KKR has launched a special vehicle to acquire and transform big corporate loans that are souring on the balance sheets of Europe’s banks.
In a novel approach, the US buyout group said it will use an initial €1bn portfolio transferred by the Italian banks UniCredit and Intesa Sanpaolo into a larger Europe-wide platform.
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Under the structure, banks would enter into a joint venture with KKR, which will inject equity into the large, overindebted businesses underlying the bad loans.
KKR will also provide operational know-how from Capstone, the firm’s in-house consultants, in an effort to turn performance round.
Banks working with KKR will be offered a way of freeing up capital held against the bad loan positions while sharing in the upside if the turnrounds improved company valuations.
“The platform is open to other lenders and companies who would benefit from fresh capital and additional operational support,” KKR said.
Almost seven years after the financial crisis, European bank balance sheets continue to groan under nearly €2tn of non-core assets, €1.2tn of which are non-performing, according to a recent PwC study.
KKR’s new vehicle could also be a private equity answer to government-created bad banks which have often focused on property, versus deep turnrounds within corporate loans.
Banks remain wary of selling off these loans at discounts to marks in their books, leaving them to absorb capital that could be used for new lending.
“There are a number of countries where we’ve spoken to the finance minister, the prime minister, and they see this as a key problem,” said Johannes Huth, head of KKR’s Europe, Middle East, and Africa operations.
“Someone has to put the capital up to fix this, and that’s what we’re saying we can bring,” he added.
The European Central Bank’s comprehensive assessment of asset quality within banks, last year, put the level of non-performing exposures on to the regulatory radar.
“For us, whether we take control of these businesses or not, we don’t care. That’s not the purpose,” Mr Huth said.
He added: “In the end, we’ll make money if the liabilities a business has towards the bank are no longer worth 40 cents [on the euro], but are worth par.”
Governments in Ireland and Spain have previously set up Nama and Sareb as asset management companies to take on real estate loans that festered inside their banks.
Mubashir Mukadam, head of KKR’s special situations business in Europe, said that “corporates have been left behind in many countries”.
The Italian government this week passed legislation to speed up non-performing loan sales amid signs the market for them is reviving.
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