Large investors stand against Novo Banco’s debt exchange proposal

  • ECO News
  • 9 August 2017

Creditors such as Pimco sent a letter to Novo Banco and the Bank of Portugal calling for an "urgent" meeting. They are not willing to accept the terms NB is offering. Sale to Lone Star is at stake.

A group of large investors in Novo Banco, which includes bond managers such as Pimco, stands against the bond purchase proposal announced in the market on the 25th of July and sent a letter to the institution headed by António Ramalho and the Bank of Portugal asking for an urgent meeting. ECO is aware that the group — which holds more than 30% of bonds — sent the letter to NB and the Portuguese supervisor last Thursday night by email, and on the next day by mail, also to European authorities.

The success of this operation (LME – Liability Management Exercise) is one of the mandatory terms for Novo Banco to be sold to the North American fund Lone Star. This is why, on July 24, Novo Banco announced a debt exchange for money proposal, aiming to get an additional capital buffer of 500 million euros. The operation implies that current creditors take on losses, since the bonds will be re-purchased by Novo Banco with a discount from 10% to 90%.

ECO had access to a few excerpts of the letter, in which the group makes a blunt threat: without us, there is no exchange operation. This is stated because in order for it to be successful, the operation needs at least 75% of creditors to give their green light in the Assembly scheduled for September 8 — and this group finds the current terms of the tender offer to be “unattractive”.

"The Committee reiterates its availability to work with you in a constructive manner with a view to agreeing revised transaction terms that can be announced to the market with the public support of the Committee. We believe this should be done as a matter of urgency and we look forward to sincere engagement with you.”

Bondholder Committee

In the letter, the group, which calls itself Bondholder Committee, states their “size and influence make it critical to the success of any LME”, making it clear that the Liability Management Exercise will not move forward without them.

“We encourage the Bank to engage with the Committee in an appropriate way to ensure that the LME is successful. The approach taken by the Bank to date does not recognize that it will be impossible for the Bank to implement a successful Tender Offer without the Group’s support”, is stated in the letter.

Nonetheless, these large foreign investors are far from shutting their doors to an understanding, and they end the letter by stating: “The Committee reiterates its availability to work with you in a constructive manner with a view to agreeing revised transaction terms that can be announced to the market with the public support of the Committee. We believe this should be done as a matter of urgency and we look forward to sincere engagement with you“.

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