Hellenic Bank, Cyprus second largest lender announced it had entered into an agreement with Oxalis, an entity managed and advised by Pacific Investment Management Company LLC (PIMCO) involving the securitization of a non-performing exposures (NPEs) portfolio of €1.32 billion and the sale of the bank’s servicing platform, APS Debt Servicer.
The bank announced that the transaction in combination with the acquisition of a performing loan book with RCB Bank, would reduce its NPE ratio to 3.4%.

In a statement, Oliver Gatzke, the bank’s CEO said “this is a transformative transaction making a decisive step in dealing with the Bank’s NPEs,” adding that the transaction substantially de-risks the Bank’s balance sheet from NPEs, reducing the NPE ratio to a proforma 3.4%.

“With this agreement and the disposal of our NPE portfolio, we can now focus on our strategic objectives of growing and transforming the Bank for the benefit of our customers, our employees and our shareholders,” he added.

According to the bank, upon completion, the transaction will significantly de-risk the Bank’s balance sheet by reducing NPEs by €0.72 bn, leading to a residual NPE portfolio of circa €0.653 bn, of which €0.433 bn are covered by the Asset Protection Scheme (APS), while the bank’s NPE ratio pro forma for the Transaction will decrease from 21,0%  as of Dec-21 to c. 11,6% and to c. 4,4% excluding the APS-NPEs; taking into account the acquisition of a performing loan portfolio from RCB Bank Limited  the proforma NPE ratio (excluding APS-NPEs) is reduced to c. 3,4%3.

The frontloaded de-risking of the balance sheet will allow the Bank to normalize its cost of risk going forward as well as benefit from the interest income stemming from the 66.7% retention of the Senior Note, the bank added.

Hellenic also noted that the Transaction has an overall positive capital impact on the CET 1 ratio of c. 15 bps based on Dec-20 financial numbers upon completion, taking into account the portfolio deconsolidation and the gain relating to the sale of the APS Debt Servicer.

“The Transaction values the Starlight Portfolio at an implied price of €320 mn, corresponding to a P/GBV of 41% which compares well with other similar transactions,” the bank said, adding that the transaction furthermore values 100% of the Enterprise Value of the APS Debt Servicer, along with the 10-year contract for the management and servicing of the Bank’s NPEs, at €37 mn which includes a €5 mn earn-out linked to the achievement of certain targets, while Oxalis acquiring 95% of the Mezzanine and Junior Notes for a consideration of €86 mn.

Hellenic also announced that through the transaction, the Bank is entering into an exclusive long-term servicing agreement (SLA) for the management of its residual NPE portfolio as well as any future NPE formation with an initial term of the SLA is 10 years.

“The Bank is expecting to benefit in achieving its NPE deleveraging targets from its partnership with PIMCO given the latter’s long-standing experience and track record in the NPE sector in Europe,” Hellenic said.

The Transaction is expected to close by the end of 2022 and is subject to regulatory and antitrust approvals and consents. The Transaction is at arm’s length and is the result of a two-stage competitive process with significant investor interest. It is noted that Poppy S.A.R.L., which owns 17.3% of the Bank’s share capital, is owned by investment funds managed by PIMCO, the bank added.