or had financial difficulties and which were linked to real estate, leisure and tourism. The assets in this fund included Vale do Lobo, the Conrad Algarve, Colombos Resort in Porto Santo and Vigia. In the specific case of this fund, the net asset value was €759.