“The tail of the deleveraging process for Spanish banks could see EUR 10bn-EUR 15bn of non-performing loan securitisation and private sales in 2019,” said Paula Lichtensztein, senior representative in Scope Ratings’ structured finance team.

The transaction currently in the market is a portfolio of loans originated but subsequently sold by units of Abanca Corporación Bancaria. The portfolio consists of EUR 494.7m in NPLs (outstanding balance) plus real-estate-owned properties (REO) valued by third-party appraisal at EUR 40.3m. The deal is a static cash securitisation split into four classes: a EUR 170m senior class A, rated (P)BBB-SF; a EUR 30m mezzanine class B, rated (P)B-SF; an unrated EUR 15m junior class J, and an unrated EUR 16m equity class Z.

Scope had pointed to the emergence of the first Spanish NPL and REO ABS in a report in March “Spanish NPLs – five key themes for 2019”, which noted that hedge funds and private equity firms would drive securitisation activity, whereas financial institutions prefer direct portfolio sales.

From a banking sector perspective, Marco Troiano, deputy head of the financial institutions team at Scope, is not expecting large portfolio transactions from the Spanish banks this year, however. “2018 was the year of the jumbo transactions; it will probably be smaller transactions from now on, not least because outstanding stocks are lower,” Troiano said. This reflects a material improvement in Spanish banks’ credit fundamentals in recent years.

One of the potential pitfalls to be aware of when it comes to the emerging Spanish NPL ABS market will be the impact of recent legal changes. “One area that will be critical in determining the success of Spanish NPL ABS is the impact of recent legal developments in Spain as this could impact the timing of expected collections. This is one of the main uncertainties in this [first] transaction,” said Lichtensztein.

The full report can be downloaded here.