The rise of the corporate portfolio - Q3 2016 market update

16 November 2016

Blog snapshot:

  • European bank loan portfolio transactions set to exceed €125bn yet again
  • Shipping and other long dated assets are back on the trading menu
  • Is the time right to take a closer look at the Middle East?
  • Download the full report

 

It was Harold Wilson who once said that “a week is a long time in politics”. He was referring to the volatile nature of politics and the fact that things change very quickly. Whilst the European bank loan portfolio transaction market doesn’t move quite as quickly as that, things have certainly changed since the second quarter and our last market update report...

 

EU referendum impact

In the third quarter of 2016 loan portfolio transaction volumes have already reached €75bn, with a further €81bn of transactions in progress. This is despite a temporary pause in the market over the summer months for a few deals, mainly due to the UK’s EU referendum result.

 

Shift in asset classes trading?

One key trend has been an increase in activity in corporate loan portfolios, including those backed by shipping, aviation and longer dated infrastructure assets. Many lenders tell us that they regard such portfolios as non-core for performance or strategic reasons, although relatively few have traded in comparison to the volumes that banks would like to transact.

Certain sectors, such as shipping, have been affected by a prolonged downturn due to a combination of macroeconomic and sector specific factors. This resulted in a number of banks being, until now, reluctant to sell at what they thought were depressed prices, in the hope of future recovery on collateral values.

The buyer population for such assets, especially long dated performing loans, is significantly more limited, compared to property backed assets, which have dominated loan sales to date. The same can also be said to apply for non performing corporate assets which require a specialist set of due diligence and servicing skills. These are limited to a smaller number of advisors and investors compared to, for example, those focusing on servicing or realisation of property collateral.

As a result of the higher execution risk, banks have, to date, shied away from bringing such assets to the market and have, in the main, preferred to deal with them on a single name basis.

 

Larger transactions?

However, the relative material size of such assets on banks’ balance sheets means that more and more financial institutions are gradually more willing to entertain larger transactions on a portfolio basis.

With activity increasing, there may be an impetus on other banks to consider the options for their non-core corporate portfolios and whether now is the right time to start looking at a portfolio solution.

 

Time to look at investment opportunities in the Middle East?

Macroeconomic and regulatory developments are encouraging a number of local banks to think carefully about their balance sheets and we believe there is an increasing appetite for portfolio transactions in, for example, the UAE. Whilst there remain a number of challenges we believe there are investment opportunities for those willing to be first movers.

 

Full report

To get full details of European bank loan portfolio transactions, including our analysis of whether now’s the right time for investors to take a closer look at the UAE market in the Middle East, download the report here.

 

Do get in touch if you’d like to discuss any of the issues I’ve covered here.

Richard Thompson |  Global Leader, Portfolio Advisory Group
Profile | Email | +44 (0)20 7213 1185

 

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