Banca Marche Bonds Plunge After Failure to Repay $2 Billion Loan

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Bonds of Banca delle Marche SpA dropped to records after the lender failed to repay a 1.8 billion-euro ($2 billion) loan to Credito Fondiario SpA.

The bank’s 180 million euros of floating-rate bonds due June 2017 fell by 12 cents on the euro to 34 cents on the euro after earlier plunging by half to a record 23 cents, data compiled by Bloomberg show. The company saw 120 million euros of subordinated notes due June 2016 slumped 11 cents on the euro to 36 cents.

“We agreed with Credito Fondiario not to repay the loan and to sell the collateral instead,” Chief Financial Officer Maurizio Bocchini said in a phone interview Wednesday. “Banca Marche is under special administration and can’t access capital markets.”

Banca Marche, based in Jesi, central Italy, plans to raise 500 million euros in cash from the sale because the value of the collateral is higher than the loan, the CFO said.

Banca Marche, run by Bank of Italy administrators since a capital shortfall was found in 2013, is looking for new investors and seeking to raise cash by selling assets. Credito Fondiario, which specializes in managing non-performing loans, is seeking to rescue Banca Marche, which is hampered by the bad loans it piled up during Italy’s longest recession on record.

Credito Fondiario’s plan, which it has been working on since last year, includes a sale of new stock and spinning off 2.6 billion euros of bad loans. The split will be funded in part by the Italian deposit guarantee fund.

“I expect that a solution to revamp the bank will be found by October, when commissioners’ mandate expires,” CFO Bocchini said in a phone interview Wednesday.

Credito Fondiario, owned by Tages Holding SpA, hired Nomura Holdings Inc. to sell 300 million euros of government-guaranteed senior bonds held as collateral. The collateral, which also includes asset-backed securities originated by Banca Marche, has a total face value of 2.3 billion euros.

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