italy-shipping-debt-portfolio

SC Lowy sought to originate the opportunity to acquire a sizeable portfolio of non-performing shipping loans from a large state-owned Italian lender. To be successful it was necessary to demonstrate both sector expertise and a strong presence in Italy – made possible by the acquisition of Italian bank (Credito di Romagna (CdR)) months earlier and the opening of an office in Milan.

Objective

The portfolio consisted of non-performing shipping loans classified as Unlikely to Pay (UTPs) from Monte dei Paschi, a large state-owned Italian lender and totaled a gross book value of $160 million, making it the largest transaction of its kind in Italy. The transaction was also highly complex as it involved a collection of sub performing shipping debt that spanned dry bulk shipping, crude oil carriers and an offshore support vessel. Not only was it challenging to analyze the underlying securities, there were 5 counterparties and many more credit lines – both secured and unsecured.

Adding another layer of complexity was the fact that the active financing contracts that the banks wanted to sell could not be bought by special purpose vehicles. The peculiarity of UTP loans is that the financing contract between the lender and debtor are still active, meaning only financial intermediaries regulated by the Bank of Italy can “provide” such type of financial arrangements. This meant it was necessary to involve CdR in the process.

Transaction

SC Lowy led and negotiated the transaction involving assorted Italian shipping loans with a total gross book value of $160 million. To become the preferred bidder, SC Lowy needed to demonstrate its expertise and track record in valuing and transacting complex and illiquid assets in distressed shipping situations, both globally and in the Italian market. Further, by collaborating closely with CdR it was possible to present an efficient and compliant structure, whereby it split the financing contracts and credits: SC Lowy bought the underlying credits and CdR bought the financing contracts.

Outcome

Through this successful transaction, Monte dei Paschi was able to monetize a large portfolio of illiquid non-performing and complex shipping loans in line with its balance sheet strategy. This was achieved by leveraging the combined capabilities of SC Lowy and CdR.

In particular, CdR’s extensive network and relationships in Italy, together with SC Lowy’s deep bench of shipping expertise and strong balance sheet.

This landmark transaction has further consolidated SC Lowy’s reputation as a leading player in the secondary illiquid market in Europe, specifically in Italy, and in the distressed shipping loan market.