Sale of €5.5bn Propertize bad bank dubbed Project Swan kicks off in January

NL Financial Investments, the financial entity established by the Dutch State to bail out the country’s bank in the global financial crisis, has formally sanctioned the privatisation of the Propertize bad bank, in a sale process dubbed Project Swan.

PropertizePropertize – formed in January 2014 following the nationalisation of SNS REAAL’s troubled property finance division – owns a portfolio of commercial real estate loans and direct real estate with a gross value of €5.5bn.

The bad bank’s name is a somewhat clichéd verb invention contrived by conflating “property” and “monetizing” in the interests of the Dutch tax payer.

Lazards was appointed in August to explore market appetite to buy Propertize, comprising the sale of all loan, direct assets as well as the wider platform, business infrastructure and staff.

In a statement issued yesterday, NLFI confirmed that it intends to pursue the sale of 100% of the share capital in Propertize to either” a single buyer or to a consortium”.

The statement continued: “The aim of the divestment is to achieve the highest value for Propertize and to execute a satisfactory transaction expeditiously, with the least execution risk and disruption to the business, taking into account the interests of all stakeholders involved.”

An overview of Propertize’s portfolio is provided at the end of this article.

NLFI confirmed that prospective bidders will have to source third party finance as the €2.6bn debt currently financing Propertize, which is guaranteed by the Dutch State, will be retired.

“Interested parties are therefore to assume a complete refinancing of the Company in their offer. Buyers are allowed to propose alternative financing as well in which case the Dutch State will evaluate the risks and rewards related to this alternative.”

The competitive auction process will consist of at least two phases. Bidders admitted to the first phase of the auction process will receive a confidential information memorandum and detailed information on Propertize’s loan portfolio. This is expected to be disseminated in the first week of January 2016.

The interested parties will be requested to submit a non-binding offer on the basis of this information. In the second phase, finalists will be given the opportunity for a due diligence review of Propertize, after which they will be requested to submit a binding offer.

Propertize’s net exposure to commercial real estate has fallen by €997m to €3.9bn over the nine months to the end of September – almost a doubling of the pace compared to the equivalent period last year. In addition, credit provisions of €1.6bn have been set aside for defaulted loans.

This increased deleveraging has co-incided a with the bad bank reporting a profit of €33m for the first nine months of 2015 and enabled Propertize to pay down €819m in debt.

Inside Propertize’s €5.5bn CRE loan portfolio

Propertize’s latest third quarter update does not provide a detailed picture of its CRE loan and asset portfolio. However, the half year results published in August do shed some further light on the bad bank’s portfolio.

According to its half year results to the end of Q2, Propertize’s gross exposure to real estate was €5.6bn, just €0.1bn higher than at the end of September, and comprised of:

  • €3.2bn in non-performing loans; and
  • €2.4bn in performing loans. 

Of the €3.2bn NPL pool, €2.2bn are in what the bad bank dubs its “value retention bucket”, and the remaining €1.0bn are in the “stop-loss” bucket, while just €26m were categorised as “healthy”.

Breaking this portfolio down into net exposure, which bidders will seek to price the loan book at a discount to, Propertize’s loan book was €4.28bn at the end of the second quarter.

This net €4.28bn loan portfolio was comprised as follows:

  • €1.1bn in “healthy” loans (borrowers which are paying interest, make redemptions and no loss on the outstanding balance is expected in the medium term);
  • €2.88bn in the “value retention and creation” bucket (mainly consisting of Dutch loans and property assets which offer opportunity for creating value in the short or medium term. Active asset management is essential);
  • €302m in the “stop-loss” bucket (loans secured by assets with no scope for value creation – Propertize has earmarked these loans for quickest possible exit in order to minimise losses and risks).

About CoStar News

Finance Editor, CoStar News
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