Bayside anchors €500m Italian loan fund

Through partnership with IDeA Capital Funds, both Bayside and IDeA aim to manage distressed Italian corporate loan portfolios of up to €500 million in nominal value.

Bayside Capital plans to invest in Italian mid-sized businesses in distressed situations through a platform co-managed with IDeA Capital Funds, the firms said in a statement.

Idea CCC (Corporate Credit Recovery) is in discussions with several major Italian banks to contribute to a new vehicle a portfolio of medium- and long-term corporate loans with nominal value of €250 million at closing, Duncan Priston, managing director at Bayside Capital in London, told PDI. Further loans could be contributed to the portfolio over the next twelve months though, possibly raising the figure to €500 million. Potential loans have been marked down already, in line with provisions the banks have already made.

“One of the problems competing structures faced was in order to buy assets, they were asking banks to take significant haircuts on day one which obviously hit the profit and loss accounts, and has proved problematic in getting deals done,” Priston said.

“There is a lot of pressure from the banking regulator to deleverage and they are looking for ways to do this in an economically sensible way. The platform is an effective way of managing that, while maintaining optionality to increase future value with these loans worked out in a constructive way,” he added.

The new structure is due to be operational around mid-July, subject to approval from the Bank of Italy. In return for the loans, the participating banks will receive notes issued by Idea CCR. “Proceeds [from the restructurings] will be distributed in a pre-defined formula amongst the banks and the new investors,” Priston said.

Bayside and IDeA are seeking to inject both additional liquidity and restructuring expertise into the portfolio of loans, with a view to ultimately exit but meanwhile create more value than if they were left on the bank’s balance sheet. “It is that aspect that the banks are particularly interested in,” Priston said. It’s envisaged that it will take around four to five years to exit the loans.

Idea CCR is expected to raise funds from anchor investor Bayside and others of up to 20 percent of the nominal value of the contributed portfolio. Bayside’s investment will be made from the Bayside European Loan Fund III. The funds will be made available to Idea CCR to support the financial and operational restructuring of the distressed debt companies.

Operating governance of the companies is expected to be controlled by Idea CCR through restructuring agreements, managed by a team led by Franesco Gori, former chief executive of Pirelli Tyre, and Vincenzo Manganelli for the financial restructuring process.

Commenting on the reportedly difficult restructuring environment in Italy, Priston said: “You do have a helpful framework with 182 BIS which allows us to put money into businesses on a super senior basis and protect that money but it does need to be consensual.”

Roberto Saviane, chairman of IDeA Capital Funds, noted: “IDeA Capital Funds will contribute the new venture with the knowledge and contacts in the financial and industrial Italian sector and will support the relaunch of the portfolio companies with its management and financial skills.

Bayside and IDeA’s collaboration with Italian banks follows a series of similar tie-ups between US private investment firms and Italian banks, such as between Blackstone’s GSO Capital Partners and Intesa Sanpaolo, announced in March this year. That initiative aims to finance Italian mid-market borrowers on a case-by-case basis. KKR and restructuring advisor Alveres and Marsal also announced a partnership with Intesa Sanpaolo and Unicredit last year.