H.I.G. Bayside is working with Italy’s banks to help restructure the country’s distressed corporate debt.

The international investment firm, together with Milan-based private equity Idea Capital Funds, have set up a new vehicle that will take the lenders’ non-performing loans and invest new money to help turn around the businesses. The banks will own units of the 260 million-euro ($288 million) Idea CCR fund and participate in any recovery of the underlying credits, said Giuseppe Mirante, a managing director at H.I.G. Bayside in London.

Distressed debt investors are exploring new ways to access non-performing loans, while Italian banks seek to avoid crystallizing losses on the debt. The government and European Central Bank are increasing pressure on lenders to clear about 360 billion euros of NPLs from their balance sheets after years of ignoring the situation.

“Banks have been amending and extending bad loans, hoping for better times that never came,” Mirante said. “They have finally accepted the need to do something about their bad debts piling up. The government is also trying to break the corset that inhibits debt sales through the reform of bankruptcy laws. This will open up potential opportunities for distressed debt investors.”

New Financing

The new fund is taking on the debt of small exporters and “mini-multinationals” from banks including Banca Monte dei Paschi di Siena SpA and Banca Popolare di Vicenza SpA, while H.I.G. Bayside and Idea Capital contribute new financing, according to Mirante.

Mirante will join the investment committee of the fund, which closed its first round of financing last week.

“Small and medium enterprises are at the heart of the Italian economy, and their growth prospects are being suffocated due to their financial distress and lack of access to capital,” Mirante said. “By working together with lenders to help rekindle growth in SMEs, we can help provide a solution to all parties.”

Other funds are also cooperating with Italian banks on bad loans. KKR & Co. and Italy’s largest lenders UniCredit SpA and Intesa Sanpaolo SpA said last year that they started working together to transfer bad corporate loans to a new investment platform. The fund, known as Pillarstone, took over the banks’ debt exposure in shipping company Premuda SpA and in engineering company Sirti SpA.

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