US investment fund Davidson Kempner has been selected by Greek lender Alpha Bank as its preferred bidder to buy a $12 billion portfolio of non-performing loans. The sale would be Greece’s largest ever sale of bad debt according to Reuters.
The portfolio, known as Galaxy project is worth over €10.8 billion and also includes the disposal of Alpha’s bad loan servicing unit, Cepal.
The assets have been valued by Davidson Kempner at around €290 million which has reportedly trumped a rival bid from Pacific Investment Management Company (PIMC), one of America’s investment giants.
Greek banks are fearing that the number of bad loans to businesses and individuals will surge as a result of the coronavirus pandemic and Alpha Bank’s sale, which is expected to be finalised by the end of 2020, is the most significant attempt by a Greek bank to clean up its balance sheet.
Greece currently has the highest bad loans ratio in the European Union.
Banks will normally offload bad debts at a fraction of their face value in order to free up their balance sheets so that they can make new loans, in order to keep their business and economies going.
Alpha bank launched the process of offloading the Galaxy project earlier this year and the Greek lender originally received interest from a series of bidders including Italian firms Cerved CERV.MI and Credito Fondiario.
The sale is expected to reduce their non-performing exposure (NPE) ratio to 24% from 43% and their non-performing loan ratio (NPL) down from 30% to 13%.
Despite the initial interest in the sale, only Davidson Kempner and PIMCO made binding offers and advanced to the final stages of the auction and after a board meeting on Friday, Alpha Bank selected Davidson Kempner as it’s preferred bidder.
The portfolio of bad loans will be serviced by Cepal, in addition to non-performing loans of other parties. Cepal currently services just under €30 billion of unpaired loans. Alpha Bank took control of Cepal earlier this year from Centerbridge, after previously holding only 40% of the servicer.
The decision to negotiate a deal with Davidson Kempner is expected to be announced imminently and the US investors bid came with an attractive earn-out scheme and limited contractual protections.
Alpha Bank had originally applied to fold Galaxy into a Greek government scheme, dubbed Hercules, which provides state guarantees on the senior tranches of the securitisation.