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Novo Banco bondholders challenge planned sale to Lone Star Pimco-led group offers to buy bank from Portuguese resolution fund instead Read next Lex Banco Popular: strip poker Premium © AFP Share on Twitter (opens new window) Share on Facebook (opens new window) Share on LinkedIn (opens new window) 0 Save 2 HOURS AGO by: Martin Arnold in London and Peter Wise in Lisbon The tussle between bondholders of Novo Banco, the Portuguese lender, and the Iberian country’s central bank has intensified after the debt investors challenged a deal to sell the bank to Lone Star, a US private equity firm. A consortium of senior bondholders — including Pimco — has written to the Portuguese central bank to criticise the planned sale of Novo Banco, which would inflict more losses on them, and offer to buy the bank themselves, according to a person who has seen the letter. Novo Banco was the “good bank” created in 2014 out of a €4.9bn bailout aimed at saving the healthy assets of Banco Espírito Santo from destruction amid the collapse of the Espírito Santo family business empire. Non-viable assets were split off into a “bad bank”. Under an agreement reached with the Bank of Portugal at the end of March, Lone Star is to acquire 75 per cent of Novo Banco in return for injecting €1bn of fresh capital into the lender. Portugal’s bank resolution fund, currently Novo Banco’s sole shareholder, will retain the other 25 per cent. As a condition of the sale, at least €500m of senior Novo Banco bonds will be exchanged for new, higher risk bonds in a “liability management exercise” designed to strengthen the bank’s capital ratios. Although participation in the bond exchange is voluntary, the Lone Star sale cannot go forward unless at least €500m worth are swapped. The central bank is expected to announce detailed terms in the coming weeks. If enough bondholders refuse to participate, the sale would collapse, which could leave the central bank with little choice but to put the lender into a liquidation process. The swap has already attracted criticism from Moody’s, which downgraded Novo Banco’s long-term senior debt in April, describing the planned transaction as a “distressed exchange” that was likely to leave senior bondholders with losses. The consortium of bondholders, represented by advisers PJT Partners, argues that they should not incur losses on senior bonds while the resolution fund — the equity holder — retains significant value from its holdings. Debt holders normally take precedence over equity in distressed situations. “We are not going to take even a nominal haircut,” said one bondholder. Pimco, PJT Partners and the Bank of Portugal declined to comment. In April, BlackRock, one of the world’s most powerful investors, and other asset managers applied to Lisbon’s administrative court for an injunction to halt the sale of Novo Banco. The move is part of a legal battle dating back to December 2015 when the Bank of Portugal transferred £2.2bn in senior Novo Banco bonds to the “bad bank”, wiping out most of their value. The BlackRock-led group of asset managers claim they were discriminated against as international investors because equivalent bonds held by Portuguese investors were spared. Some but not all of those investors also own bonds in the good bank and are part of the group that sent the letter, which was first reported by the Wall Street Journal. Contacts between the central bank and the bondholders are under way with a view to reaching an out-of-court settlement of the bad bank issue, said people familiar with the talks. The bondholders who wrote the letter are pressing Portugal to reach a settlement in the bad bank case, saying that reputational damage caused by the disputed transfer has increased the borrowing costs of both the Portuguese sovereign and the country’s banks. Their offer to buy Novo Banco could be designed to put more pressure on the central bank to agree a settlement and to rework the planned sale so that they do not face such heavy losses Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.
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Novo Banco bondholders challenge planned sale to Lone Star Pimco-led group offers to buy bank from Portuguese resolution fund instead Read next Lex Banco Popular: strip poker Premium © AFP Share on Twitter (opens new window) Share on Facebook (opens new window) Share on LinkedIn (opens new window) 0 Save 2 HOURS AGO by: Martin Arnold in London and Peter Wise in Lisbon The tussle between bondholders of Novo Banco, the Portuguese lender, and the Iberian country’s central bank has intensified after the debt investors challenged a deal to sell the bank to Lone Star, a US private equity firm. A consortium of senior bondholders — including Pimco — has written to the Portuguese central bank to criticise the planned sale of Novo Banco, which would inflict more losses on them, and offer to buy the bank themselves, according to a person who has seen the letter. Novo Banco was the “good bank” created in 2014 out of a €4.9bn bailout aimed at saving the healthy assets of Banco Espírito Santo from destruction amid the collapse of the Espírito Santo family business empire. Non-viable assets were split off into a “bad bank”. Under an agreement reached with the Bank of Portugal at the end of March, Lone Star is to acquire 75 per cent of Novo Banco in return for injecting €1bn of fresh capital into the lender. Portugal’s bank resolution fund, currently Novo Banco’s sole shareholder, will retain the other 25 per cent. As a condition of the sale, at least €500m of senior Novo Banco bonds will be exchanged for new, higher risk bonds in a “liability management exercise” designed to strengthen the bank’s capital ratios. Although participation in the bond exchange is voluntary, the Lone Star sale cannot go forward unless at least €500m worth are swapped. The central bank is expected to announce detailed terms in the coming weeks. If enough bondholders refuse to participate, the sale would collapse, which could leave the central bank with little choice but to put the lender into a liquidation process. The swap has already attracted criticism from Moody’s, which downgraded Novo Banco’s long-term senior debt in April, describing the planned transaction as a “distressed exchange” that was likely to leave senior bondholders with losses. The consortium of bondholders, represented by advisers PJT Partners, argues that they should not incur losses on senior bonds while the resolution fund — the equity holder — retains significant value from its holdings. Debt holders normally take precedence over equity in distressed situations. “We are not going to take even a nominal haircut,” said one bondholder. Pimco, PJT Partners and the Bank of Portugal declined to comment. In April, BlackRock, one of the world’s most powerful investors, and other asset managers applied to Lisbon’s administrative court for an injunction to halt the sale of Novo Banco. The move is part of a legal battle dating back to December 2015 when the Bank of Portugal transferred £2.2bn in senior Novo Banco bonds to the “bad bank”, wiping out most of their value. The BlackRock-led group of asset managers claim they were discriminated against as international investors because equivalent bonds held by Portuguese investors were spared. Some but not all of those investors also own bonds in the good bank and are part of the group that sent the letter, which was first reported by the Wall Street Journal. Contacts between the central bank and the bondholders are under way with a view to reaching an out-of-court settlement of the bad bank issue, said people familiar with the talks. The bondholders who wrote the letter are pressing Portugal to reach a settlement in the bad bank case, saying that reputational damage caused by the disputed transfer has increased the borrowing costs of both the Portuguese sovereign and the country’s banks. Their offer to buy Novo Banco could be designed to put more pressure on the central bank to agree a settlement and to rework the planned sale so that they do not face such heavy losses Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.
