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Spain looks to securitisation as additional NPL disposal strategy

After years of NPL portfolio disposals, market players in Spain are exploring securitisation as an exit strategy for NPLs according to delegates at Afme’s annual Spanish Funding conference in Madrid.

Spain was one of the first countries to grapple with its large stock of non-performing loans in the aftermath of the 2008 global financial crisis and the 2010-2012 sovereign crisis that engulfed Southern European countries.

CatalunyaCaixa braved first the NPL securitisation market with Project Hercules in 2014. The transaction included the transfer of a residential mortgage portfolio, mainly located in Catalunya, to a securitisation fund for an amount equal to a GBV of EUR 6.4bn.

While Project Hercules was a one-off, the new asset class of NPL securitisations in Spain would structurally resemble their Portuguese counterparts, especially as the workout system in the two countries is quite similar, according to DBRS’s Maria Lopez. The two flagship deals out of Portugal came to market in 2018 – Banco Santander Totta’s Guincho Finance and Caixa Económica Montepio Geral’s Évora Finance. 

The most likely contenders for NPL securitisations are the larger banks which still sit on large piles of NPLs as well as the large American private equities that bought the early portfolios and have reached their five-year exit timelines, according to Paula Leon, director at Sareb. Cerberus, Lone Star and Blackstone — which has already securitised several reperforming portfolios — were among the earliest investors in Spanish NPLs.

However, unlike in Italy, where the GACS programme spurred a glut of issuance, the pace of NPL securitisations in Spain will remain slow. “We would expect to see no more than three deals in 2019,” said Leon.

Spanish NPLs have decreased by almost 60% from their 2013 peak of over EUR 220bn to approximately EUR 90bn at the end of 2018. The NPL ratio was 4.1% at the end of 2018 from 9.4% in 2013.

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