Funds create a group to acquire Novo Banco
Novo Banco's creditors wrote a letter to the Bank of Portugal opposing the senior bond exchange operation (which may jeopardize the sale to Lone Star), proposing to buy the bank themselves.
A plot twist may be coming in Novo Banco‘s sale process. A set of the most important creditors in Novo Banco — which together hold over 30% of the institution’s bonds — created a Committee to acquire the transition bank.
This group doesn’t understand Novo Banco‘s senior bond exchange process (the Liability Management Exercise) which will imply losses of 500 million euros to bondholders. Those creditors believe the LME does not respect the capital hierarchical structure (which obliges losses to be imposed first to those who own capital, and only then to those who hold debt).
Without those bondholders, which own almost one third of Novo Banco‘s debt, the sale to the North-American fund Lone Star could fall flat, since one of the terms for the sale operation is that the bank’s creditors voluntarily accept exchanging their bonds for others less profitable.
As an alternative, they proposed to purchase Novo Banco themselves, “on the same terms” Lone Star was offered.
This group of large investors wrote two letters presenting their standpoint: one to Novo Banco, and one to the Bank of Portugal send this Thursday. ECO had access to both.
On May 16, the first letter was sent to Novo Banco, addressed to António Ramalho and Rui Cartaxo, as well as the remaining Board. In the letter, the group of large investors announced they have created a Committee of Novo Banco‘s Creditors, having hired the British firm PJT Partners as their financial consultant.
The letter sent to the Bank of Portugal — addressed to its governor Carlos Costa and also to Pedro Duarte Neves and Sérgio Monteiro — emphasizes the content of the letter sent to Novo Banco, to which they did not yet receive a reply. The group also states their proposal is the best alternative if the sale to Lone Star is not able to be concluded.
In addition, they request access to NB‘s data in order to begin their due diligence of the bank’s purchase. They conclude the letter by inviting the Bank of Portugal to a meeting to discuss the acquisition.
