Vulture funds prepare 5,000 M to buy credits in post-covid Spain

The international funds They once again place Spain among their favorite countries after a couple of years of drought. Banks, investors and consultants foresee a recovery of the delinquent credit market in 2022 with transactions of between 22,000 and 26,000 million euros, according to sources in the sector consulted by this means. These portfolios will involve the investment of around 5,000 million by the so-called opportunistic or vulture funds, depending on the average amount at which this type of operation is usually crossed.

Thus, the experts consulted foresee that banks and large funds such as Blackstone, Lone Star and Cerberus will sell, on the one hand, secured loans and real estate assets (‘secured’, in the jargon) for a value of between 10,000 and 12,000 million euros, and without guarantee (‘unsecured’) for between 12,000 and 14,000 million.

In the case of loans with collateral, these figures will represent a improvement compared to the last two years —6,000 million in 2020 and between 9,000 and 10,000 million in 2021—, but they are still below the precovid figures, of about 15,000 million annually, according to figures from Alvarez & Marsal.

Although the price of these types of operations depends on the type of asset, they are closed with average discounts between 60% and 70%. Most of the assets that are expected to be sold in 2022 are unpaid prior to the covid, since the figures of new defaulters of the pandemic are still contained by the ICOs (Official Credit Institute).

Covid earrings

“We see a rebound in activity. After a few months in which there was a lot of uncertainty due to confidence and risks, this has been mitigated and demand has recovered from large investors who have raised capital between 2020 and early 2021. This dynamism will be maintained in 2022 “, he explains Nahuel Callieri, Senior Director of Alvarez & Marsal. This expert foresees that the bulk of the operations will be concentrated in mortgages and company loans with real estate collateral.

“Next year is going to be great, although not a record. As of today, we have more commissions and projects under study than 12 months ago, but everything will depend on the evolution of the covid“, points out another consultant in the sector, who prefers that his name not appear. Like Alvarez & Marsal, this expert believes that the market will see operations for between 10,000 and 12,000 million with real estate collateral in 2022, except that some of the large funds with assets in Spain decides to leave the country, in which case the figures could approach 20,000 million.

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Thus, the funds that have been buying assets in Spain in the last decade are still they keep about 60,000 million under management of the 150,000 million they came to have. At some point one of these investors, such as Blackstone, Cerberus and Lone Star, could decide to accelerate the digestion of these assets with large portfolios.

All the consultants rule out that the levels of record years such as 2017 and 2018 will be reached in the coming years, in which the sale of the toxic assets of Santander-Popular —30,000 million—, BBVA —12,000 million—, Sabadell —9,000 million— and CaixaBank —7,000 million— inflated the figures. Where there could be a record is in the volume of unsecured loans. The sector expects figures of between 12,000 million and 14,000 million in ‘unsecured’, something more than in bad credit with collateral, which would be divided almost equally between companies, mainly SMEs, and consumer.

“By 2022 we expect a significant increase in the volumes of portfolios that will come to market, both in the primary and secondary markets. In the primary we expect to see above all consumer mortgage portfolios, both ‘non-performing’ and ‘reperforming’ (current loans, but which have previously suffered defaults). The latter, in the field of securitization operations by buyer funds, “explains Juan Hormaechea, partner of Allen & Overy.” In the secondary market (operations between funds) we expect to see above all portfolios of SMEs that have been around for some years. under the management of buyer funds that acquired them in the last four or five years, “he adds.

“We have been a year and a half with less activity in the sale of portfolios. Next year there may be a rebound in the sale of ‘unsecured’ portfolios, but it is not clear in the mortgages. The situation may change when the grace period for ICO loans ends as of March and the bankruptcy moratorium on June 30 “, says Rafael Bazán, partner at Araoz & Rueda.” We believe that there are currently interesting opportunities in the sale of ‘ single names’ (purchases of credits from a company), with the appearance of new funds with an investor appetite that have already closed operations “, he adds.

The market is reactivated

Already in the second half of 2021, there has been a reactivation of operations. The sector of funds, recovery firms and ‘servicers’ has a workforce of more than 28,000 employees and manages more than 383,000 million euros, with 110 million files. The managers agreed this year at the CMC Congress, which brings together the entire industry, that there have been less supply of portfolios and more demand than before the covid, which has raised prices. That is, they have been purchased with lower discounts.

Among the latest portfolios have been two CaixaBank sales, one of 400 million SMEs and consumers, which remained Cabot, Hoist y Kruk, and another of mortgages for 200 million euros that KKR took. Banco Santander has also gone to the market, placing a portfolio of 450 million in loans to SMEs and consumption to Axactor. The Cantabrian bank has also hired Deutsche Bank to sell refinanced mortgages worth 1,000 million. This is another visible trend: not only bad credit is sold, but also refinanced, which has had payment problems, but is now up to date or that there has been an increase in default (‘subconfirming’ or ‘stage 2’).

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New players keep coming to the Spanish market. This year has been ZolvaBefore Multi-Management, led by David Martín, formerly of Axactor, who has bought a portfolio of 115 million consumer loans from Bankinter, and another of 90 million from the financial company El Corte Inglés. Behind Zolva, after acquiring DE Shaw’s business, is Norway’s Finans2. Although there is less delinquency in the Scandinavian countries than in southern Europe, many of the big players in the purchase of portfolios come from these countries.

This is the case of the leader, Intrum, with 53,000 million. The collections manager foresees a greater dynamism of operations in the second half of 2022, and there will be a delay due to the covid. “The composition of the portfolios has evolved in recent years to increasingly recent debt portfolios, so we expect that some of those that appear on the market in the coming months will have defaults derived from the economic crisis as a result of the pandemic that has lasted for almost two years, “they say in the Spanish subsidiary of the Swedish group, which is listed in Stockholm with a value of 2,700 million euros.

Intrum has starred in one of the largest purchases of the year, acquiring a portfolio of 1,000 million with 100,000 loans without mortgage guarantee, mainly from consumer financing. The operation occurred in the secondary market, that is, between funds, since it acquired the portfolio from Cerberus, after having been managed by Gescobro.

Experts believe there will be a boost from the secondary market, although mainly in home equity loans. In this sense, Morgan Stanley has returned to the market by buying a portfolio of 4,000 mortgages, with outstanding debt of 200 million, from Blackstone, from an award through the FROB between 2014 and 2015 of Catalunya Banc.

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