Paschi Said Nearing Deal for Sale of Bad-Loans Platform

Updated on
  • KKR and Varde venture said to submit non-binding offer
  • Buyer will manage 8.6 billion euros of Paschi’s bad loans

Investors including Cerved Credit Management SpA and a venture between KKR & Co. and Varde Partners LP submitted non-binding offers on Friday for Banca Monte dei Paschi di Siena SpA’s non-performing loans platform, according to people with knowledge of the matter.

As part of the deal, the lender will also transfer management of an 8.6-billion euro ($9.6 billion) loan portfolio to the platform’s buyer, along with the exclusive management of a portion of Monte Paschi’s future bad loans, the people said, asking not to be identified because the process is private. Monte Paschi, which is being advised by Mediobanca SpA, plans to complete the sale by the end of the year, the people said.

Representatives at Monte Paschi, Mediobanca and KKR declined to comment. Varde didn’t reply to a request for comment.

Monte Paschi, which emerged from European stress tests released in July as the region’s weakest lender, is struggling to restore profitability and raise capital. Burdened by mounting bad loans and losses on derivatives bets made by previous management that have since gone wrong, the bank was forced to take state funds and tap shareholders twice in two years.

A venture between Christofferson Robb & Co and Prelios SpA also made an offer for the asset, the people said. A representative at Prelios declined to comment and nobody at Christofferson Robb was available to comment.

“The sale would be an important step for Monte Paschi, as it would allow the bank to reduce costs, free up resources and make the bad-loan recovery process more efficient,” said Stefano Girola, who helps manage about 40 billion euros at Syz Asset Management in Lugano, Switzerland. “The outsourcing of bad-loan recovery and the entering of specialized players will benefit the whole Italian banking industry.”

Private-equity firms have signaled their interest in acquiring servicing companies, which allow them to directly manage assets instead of paying additional fees to other firms. Last year, Fortress Investment Group paid 530 million euros to buy UniCredit SpA’s debt-collection unit and a portfolio of non-performing loans, people said at that time.

The platform sale began in June, when the bank also offered management of its entire bad loan book. It was withdrawn a month later, when a restructuring plan involving the securitization and sale of its soured debt and a capital raising for as much as 5 billion euros to replenish capital was announced.

The process resumed last month with a reduced amount of bad debt left in the unit for recovery, said the people. The loans form part of 27.7 billion euros of sour debt that the bank will securitize, they said.

(Updates with fund manager’s comment in sixth paragraph.)
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