Novo Banco will purchase creditors’ debt. Where is the money coming from?

  • ECO News
  • 26 July 2017

If investors accept the debt for cash exchange, Novo Banco will have to spend almost 3 billion euros from its balance - namely 600 million in six months from selling assets, as well as its liquidity.

Novo Banco will spend almost 3 billion euros (2.7 billion euros) if investors accept the debt exchange. To pay for it, the bank will rely on the money it will receive from selling assets (600 million euros in six months) and on the liquidity of its balance.

Considering that resorting to a debt issuance is off the table (since the bank is precisely asking creditors to return their senior debt and accept their losses), all that is left for Novo Banco is to resort to his own funds. ECO was able to ascertain, from sources close to the market, that Novo Banco is counting on the final product of the outcome of the conveyance of assets and on the liquidity buffer it has on its balance.

ECO was able to ascertain that over the past six months, the bank was able to get 600 million euros in cash with the sale of the non-core assets. This trend will continue for the upcoming years and if the sale to Lone Star is concluded, Novo Banco will also be able to count on the contingent capital mechanism (with the Resolution Fund’s guarantee) which will allow it to accommodate the losses in the capital ratios caused by the sale of non-core assets of up to 3.9 billion euros.

During the first three months of 2017, Novo Banco’s assets stood at 51 billion euros, five billion euros less than the 66 billion it held in March of the previous year. The bank also has a comfortable liquidity buffer: in the first quarter of 2017, according to the NB quarterly accounts, the bank had 13.2 billion euros in assets eligible to be deducted in ECB.