KKR to expand Italian ‘bad loans’ platform

KKR, UniCredit and Intesa Sanpaolo have ramped up the vehicle with almost €1 billion in debt and equity exposure to Italian companies.

KKR Credit plans to make its Italian ‘bad loan’ platform with Italian banks UniCredit and Intesa Sanpaolo pan-European, in a bid to support other banks managing their exposure to non-core and underperforming assets, the firm announced.

Almost €1 billion in initial debt and equity exposures is to be transferred from the balance sheets of UniCredit and Instesa Sanpaolo to the vehicle to which KKR will provide long-term capital and operational expertise.

It’s estimated that there is around €1.2 trillion of non-performing loans in Europe at present. Many European banks have been constrained from injecting cash into struggling companies as a result of regulation created in the wake of the financial crisis. Equity balance sheet exposures can carry capital charges of around 300 percent, PDI understands.

Banks have also had to make provisions against bad loans. Hence, many have been forced to fire sale portfolios or place loans into ‘bad banks’.

The UniCredit and Intesa Sanpaolo platform has been the subject of discussions with KKR and restructuring advisor Alvarez & Marsal since April 2014, and is one of the latest iterations of how banks in Europe are addressing bad loans.

At present, there is exposure to around six or seven companies in the platform. Andrea Giovanelli, head of restructuring for UniCredit until recently, has been appointed chief executive to lead the platform in Italy and will do both portfolio management and help with the expansion of the platform.

KKR’s Italian team will focus on Italy while the firm’s London team will look to expand the platform with banks in other countries, Ludo Bammens, head of EMEA corporate affairs, told PDI.

“The critical point, especially for the non-performing corporate loan portfolio, is that you have a critical mass, meaning the banks that are part of the platform, if taken together, have a sufficient level of exposure to the company to have influence and effect change, Bammens explained.

Fresh capital will be funded from KKR’s special situations funds and other funds managed or advised by KKR or its affiliates. “As a general rule of thumb, about 20 percent fresh capital, compared to total exposure, will be needed to help these companies,” Bammens said.

Johannes Huth, head of KKR Europe, Africa and Middle East, said in a statement that the platform would help banks manage exposures including non-core and underperforming corporate loans, real estate and shipping. “The evolution of bank strategies in response to changing regulation has created a real opportunity for such an approach,” Huth said.

Mubashir Mukadam, KKR’s European head of special situations, added: “The Italian platform is built in open architecture allowing other banks to join and include their own exposures. Besides Italy, we are evaluating opportunities in a number of other selected European countries in the near-term.”

Other US investment firms that have set up partnerships with Italian banks recently include HIG Bayside Capital and Blackstone GSO.