NPL Securitisation

Who are the main users of NPL securitisation?

• Banks - Key objective when they embark on the securitisation journey is to deleverage, reduce NPL ratios and release resources
  
  
• Investors - Buy NPL portfolios from banks, establish an appropriate servicing strategy and then securitise the portfolios: their key objective is to refinance the acquisition finance and extract value from the NPL portfolio when the proceeds from the securitisation are higher than the purchase price of it. Investors are therefore typically asset managers, pension funds, hedge funds, private equity funds and sometimes banks.

What are the types of NPL securitisations used internationally?

1. Rated securitisation with an Asset Protection Scheme (or APS)
2. Rated securitisation without APS
3. Unrated securitisation

The first type includes examples such as HAPS in Greece and GACS in Italy. It has also been used in the past in the context of ad-hoc specific counterparties such as the APS scheme for Royal Bank of Scotland in 2009. There have been similar implementations for Lloyds, and in Portugal for the former Banco Espirito. However, it is only Italy and Greece that have so far introduced NPL APS schemes.

With regards to the 2nd type (rated securitisation without APS), in Portugal, Spain, Ireland and Cyprus, banks and investors are using such tools and asking rating agencies to rate a portion of the capital structure

The unrated ABS market is clearly a private one and sizes and volumes are difficult to quantify. What often happens is that unrated NPL ABS are initially financed privately and then subsequently get rated.