PIMCO fund gets BBB rating for HB ‘Starlight’ NPLs

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DBRS Morningstar assigned a BBB rating to a series of notes issued by PIMCO fund Capella Financing that has undertaken the majority of €1.4 bln worth of non-performing loans of Hellenic Bank as part of ‘Project Starlight’.

The rating agency’s German subsidiary, DBRS Ratings GmbH, announced Friday it had assigned a rating of BBB (high) (sf) with a ‘negative trend’ to the Class A notes issued by Luxembourg-based Capella Financing.

It has not rated the additional Class B, and Class Z notes.

The Class A, B and Z notes are backed by €786.7 mln worth of NPLs from Hellenic Bank, the Cooperative Asset Management Co. (formerly Cooperative Central Bank) and Barclays Bank, serviced by APS Debt Servicing Cyprus (now Hellenic Servicing Platform).

As part of the deal, Hellenic SP has also been sold to another PIMCO fund, Oxalis Holdings.

Most of the portfolio relates to NPLs secured over real estate collaterals in Cyprus, with a total market valuation (REV) of €803.8 mln.

DBRS said as of Q4 2022, actual collections were below target and amounted to €58.3 mln compared with the business plan expectations of €100.5 mln.

DBRS Morningstar said the recovery expectations of gross collections for the portfolio is €534.0 mln, assuming a haircut of 46.4% to the servicer’s business plan.

The final maturity date of the transaction is January 2054.

The rating agency said: “The coronavirus pandemic and the resulting isolation measures had caused an economic contraction, leading in some cases to increases in unemployment rates and income reductions for many borrowers.

“For this transaction, DBRS Morningstar incorporated its expectation of a moderate medium-term decline in commercial real estate prices for certain property types.”

Project Starlight refers to the sale of a non-performing exposures (NPEs) portfolio and the sale of APS Debt Servicing Cyprus for €37 mln to Themis Portfolio Management (an indirect subsidiary of Oxalis Holding SARL) which is an entity managed and advised by PIMCO.

Poppy SARL, which owns 17.3% of Hellenic Bank’s share capital, is owned by investment funds managed by PIMCO.

The bank said it would retain 66.7% of the Senior Note (€113 mln) and 5% of each Mezzanine (€4.5 mln) and the Junior Notes.

The deal will have a positive capital impact of 0.8%, with the pro forma CET 1 ratio rising to 19.1% from 18.3% on 31 December 2022.

“The completion of Project Starlight heralds a new era for the bank.

“We have managed to substantially de-risk the balance sheet from NPEs, reducing the NPE ratio to a pro forma 3.6%,” Oliver Gatzke, CEO of Hellenic Bank, said in a statement.

“This was a capital accretive transaction, while the bank’s participation in the financing of the senior Note ensures an interest income benefit in the coming years.

“Furthermore, through the sale of APS Debt Servicer to Themis, we look forward to the cooperation with PIMCO for further deleveraging of the bank’s NPEs.

“At a time of heightened volatility in the global markets, the bank’s financial fundamentals remain strong, with high levels of capital and ample liquidity, while the evolving interest rate environment is elevating the bank’s profitability.”