Italy's First Bad-Loan Guarantee Said Set to Cost Bank About 1%

  • Popolare di Bari close to agreeing fee in securitization deal
  • Deal could set benchmark for state bad-debt sale program

Banca Popolare di Bari SCpA will initially pay 90 basis points to 100 basis points for an Italian government guarantee on bad loans it intends to sell, according to two officials at the lender.

The annual price, covering the senior tranche in a 500 million euro ($570 million) securitization, will run for three years, said the people who asked not to be identified because the talks are private. It will climb to 220 basis points in years four and five, and to 300 basis points in the following two years, they said. The senior tranche will be about 60 percent of the securitization, which the bank aims to sell by the end of June, they said.

The final agreement may set an industry benchmark as Popolare di Bari will probably be the first lender to take advantage of an Italian initiative designed to help lenders clean up balance sheets. Under a program agreed with the European Union in January, banks will bundle bad loans into securities for sale and buy state guarantees for the least-risky portions, provided they have an investment-grade credit rating.

Moody’s Investors Service, Fitch Ratings and DBRS will provide investment-grade ratings to the senior tranche in Popolare di Bari’s proposed securitization, the people said. The ratings will be between BBB- and BBB+, the lowest investment-grade levels, depending on the outcome of portfolio analysis, they said.

Spokesmen for Popolare di Bari and the finance ministry declined to comment on the government guarantee.

Bank Benefit

The state guarantee is expected to provide an annual benefit of about 100 basis points to Popolare di Bari, the officials said. With the guarantee, the lender will be able to price the senior tranche to yield 2 percent, versus at least 4 percent without, one official said. The advantage for the bank is reduced by the cost of the guarantee.

The bank intends to sell at least 50 percent of the junior tranche in its securitization so it can deconsolidate the debt from its portfolio, the people said. It may sell some of non-senior portion to Atlante, the state-backed bad-bank fund, they said. The bank expects to sell another 300 million euros of soured mortgages and corporate loans by the end of the year, they said.

Popolare di Bari, which bought the failed Banca Tercas SpA two years ago, intends to cut bad debt to less than 20 percent of total loans. It has appointed JPMorgan Chase & Co to arrange the bad-loan sale, while Prelios SpA will review its portfolio and manage the recovery of loans sold to investors, people said in March.

The lender’s bad-loan securitization will comprises 70 percent secured loans and 30 percent unsecured loans to families and small-to-mid-sized companies, the people said.

Before it's here, it's on the Bloomberg Terminal.