Funds Said to Seek Talks With Monte Paschi Over Debt-Swap Terms

  • Bybrook, Centerbridge among investors said to form groups
  • Money managers seeking best terms in debt-for-equity swap

Some of Banca Monte dei Paschi di Siena SpA’s international creditors are forming groups to negotiate the terms of a possible debt-for-equity swap with the lender, according to people with knowledge of the matter.

Attestor Capital, Bybrook Capital, Centerbridge Partners, Eton Park Fund and Eyck Capital Management are among investors teaming up to discuss terms, said the people, who asked not to be identified because the discussions are private.

Italy’s third-largest lender and its financial advisers, JPMorgan Chase & Co. and Mediobanca SpA, are seeking to obtain an agreement to convert as many subordinated bonds as possible into equity by the beginning of December to boost capital. Monte Paschi must decide how many shares to offer creditors in the restructured bank to convince them to swap their holdings, separate people familiar with the matter said last week.

The voluntary conversion of junior bonds is now the centerpiece of a 5 billion-euro ($5.6 billion) recapitalization plan for Monte Paschi because a share sale agreed on in July may only attract limited interest, people familiar said last week. The proposal also includes the sale of total 28 billion euros of soured loans with the help of Atlante, Italy’s bank rescue fund.

Representatives for Centerbridge, JPMorgan, Mediobanca and Monte Paschi declined to comment on the talks. Officials at Attestor, Bybrook, Eton Park and Eyck Capital didn’t return calls and e-mails seeking comment.

Monte Paschi plans to rush through provisional bondholder agreements before Italy’s Dec. 4 referendum on constitutional reform so that the recapitalization doesn’t get disrupted by any market volatility, people familiar with the bank’s plans said last week.

One of the groups is asking the company to convert some notes that are quoted below face value into shares based on the full value of the securities. The group, which owns different classes of subordinated notes including the lower Tier 2 notes, is seeking to convert after the share sale price is set so they don’t get diluted by an influx of new stock, the people said. They also own lower-ranking Tier 1 securities, the people said.

The group includes funds owning more than 300 million euros of bonds, one of the people said.

The lower Tier 2 notes due April 2020 are quoted at 66 cents on the euro, according to data compiled by Bloomberg.

A second group holds deeply-subordinated hybrid securities known as Fresh bonds that Monte Paschi sold in 2008. The investors sent a letter to the bank last week asking for a meeting to discuss options, one of the people said. The notes are quoted at 16 cents on the euro, according to data compiled by Bloomberg.

The group includes holders of about two thirds of the Fresh bonds, one of the people said.

In September, Monte Paschi replaced Chief Executive Officer Fabrizio Viola with Marco Morelli amid pressure for a leadership change to ensure the fundraising succeeds.

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