Fortress looks impregnable in Italy after UniCredit buy

Purchase of bank’s servicer primes US firm for further Italian NPL deals, writes Lauren Parr

Fortress is now in pole position to absorb Italian banks’ legacy debt sales, after buying the bad loans unit of one of the country’s top three banks, UniCredit. The US private equity firm also picked up a non-performing loans portfolio from the bank, in one of Italy’s biggest distressed debt deals in several years.

In February, a consortium led by the US firm agreed to pay €300m for UniCredit Credit Management Bank (UCCMB), which manages more than €35bn of non-performing loans (not all belonging to UniCredit) and €230m for a separate NPL book with a €2.4bn nominal value.

REC 04.15 - p 12The deal makes Fortress a leading force in Italian loan servicing, creating what one loan sale specialist calls a “massive platform” by putting together the market’s two biggest servicers; it already owns Italfondiario, Italy’s largest servicer.

Fortress is working with Italian real estate firm Prelios as operating partner, which also has servicing capacity.

“Potentially you have a big machine to work on bank portfolios – UniCredit’s and third parties’,” the specialist says. The deal includes a 10-year servicing contract for UniCredit’s future NPLs, but the bank will still service a minority of loans for big clients.

Another potential business line for Fortress could be loan servicing for a bad bank the Italian government may form. So far, Italy has seen few NPL sales compared with other European countries, despite an IMF estimate that its banks are sitting on €180bn of distressed assets.

The UCCMB deal is a win for buyer and seller, says the loan sale specialist, as Fortress has “strengthened its position in Italy’s market and gets access to a lot of information, while for UniCredit, it’s a way of selling something and getting some value up front”.

Access to data is crucial for investors seeking to maximise returns on acquired loans. “Buying a servicer is a way to be prepared for possible loan sales and could be considered a useful tool for buying big NPL portfolios,” says a local broker.

The loan sale specialist adds: “Fortress had a lot of information [through Italfondiario]; this deal allows it to access more.”

Unicredit frees up funds

UniCredit will shed non-core assets to boost its balance sheet and free up new funds for lending, but expects UCCMB’s sale to have a broadly neutral impact on its regulatory capital and net income. “Putting together UCCMB with another professional servicer like Fortress’s will optimise loan performance,” the loan sale specialist says.

The loan portfolio Fortress bought is a mixture of small and medium-sized, secured and unsecured, mature loans and is “not that big” considering the volume of non-core assets UniCredit needs to shift. It was cut from around €3.4bn, most likely due to the gap between bid and asking price.

The loan sale specialist says: “We’re starting to see structures more common in jurisdictions like Spain: platforms plus portfolio sales.” Several Spanish banks sold loan servicing businesses to private equity investors in 2013.

Fortress is familiar with this model. In December, Italfondiario agreed to buy a 45% stake in NPL manager BCC Gestione Crediti, which manages bad loans for small Italian cooperative banks. As part of the deal, Fortress set up a securitisation vehicle to buy €250m of deteriorated loans.

The private equity firm has been buying Italian NPLs for some years and recently bought €380m of loans from Italian lender Banca Monte dei Paschi di Siena. This followed a deal with the same bank for bad loans with a book value of €500m last June.

“The [Fortress and UniCredit deal] is good for the market, as it means there is a possibility of closing deals of a certain size, combining assets and a platform. It is a sign that Italy’s market is ready to start some real transactions,” says the loan sale specialist.

More commercial property loans are expected to be marketed this year, as Italian banks made big provisions in Q4 2014, following the ECB’s Asset Quality Review.

“The fact that UniCredit has traded with an investor like Fortress should serve as a catalyst for other banks to finally move loans, as they have a herd mentality,” adds a smaller private equity investor. “Getting portfolios into the hands of work-out guys like Fortress that are prepared to restructure or sell loans creates opportunities for people like us.”