Winner: Project Galaxy
Project Galaxy has won the Transaction of the Year category in SCI’s NPL Securitisation Awards. The deal marks the second largest rated EMEA NPE securitisation, with €10.8bn in gross book value (GBV). Project Galaxy is also the first public securitisation in the Green Market from the deal’s originator, Alpha Bank, as well as its first transaction enrolled in the Hellenic Asset Protection Scheme (HAPS).
Closing in 2Q21, Project Galaxy enabled Alpha Bank to significantly reduce its non-performing loan ratio down to 13% from 29%. The deal securitises both retail and wholesale exposures, with retail including predominately non-performing exposures collateralised by residential real estate, as well as consumer and small balance loans.
Under the transaction, Alpha Bank retained all of the €3.8bn in senior notes, as well as 5% of the €7bn mezzanine and junior notes. A further 51% of the mezzanine and junior notes are intended to be sold by an entity managed by Davidson Kempner, and 44% of the remaining notes distributed to shareholders.
Galaxy was supported by Alantra, serving as co-arranger and financial lead advisor to the deal. Alantra brought expertise to the structuring of the securitisation, advising on the structure and preparation of data tapes and marketing materials, the structuring and cashflow modelling of the transaction, as well as the coordination of third parties and sales processes.
“This transaction confirms Alantra’s unique position as the leading advisor in supporting European issuers and investors in structured NPL trades, including securitisations. It is also a great testament of the benefit of having APS support schemes in place to deleverage European NPEs, and the continued interest of global investors for these exposures,” states Francesco Dissera, md and head of Alantra’s securitisation practice.
Alpha Bank opted to retain the senior notes by applying a significant risk transfer status for the deal, thereby providing an attractive risk-return investment. Alantra was able to bring extensive knowledge of SRT and ECB guidelines to the deal, allowing also for a speedier execution.
The highly complex transaction also proved transformative for Alpha Bank’s balance sheet, enabling the bank to not only normalise the cost of risk but also establish an internal NPE management team of around 1,000 people to service the new portfolio. In turn, this also aided the speed of execution, as the servicer was already fully operational before the close of the transaction.
Project Galaxy benefited from the Greek government guarantee, HAPS. “HAPS was a very important catalyst for Greek NPL securitisations when introduced,” explains Kostas Skliros, Alantra svp involved on Project Galaxy. “It created incentives for servicers to create business plans that they will be called to execute, linked their fees to the performance of these business plans and established minimum collection thresholds that if breached, penalties would be applied in the form of a reduction of the serving fees or even the termination of the servicer by the guarantor.”
He continues: “HAPS also introduced the necessity of rated senior notes prior to the guarantee becoming available – therefore, an externally recognised agency can express an opinion on the risk of the senior notes. This process materially increased leverage at a reduced cost, due to the presence of government guarantees.”
The transaction also occurred in conjunction with the sale of Cepal Holdings, of which a 20% stake in New CEPAL was retained by Alpha Bank, along with customary governance rights. Alpha Bank was also able to align interests with anchor investor, Davidson Kempner, which acquired 80% of Cepal Holdings.
“Alpha Bank ran a competitive process to find an experienced counterparty to service the loans and maximise proceeds by using the HAPS scheme. The fact that Alpha Bank managed to carve out its internal unit to service the new loans increased execution certainty and speed while minimising migration timing,” states Skliros.
Following Galaxy, further Greek deleveraging activity through primarily HAPS NPL securitisations is anticipated through 2022 until the programme expires in October. As a result of NPL securitisations, the NPE stock in Greece has been reduced by approximately €51bn, as of year-end 2021.