Arrow in Portuguese acquisitions and CarVal tie-up

The European NPL investor has bought two loan servicers in Portugal, bringing the total face-value of its Portuguese assets to around €5.5 billion.

London-listed Arrow Global will purchase two loan servicing companies in Portugal, the firm said, and has picked up several loan portfolios with a total face-value of €565.6 million. The non-performing loan investor and servicer will purchase Whitestar, a Portuguese loan servicer from distressed debt investor CarVal. Arrow has also signed a five-year origination agreement with the US-based firm.

Arrow will pay €47.8 million or an estimated 6x 2016 EBITDA for Whitestar Asset Solutions. The transaction is spread over three years with Arrow buying 33 percent of Whitestar from funds managed by CarVal and management for an initial consideration of €19.9 million. Arrow’s stake will increase to 75 percent for a further €17.3 million in the second year with the deal scheduled for completion within 2 years for a final payment of €10.6 million. Arrow will finance the deal from its own capital and has increased its existing revolver by £40 million ($59 million; €55 million) to £140 million. Ahead of the announcement, CarVal also signed a five-year servicing agreement for its Portuguese assets with Whitestar.

CarVal maintains its interest in European NPLs but would prefer not to manage the operational side of a servicing business, Rob Memmott, Arrow’s chief financial officer told PDI when asked why the firm was selling up.

CarVal will retain a seat on the board of Whitestar for five years, the same length of time that the two stressed debt investors have agreed to an origination tie-up. CarVal is much larger than Arrow but the partnership opens up the potential for Arrow to do bigger transactions. Arrow will have first refusal on joining any large transactions that CarVal is bidding on in Portugal, Memmott explained.

With the acquisitions, Arrow is making its first moves towards secured debt in Portugal. Before now, it had concentrated on unsecured asset sales but between servicing fees and returns from recoveries on secured assets, Arrow says it can reach the mid-20s return on equity it targets.

Arrow’s €565.6 million NPL purchase saw it spend €37 million for 12 different portfolios. The assets are mixed, coming from both international and domestic Portuguese lenders, said Memmott. Some of the assets are guaranteed against security worth around 60 percent of Arrow’s purchase price. The firm is targeting a return of around 2.1x its initial outlay, or €77.7 million over 10 years on the assets, he added.

Arrow began looking towards servicing and secured debt last year when it bought UK loan servicer, Capquest. The firm anticipates spending around £150 million on new portfolios this year with the vast majority evenly split between its two main markets, Portugal and the UK, Memmott continued.

Arrow has also acquired Gesphone, a Portuguese NPL buyer and asset servicer, paying €8.3 million for the business and a €77 million face-value loan portfolio.

Arrow was established as the European subsidiary of Arrow Financial Services. In 2009 it was taken over by RBS Special Opportunities Fund and listed on the London Stock Exchange in 2013.

CarVal Investors is an independent subsidiary of commodities trader, Cargill. It focuses on distressed investment and has more than $10 billion in assets under management.