Novo Banco offers cash to buy three billion euros in debt

  • ECO News
  • 25 July 2017

This is the missing step to complete the sale of Novo Banco. The bank will move forward with a cash offer to purchase the senior bonds; the goal is to save 500 million euros.

Novo Banco (NB) has already presented the senior bondholders with the debt exchange proposal in order to have an additional capital buffer of 500 million euros. Unlike what had been suggested, there will not be a bond exchange for others less valuable, but rather an exchange for cash. This means bondholders will receive cash in exchange for their debt; those bonds will be assessed at a market’s price.

“The offer foresees the purchase of all bonds concerning Novo Banco’s 36 issuances, whose counterpart is cash, and it will provide the bond’s holders with a price that is in line with the market and that is combined with a consent solicitation”, NB states in a press release. The consent solicitation needs the approval of 75% of bondholders in a general assembly.

"It appears to me this was a political decision.”

Jochen Felsenheimer

Xaia Investment

The repurchase offer is effective immediately and ends on October 2nd 2017. To ensure the success of the operation, NB stated it must reinforce their capital by at least 500 million euros, “both by saving in interests and by earning capital”.

The bank confirms what has long been known: “This operation is one of the mandatory conditions to move forward with the sale to Lone Star which will make a 1,000 million euros capital injection to Novo Banco an acquire 75% of the bank’s equity; the Resolution Fund will maintain 25% equity”.

The operation concerns 36 bond lines, maturing between 2019 and 2052, “whose nominal global value is 8.3 billion euros, corresponding to around 3 billion euros in accounting liabilities”.

Xaia Investment’s director Jochen Felsenheimer told ECO he believes the proposal is not fair and that there are “different prices for different bond lines”. He believes that “economically, the prices are not fair; it appears to me this was a political decision”.