U.S. Investment Funds Target Italian Shipping Debt Deals

By Pamela Barbaglia and Jonathan Saul

LONDON, Aug 5 (Reuters) – Distressed debt investors are looking to buy shipping loans from Italian banks, encouraged by legal and regulatory changes that could reduce the chances of them getting embroiled in drawn-out bankruptcy proceedings.

U.S. hedge funds including Davidson Kempner, King Street Capital, York Capital and private equity firm Z Capital, have set their sights on an estimated $13 billion of shipping loans portfolios held by Italian banks, six sources said, speaking on condition of anonymity. Some of the loans are bad debts.

Buyout funds KKR and Oaktree are also considering shipping debt deals in Italy, the sources said.

Some of the U.S. hedge funds, often described as “vulture funds” as they buy assets cheaply before selling them on in a rising market, are eyeing portions of the 373 million euro ($406 million) debt of shipping firm Premuda, the sources said.

Premuda said last month it “will perform a series of divestments of assets” as part of a plan proposed to its banks.

Four sources said other targets include Gestioni Armatoriali, Perseveranza SpA, D’Alesio and bulker and tanker firm Rizzo-Bottiglieri-De Carlini (RBD), which filed for U.S. insolvency in April, according to a court filing.

Perseveranza co-Chief Executive Angelo D’Amato told Reuters that his firm has repeatedly been approached by international investors in recent months seeking to buy its debt, currently under restructuring, at a bargain price. Management had no interest in negotiating.

“Vulture funds are unable to grant business continuity, which is our main task these days,” said D’Amato.

“Their plan is to make a quick profit by buying loans at the cheapest possible price, securing vessels as collateral and selling them (the ships) as soon as they see a window of opportunity,” he said.

Premuda, RBD, Gestioni Armatoriali and D’Alesio could not be reached for comment.

Davidson Kempner, King Street Capital, York Capital, Z Capital, KKR and Oaktree declined to comment.

TOXIC DEBT

Italy’s banks are saddled with some 190 billion euros of non-performing loans (NPLs), or bad debt, mainly secured by real estate, which is unlikely to be repaid as the country struggles to emerge from its longest recession since World War Two.

The shipping industry is a major borrower and has been one of the worst hit by the economic slump and the vast majority of Italian shipping firms, with the exception of d’Amico Società di Navigazione and Grimaldi Group, are under restructuring, six sources said.

Italy’s top two banks, UniCredit and Intesa Sanpaolo hold the bulk of the country’s shipping loans having nearly 7 billion euros ($7.60 billion) worth of Italian shipping debt between them, sources close to the banks said.

Monte dei Paschi holds around 1 billion euros worth of shipping loans, while General Electric’s lending arm Interbanca and a series of mutual banks, the so-called Popolari, hold the rest, the sources said.

UniCredit and Intesa have so far been reluctant to sell their loan books at a highly discounted rate, several investors and banking sources said.

UniCredit, whose global shipping operations are run out of Hamburg in Germany, has spent several years restructuring its shipping debt, now worth around 4 billion euros, a source close to the bank said, ruling out interest in taking a loss on selling shipping debt.

The bank said in 2012 it was scaling down its ship financing operations in order to boost its capital reserves.

Representatives at UniCredit, Intesa and General Electric declined to comment while Monte dei Paschi was not immediately available for comment.

LEGAL REVAMP

Legal changes aimed at making it easier for creditors to recoup collateral if borrowers go bankrupt has spurred interest in the troubled Italian shipping industry.

“The Italian insolvency law has been repeatedly simplified over the past couple of years and recent changes introduced by (Prime Minister Matteo) Renzi’s government have helped create a better environment for international investors,” Gennaro Mazzuoccolo, a Milan-based partner at law firm Norton Rose Fulbright, said.

Changes to the existing bankruptcy law were first introduced by the cabinet on June 27 as part of Decreto Legge 83/2015 and made a permanent law on Wednesday.

The new measures will allow creditors to submit their own restructuring proposals to Italian courts handling insolvency proceedings known as “concordato preventivo,” alongside those of the borrowers.

But while speeding up insolvency disputes, Renzi’s reforms mean Italian companies no longer need unanimous consent from all their lenders to start restructuring their debt, said Furio Samela, a Rome-based shipping finance partner at Watson Farley & Williams.

Hedge funds would typically apply a 40 percent discount on average to the book value of Italian shipping loans to reflect higher default risk and greater potential for trouble when it comes to recouping their money in court, the sources said.

Nicholas Tsevdos, head of shipping and infrastructure with asset manager CR Investment Management, which has bid and advised on bank shipping portfolios including Italy in the past, said uncertainty over regulation in recent years had meant banks in part had held off fire sales of their portfolios.

An investment vehicle led by Goldman Sachs provided the only notable exception last year after it purchased chunks of debt of RBD from UniCredit and GE Capital Interbanca.

($1 = 0.9210 euros) (Editing by Sinead Cruise and Susan Thomas)

(c) Copyright Thomson Reuters 2015.

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