National Bank of Greece (NBG) has agreed to sell its Frontier loan portfolio to a consortium of investors made up of Bain Capital Credit, Fortress Investment Group and doValue Greece as part of its push to lower sour debt to single digits in 2022.
Financial details concerning the agreement were not released though local press reported that NBG will pocket some 160 million euros from the deal, helping improve its capital buffers.
The agreement comes as Greek lenders move to sharply reduce NPLs that landed on their balance sheets as a result of the country’s ten year economic crisis.
Based on Bank of Greece data, bad debt held by Greek lenders in the first half of the year dropped 52 percent to 29.4 billion euros, falling 31.6 billion euros from year ago levels. This has driven the NPL ratio to 20.3 percent at the end of June from 43.6 percent in June 2019.
The deal announced by NBG involves the sale of 95 percent of the mezzanine and junior notes from a securitization backed by a portfolio of non-performing exposures with a total gross book value of some 6 billion euros.
The Frontier portfolio includes some 200,000 loans held by some 90,000 customers, with about 90 percent of debt backed by property. About three quarters of the loans are mortgages which are no longer being repaid.
NBG will retain 100 percent of the senior notes, utilizing the provisions of the Hellenic Asset Protection Scheme (”Hercules”), and 5 percent of the mezzanine and junior notes.
The total proceeds for NBG mainly reflect the senior notes and the consideration for the mezzanine and junior notes, corresponding to some 50 percent of the total gross book value of the Frontier Portfolio.
The transaction is expected to boost NBG’s total capital by c150 basis points, the bank said in a statement.
The transaction is expected to be completed within the last quarter of the year, subject to required approvals.
Following the completion of the transaction, doValue Greece, will undertake the servicing of the Frontier Portfolio.
Morgan Stanley & Co. International plc is acting as financial advisor and arranger of the transaction, Oliver Wyman as technical advisor while Clifford Chance LLP and Karatzas & Partners as international and local external legal counsel to NBG, respectively.
Without taking into account the Frontier deal, NBG has completed in recent years the sale of 7 NPL portfolios: the Earth, Symbol, Mirror, Leo and Icon portfolios, as well as the Marina and Danube portfolios of subsidiaries in Cyprus and Romania.
Through these transactions, operations and write-offs completed by the lender, its NPLs have fallen from a high of 22 billion euros in 2015 to 4 billion euros in the second quarter of the year.