• With massive UTP sales in the pipeline Italy will lead the pack of loan portfolio sales in 2019
• M&A activity of NPL servicers and property management platforms in Southern Europe reached a record high
• The corporate distressed and restructuring market is as busy as ever, with the construction sector still taking the lion share

Milan, Italy, 21 May 2019: According to new data from the Debtwire ABS NPL Database presented today at Debtwire’s Italian Restructuring Forum in Milan, Italy is expected to lead the pack of European loan portfolio sellers again in 2019. In Italy, by mid-May, nine deals for EUR 5bn had closed, with 13 for EUR 29.9bn still ongoing. Of this 80%, or EUR 24.2bn, consist of Unlikely-to Pay (UTP) loans, up from a tiny 8% in 2018.

The volume is affected by the dominant transaction. Intesa Sanpaolo is in exclusive negotiation with Prelios over a partnership to manage a portfolio of up to EUR 11bn of UTPs. 

“After much talk in previous years, 2019 is clearly looking like the year of Unlikely To Pay (UTP) deals also due slow-down of securitization under the government scheme GACS,” said Alessia Pirolo, Head of NPL Coverage, Debtwire.

In 2018, Italy had a record volume of EUR 101.3bn NPL sales out of the total European EUR 205bn. The main driver for the disposals has been the Italian government’s securitization scheme GACS. Since the start of the program in 2016, Italian banks have closed 22 securitisations for a total volume of EUR 75.2bn, 15 of which for EUR 52.7bn were in 2018.

So far this year, the only two closed transactions reaching EUR 1bn were done through M&A. The merger of BPER and Unipol and Banca IFIS’s acquisition of servicer FBS both involved the transfer of circa EUR 1bn.

With a fragmented banking environment in need of consolidation and increasing activity in the servicer sector, M&A deals have been a notable trend in the Italian and Southern European NPL market of the past few years.

Buyers are expanding internationally in what is becoming an increasingly pan-European market. In Italy, 11 NPL platforms or servicers changed hands in 2018 for a total disclosed price of EUR 722.8m, up from 10 deals and EUR 555.5m in 2017, according to Mergermarket’s data. In 2019, one closed transaction and another one near closing have a total price of EUR 159m, while more sales and IPOs are expected.

Antonio Lombardo, Partner, DLA Piper, said: “Concentration of UTPs in the same platform or simply reduction of credit holders in restructuring is an opportunity which may be caught by the platforms as well as by industrial operators and financial institutions like funds in order to produce new solid M&A streams potentially leading to stronger industrial players. For the sake of the industrial system we cannot afford to lose such an opportunity.”

Fedele Pascuzzi, Partner at PwC, commented: “The UTP market is currently facing a significant transformation phase with the traditional commercial banks trying to exit the market by leveraging platform and portfolio and single name sales. At the same time, it is becoming very hard for them to provide new finance even in contexts where industrial fundamentals are solid. This is opening up the market to new operators who are looking at the Italian market with increasing interest.”

The Italian corporate distressed and restructuring market has remained busy throughout last year, with activity peaking in the last quarter of 2018 and first quarter of 2019. The construction sector has continued to be the most troubled one, with several companies heading for restructuring, which has highlighted a long overdue need for consolidation.

Salvatore Lombardo, Partner at PwC, said: “The construction sector is the one suffering the most in the current market phase, primarily for the lack of investment in the public infrastructure and a real estate market still stagnant except for in Milan. Notwithstanding several crises (Astaldi, Condotte, CMC, GLF to name a few) this paves the way for investment and growth opportunities for the operators with stronger financial capabilities and a clear market strategy.”

Alberto Angeloni Partner, DLA Piper, said: "Italian bankruptcy law restructuring proceedings appear not to be always suitable for solving the crisis affecting the construction sector. The lack of coordination of Italian bankruptcy law with public procurement law (codice degli appalti) and welfare legislation is often the cause of unnecessary complexities and slowdowns. An urgent intervention by the legislator would be desirable.”

The shipping and retail industries have also provided plenty of opportunities to investors, especially in the form of new money injection.

“Italy remains at the top of distressed investors’ agenda, even though some longstanding governance issues and legal risks are not making investments in this space easy. On the flipside, there is an abundance of opportunities, with some hefty yields to reap on new money contribution,” commented Chiara Elisei, Co-Deputy Editor, Debtwire.

Alessia Pirolo Head of NPL Coverage Debtwire

Alessia Pirolo is Head of NPL Coverage at Debtwire ABS. From a previous focus on Southern European Commercial Real Estate, she is now in charge to expand Debtwire's NPL coverage areas around the world. Before joining Debtwire, she covered U.S. and European commercial real estate for The Wall Street Journal, and the Commercial Observer. She holds a master’s degree from the Columbia University Graduate School of Journalism.