With a strong appetite from investors for non-performing loans in Spain – and desire on the part of banks to sell – clients need legal advice on restructuring and acquisitions
Law firms in Spain are set to receive instructions from clients
interested in purchasing an estimated €73bn of non-performing
loans that are ready to be sold by Spain´s banks.
Market insiders say lawyers, fund managers and bankers are all
being kept busy by a surge of interest in non-performing loans
(NPL) and distressed real estate assets in Spain. Books of
non-performing loans recently up for sale have included those
belonging to Cementos Portland, FCC and Fagor Electrodomesticos,
among others. Miguel Lamo de Espinosa Abarca, resident London
partner at Gómez-Acebo & Pombo, told an event held in
London by Debtwire that recent legislation had been "very
helpful in making distressed M&A and special situations
transactions more achievable in Spain".
It is predicted that both the non-performing loan and real estate
owned (REO) markets will continue to expand. This is because
lenders are trying to improve their leverage, offset some of the
riskier "bad debt" and take advantage of higher asking
prices. It is estimated that Spanish banks have around €73bn
worth of 100 per cent-written-off NPLs, most of which may be sold
in the near future.
"There is a clear appetite from investors, and sellers
[financial institutions] want to sell in order to deleverage
balance sheets and prices now match," explains Iñigo de
Luisa, a partner at Cuatrecasas, Gonçalves Pereira.
"Investors have also set up their recovery and asset
management platforms which are ready to serve. In addition, sellers
have already set up provisions in their accounts for these NPLs, so
now selling these portfolios releases such provisions making it
very attractive as well. It is a winning situation for both
parties."
Lawyers acknowledge that the NPL and REO markets are very similar
– indeed, practically the same thing – because the bulk
of NPLs are in the real estate sector. In other words, the assets
that many NPLs are linked to are REO. The exact value of the market
is unclear but some sources predict the REO portfolios could even
be worth up to €85bn.
Full-service firms will benefit
Law firms are benefitting as investors seek advice on purchasing
NPL portfolios. This is creating follow-on work too, as investors
require help with the restructuring processes and the enforcement
or insolvency situations that may arise once they are lenders of
record. Lawyers suggest that the main beneficiaries will be the
large firms with the resources to take a client from portfolio
acquisition to complex NPL situations, for example.
"It is critical to have experienced teams for complex and
large due diligence processes," De Luisa says of law
firms' roles. "There will be a multi-practice team
comprising litigators, finance, real estate, insolvency, public law
and restructuring lawyers, as not all firms could handle adequately
the needs of investors in these cases."
Other lawyers strike a note of caution regarding the future of the
NPL and REO markets. Despite the recent surge, as portfolios
balance out and market confidence returns, distressed loans will
become less distressed so less attractive, they say.
"I am not sure if the NPL market in Spain is expected to grow
in the coming years," claims Jose María Gil-Robles from
Garrigues. "It will not be the case if the situation at a
macro level keeps improving, even at slow pace."
Gil-Robles says that this year there was a decrease in the amount
of NPLs held by the banks – around €170bn at the end of
September, and in the delinquency or NPL ratio – around 13
per cent and expected to be around 12 per cent at the end of the
year. He adds: "However, these numbers are somewhat distorted
by the creation of SAREB – Spain's ´bad bank´
– and the transfer at the end of 2013 by most troubled
financial institutions of loans and real estate assets worth
€51bn."
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