Why do funds sell securitized loans to other investors?

By Leonidas Stergiou

The secondary market for securitized red loans has started with large transactions. Funds that had bought securitized red loans from banks through Hercules, create smaller portfolios which they sell to other investors.

The beginning was made with Bain Capital, which has bought several securitized loans of the National Bank. Bain Capital is selling part of the Icon securitization it bought two years ago from the National Bank. This piece is called Frame, with a book value of around 600 million euros and total claims of 1 billion euros. The Frame is almost one third of the Icon.

Later that year, Intrum acquired 40% of the National Bank’s securitized loan from the National Bank, with the remaining 60% acquired by Carval. Now, Intrum acquires 100% of Earth, under the name of this transaction in the secondary Libra market.

It is followed by doValue, which had acquired the securitization of Mexico (5.2 billion euros) from Eurobank. From Mexico, the senior division was retained by the Bank, which also retained 5% of the middle and lower divisions. DoValue is going to transfer 90% of the secured loans of medium and low rating (worth 3.4 billion euros) to the American capital Waterwheel Capital Management.

Alpha Bank-DK Cepal is also reportedly preparing a similar transaction in the secondary market, which is also looking for a way to start refinancing red loans, with the aim of consolidating them.

The sale of securities of securities red loans in the secondary market is carried out in an effort to utilize the specific transactions by achieving revenue in order to achieve the recovery goals set out in the business plan of the transactions. The pandemic and the freezing of auctions have led to a decline in recoveries, which, despite their improvement, are lagging behind. One way to increase recoveries is to set up or auction. Another solution is to sell part of the securitized loan to a third party investor. Something that is currently happening as there is an increased demand for investment funds.

The next step, which we will probably see in 2022, is the application for a license from the Bank of Greece to management companies to be able to refinance red loans, in order to reduce the number of troubled companies and to increase the perimeter of viable and eligible companies. corporate lending. So far, the problem lies in the cost to management companies of refinancing. However, as the market deepens, it is expected that this tool will be launched soon.

The issue of the license for refinancing red loans by servicers was discussed during the last meeting of the loan management companies with the Governor of the Bank of Greece, Mr. Giannis Stournara, near the Christmas holidays. According to BoG data, to date not a single application for refinancing has been submitted. Market information states that during the meeting at the BoG, Cepal had stated that it was looking for a way to resolve the issue of financing.