The nearly year-long effort to offload UniCredit’s €17.7 billion bad-loan portfolio via U.S. private equity-led securitization is finally bearing fruit.

A €769.9 million (US$857.5 million) deal, dubbed Fino 1 Securitisation s.r.l., is backed by non-performing commercial loan and mortgage assets originated by UniCredit, Italy’s largest bank, and serviced by its former “bad-bank” affiliate controlled by Fortress Investment Group since 2015.

The loan sale and subsequent Fino 1 securitization are the first market activities emanating from UniCredit’s “Project FINO” (as in, “failure is not an option”), a plan that Chief Executive Jean Pierre Mustier announced last December to clear problem loans from the €895.5 billion-asset bank while adding €13 billion in new capital by 2019.

Jean Pierre Mustier
Jean Pierre Mustier Bloomberg News

Project FINO led to the discount sale (reportedly 13% book value) of the nearly €18-billion UniCredit NPL portfolio to Fortress and Pimco that was finalized in July. Fortress and Pimco will each manage a securitization platform to sell off the NPLs through euro-denominated bonds backed by the collection activity on the dormant and delinquent loans.

The Fino 1 deal involves loans serviced by doBank (formerly Unicredit Credit Management, renamed in a 2015 joint venture takeover led by Fortress), which have a gross-book value of €5.34 billion, according to rating agency reports.

Approximately 52% of the loans in the pool are mortgages secured by residential properties. The unsecured loans are generally commercial business loans, according to rating agency reports.

Only 20% of the loans were originated before the financial crisis; the remainder are delinquent and defaulted loans originated between 2010 and 2017.

Moody’s Investors Service and DBRS both assigned investment-grade ratings to €650 million in Class A senior notes. Moody’s assigned an A2 rating, five notches below its Aaa level rating. DBRS assigned a BBB rating, four steps down from a triple-A on its more condensed long-term ratings scale.

Also being rated are €29.6 million in Class B notes (Ba3/BB - high) and €40 million in Class C notes (B1/BB). Sources familiar with the transaction say those mezzanine/junior tranches will be retained by Fortress. No ratings were assigned to a $50.3 million Class D series.

Fortress, a major investor in real estate holdings and servicing rights, could not be reached comment at press time.

Italian banks have been under pressure from national and European regulators to shed NPLs, which represent a disproportionate share (17.3%) of institutional gross loan holdings in Italy compared to the European Union average (5.1%), according to Moody’s.

This isn't Fortress' first sponsorship of a securitization of mortgage-related assets. In September, Fortress-controlled Nationstar sponsored a securitization of reverse mortgage defaults that would pay notes from the sale of repossessed properties and insurance claims. Another Fortress asset, CoreVest American Finance, marketed its first-ever asset-backed transaction of single-family home rentals in October.

Fortress, the first private equity firm to go public, in 2007, is being taken private in a $3.3 billion acquisition by Japan's SoftBank Group. The deal is slated to close in the fourth quarter.

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