5 Min Read
* UniCredit unveils NPL, cash call plans
* Bank eyeing potential use of GACs scheme
* Barriers, volatility remain a hurdle
By Mariana Ionova
LONDON, Dec 13 (IFR) - Italy's UniCredit is poised to shed 17.7bn of non-performing loans into a securitisation vehicle, as it seeks to bolster its balance sheet and raise fresh capital next year.
The country's largest lender revealed plans on Tuesday for a recapitalisation that includes the sale of a chunk of its non-performing loans, a move expected to pave the way for a mammoth 13bn equity raise in January.
The bad loans will be sold into two separate securitisation vehicles, one managed by Pimco and the other by Fortress Investment Group. UniCredit will retain minority stakes.
The transaction, dubbed Project Fino, will see 17.7bn in loans securitised into tranches, with a minimum of 20% of the notes sold to investors.
The plan will help UniCredit write off 8.1bn of its soured debt in 2016. The bank has a total of 76.78bn in non-performing loans, its September financial statements show. Some 51.31bn are listed as "bad exposures", 23.37bn as "unlikely to pay" and 2.1bn as "past due."
"We are taking decisive action to deal with our legacy issues to significantly improve the quality of our balance sheet and lay the foundation for future recurring profitability," said Jean Pierre Mustier, chief executive officer of UniCredit, in a statement.
Mustier also confirmed market expectations that UniCredit will consider using a new government guarantee created earlier this year to help banks shed toxic loans through securitisation, known as Gacs in Italians.
The bank is assessing "all options to optimise selling price including tapping state guarantee Gacs for bad loan sales," he told an analyst call on Tuesday afternoon.
The state guarantee is meant to insure the senior NPL tranche, effectively bridging some of the gap between the book value of the bad loans and what the market is willing to pay for them.
However, the Gacs scheme remains untested and there are potential barriers to its use. Popolare di Bari, which structured the market's first NPL deal with the guarantee in mind, found itself paying up to attract junior and mezzanine buyers once Atlante stepped back from the deal.
The scheme does not help banks place these riskier bonds, yet issuers cannot derecognise the bad loans or obtain the Gacs without selling this deeper risk.
There are also costs involved in the use of the scheme. In a recent regulatory filing by Banca Monte dei Paschi di Siena, which is planning to shed 27.1bn in loans through the scheme, the estimated costs associated with using the guarantee were pegged at 35m. In the same document, MPS estimated it could place the senior notes in the securitisation at 72bp over three-month Euribor.
UniCredit's broader plan to revamp its balance sheet - partly through the largest ever Italian cash call - comes at a difficult time for Italy.
Last week, the result of the country's referendum vote triggered political turmoil that nearly derailed a plan to recapitalise MPS, Italy's third largest lender.
However, market participants noted that UniCredit is seen as more resilient, with investors still willing to pitch cash into the bank.
"Of course, if Monte dei Paschi would have found a private solution before, it would have been a good signal for UniCredit," said one source close to the UniCredit situation.
"But I don't think the two banks are comparable. The two stories are not directly linked."
However, several market participants noted the 13bn capital raise is ambitious and far from straightforward, especially as Italian banks continue to weather a sharp deterioration of investor confidence this year.
"It's a massive undertaking," said one distressed debt investor. "It's a stronger bank, but it still has issues as well. I don't think it's going to be easy for them to raise 13bn."
UniCredit's NPL disposal is expected to close by the end of the first half of 2017. Morgan Stanley and UniCredit acted as financial and structuring advisers on the deal. (Reporting by Mariana Ionova, editing by Robert Smith and Julian Baker)