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Loan servicers: Buying expertise in Southern Europe

Acquisitions of loan servicing platforms have enabled private equity firms to move into hot new markets on the continent.

The increase in non-performing loan sales across Southern Europe has fuelled demand for debt servicing and property management platforms throughout the region, with Italy and Greece now top of the list for investors.

M&A activity has increased in the six years since US private equity firms began their buying spree in Spain, to provide them with an understanding of unfamiliar markets and provide the capability to enable the work-out of large volumes of NPLs.

“Post-crisis, we witnessed a significant downturn in residential development in Spain and saw an opportunity to buy a best-in-class servicer – Anticipa – that gave us the infrastructure and confidence to invest in larger, complicated transactions in the space,” said Gadi Jay, principal at Blackstone Real Estate Partners, speaking at the Loan Market Association’s Real Estate Finance Conference in London in May.

The purchase of Anticipa from Catalunya Bank in 2014 paved the way for Blackstone’s purchase the same year of the €6.4 billion ‘Project Hercules’ portfolio of residential mortgages, from the same bank. More recently, Blackstone formed a joint venture with Santander last year to purchase the €30 billion loan book of Banco Popular, which Santander had acquired.

The Anticipa sale was one of several M&A deals during 2013-14 which resulted in the management of NPL portfolios by entities wholly or partially owned by US investment firms including Cerberus Capital Management and Apollo Global Management.

“This was largely a capital-raising exercise by the banks, through which they could sell a company valued on their books at zero at a relatively high level,” explains Tim Mooney, global head of real estate at investment firm Värde Partners.

As a result of its joint acquisition alongside Kennedy Wilson of a 51 percent stake in Banco Popular’s loan servicing company, Aliseda, in 2013, the company received a high-margin contract. It sold the stake in the business back to the bank last year.

As private equity funds reach the end of their investment time frames, sales of stakes in servicing platforms will follow, some suggest. “Once you’ve owned a platform for three to four years, you know how the market works, the key performance areas you need to agree, and what each company offers,” says the business development manager of a private equity-owned servicing platform in Spain.


Firms have turned their attention to Italy, which, at €200 billion, holds the highest level of non-performing assets in Europe, according to the Bank of Italy – and where NPL trading has begun to pick up in the past two years. As such, servicing platforms are becoming more relevant.

“We’re in set-up phase for what we believe will be a long opportunity,” says Värde’s Mooney. “We don’t think NPL prices adequately reflect risk at the moment, but we do like the dynamics around servicing platforms which are a scarce resource.”

Värde’s purchase of a 33 percent stake in NPL servicer Guber last year marked one of several M&A deals in the Italian market, alongside KKR’s purchase of Sistema, Bain Capital’s acquisition of HARIT and Davidson Kempner’s acquisition of 44.9 percent of Prelios.

“In Italy, NPLs are tied to SMEs that are performing while the country’s bankruptcy code is more favourable to borrowers than in Spain, therefore borrowers have a clear reason to maintain control of assets and you need servicing capacity to work with them to get a recovery,” says Mooney.

Investors are also scrambling to get a foothold in the Greek servicing market, as the ountry’s banking sector is under pressure from the European Central Bank to deal with its more than €100 billion of NPLs. The first major real estate NPL portfolio recently changed hands – Piraeus Bank’s €1.45 billion Project Amoeba to Bain Capital – with Greece’s four systemic banks expected to bring further loan books to the market.

Until recently, the country’s independent servicing industry was non-existent. However, 12 servicing licences have now been issued by the central bank with further applications pending. “Servicers are going in, trying to work with banks to understand what their problems are. The first step is the collection and cleaning of data,” says Anirban Ghosh, a principal at KKR, which owns NPL platforms active in Greece, Pillarstone and Pepper.

Being a new market, investors will rely heavily on local expertise and may look to acquire servicing platforms like in Spain and Italy. “The race is on to secure the first couple of contracts to prove the concept then scale the business,” says Mark Caplan, managing director of commercial real estate at Pepper, which has acquired a real estate advisory business in Athens to complement its servicing capabilities in the hope it will be better positioned to win business.

In Cyprus, the firm has taken on a mandate to manage an €850 million portfolio of real estate NPLs on behalf of Bank of Cyprus. As part of the deal, Pepper has hired 10 local staff. “In Athens we’re talking to investors and financial institutions and when you say you have a presence in Cyprus and Greek-speaking staff it gets you in front of people,” says Caplan.


Europe’s servicing market remains fragmented, although some have ambitions to create pan-European platforms. Scandinavian group Lindorff-Intrum is seeking to create a pan-European platform of scale by buying several smaller entities. Most recently, it acquired Italian NPL servicing business CAF from Lone Star.

Other big players, such as Apollo-owned Altamira, which bought Portugal’s Oitante in 2017, are also looking to expand their geographic presence. M&A activity continues to be dominated by private equity funds, reducing the pool of truly independent servicers.

“The lack of independent servicers is an issue. Is Apollo or Bain going to want Cerberus’s servicing company in Spain working for them? If you’re investing in a new market you want a proven independent servicer that can provide certainty of output, otherwise it will affect the price you can pay for NPLs,” says Caplan.

KKR’s intention is to continue to operate the businesses it has acquired – also including Hipoges in Spain – as independent servicing platforms. “We do buy NPLs on an opportunistic basis but the platforms we own act independently and do not share information with us about what they’re doing with other investors; we have proper conflict resolution processes in place,” explains KKR’s Ghosh.

Värde’s Mooney describes private equity ownership of servicing platforms as a positive. “When you inject a private equity approach into loan servicing, the level of creative thinking is higher. There is actually less of an impulse to foreclose and more incentive to work out loans because, unlike banks, we can cut deals.”

He adds: “The big question mark is over how private equity players exit investments, as there is only so much scale to go around as the market slowly normalises.”

Southern Europe is the major focus of NPL resolution, keeping loan servicers busy, but as with other parts of Europe, servicers are already preparing for the transition to a performing market. “It’s all about relationships and how you can support clients through the next stage,” says Pepper’s Caplan.