Some investors will not suffer losses in Novo Banco

  • ECO News
  • 28 June 2017

The sale of Novo Banco to Lone Star is dependent on a bond exchange operation which will cause creditors to suffer losses. However, there is a line which matures today and sidetracks losses.

It was precisely on March 31 that António Costa, Portuguese PM, and Mário Centeno, Finance minister, announced the country that Novo Banco would be sold to Lone Star. This operation implies many things:

  • A 750 million euros’ immediate injection and another 250 million euros’ injection in three years — meaning the North-American Fund Lone Star will hold 75% of Novo Banco’s capital;
  • A 3.89 billion euros guarantee from the Resolution Fund, if the sale of the problematic assets has a negative impact on NB’s capital;
  • The Liability Management Exercise (LME), meaning, a proposal to senior creditors to exchange the bank’s bonds, which will imply losses of around 500 million euros (and capital ratios reinforcements in the same amount).

On the day the LME was announced, the bank froze and suspended the negotiation of 38 lines of bonds from creditors who had invested three billion euros in debt from the banking institution. Since then, they were never traded in a regulated market, and this Wednesday, the first of those 38 series of bonds reaches its maturity.

This series maturing today, concerning a bond which matures on July 28 and which has a 5.75% coupon, was issued with a nominal value of 200 million euros, but the banking institution says they have already repurchased 175 million euros — meaning the market continues having 25 million euros.

Unlike other creditors who will suffer losses with the exchange operation they were proposed — if they accept the LME conditions –, these creditors will not lose anything, because Novo Banco assured the payment of the first 25 million euros in debt without imposing losses.

An official source from Novo Banco told ECO the first line of bonds maturing this Wednesday will be fully paid without suffering any haircut. The next bond the bank will have to reimburse only reaches its maturity on July 2018.