NPL and REO transactions continue to take off in Latam, Spain and Portugal

NPL transactions continued to take off in the third quarter of 2021. A growing interest in NPL securitizations has been perceived, especially in Spain. In Europe, meanwhile, talks continue on two key topics: the draft directive on credit purchasers and credit servicers – which has made great progress –, and talks on the European Banking Association’s templates aimed at simplifying NPL portfolio transactions. The gradual disappearance of forbearance programs and other support measures in Latin America, Spain and Portugal are fueling very reasonable estimates on the forthcoming launch of new transactions.

NPL transactions continue to take off

In the third quarter of 2021, NPL transactions continued to take off, although not uniformly or across all jurisdictions, in either number or size of transactions. Transactions in Europe, for example, are still far from pre-COVID-19 figures (€102,8 bn in 2019 and €208,2 bn in 2018, according to Debtwire).

Industry estimates are that the fourth quarter of 2021 will be laden with new mandates for financial advisors to build the next NPL portfolios, because in a number of large markets (United Kingdom, Germany, Spain) sellers have already finished internalizing the end of forbearance programs and other support measures. On September 30, 2020, the UK lifted restrictions on winding-up petitions and creditors can now bring them if their claim is £10,000 or more, although the restriction on winding-up petitions for commercial rent claims remains in place until March 30, 2022. And on April 30, 2021, Germany lifted the suspension of the obligation to file for insolvency for overindebted companies that requested financial support. In Spain the restriction still in force allowing insolvency proceedings to be avoided is expected to end on December 31, 2021, following repeated warnings from the Bank of Spain on the inefficiencies caused by keeping the restriction for longer.

Growing interest in NPL and REO securitizations

While portfolio sales gather speed, a very clear interest has been seen (in Europe and also in a few Latin American countries) in securitization transactions. In Europe that interest has been spurred by the very favorable reform of the rules on NPL securitizations, which we explained in an earlier publication. A sign of this interest in NPL securitizations in 2021 was Oaktree's completion in Spain of one of largest deals of the year (Retiro Mortgage Securities).

Draft EU directive on NPL purchasers and servicers

Winds of change are blowing from the European Union for servicers specializing in recovery and management and purchasers of NPL portfolios. In a meeting on June 28, 2021, the EU Permanent Representatives Committee approved a final compromise text for the proposal for an EU directive on credit servicers and credit purchasers (the “Directive”). A vote in plenary on that final compromise text was included on the agenda for the sitting of the European Parliament on October 19, 2021.

Approval of the Directive may reasonably be predicted for the first quarter of 2022 although it could come earlier considering that the existing text is the outcome of a prior global agreement between the European Parliament, the European Council and the Commission in the “trilogue” process. The truth is, however, in the past (2014-2019) 89% of legislative texts were approved at the third reading and only 1% went through in the first.

Talks on European Banking Association (EBA) templates

In May, 2021, the European Banking Association published a document to take forward the templates review process with which it is sought to eliminate information asymmetries in NPL portfolio sale transactions. The consultation period opened by the EBA ended on August 31, 2021. Various market participants have made comments on the templates, their design, the information fields, the relative importance of a few of them and the barriers and problems for access to a certain class of information. Final approval of the Directive will mean these templates becoming mandatory technical standards (“implementing technical standards” or ITS), so the current work by the AEB and other participants (portfolio sellers especially) is directed at making the templates simpler, more reasonable and more effective, with the aim of having them accessible to the market at the end of 2021.


So, what main trends are already visible in the main LatAm, Spanish and Portuguese markets? What transactions are being performed in these jurisdictions and which have yet to come?

Garrigues is pleased to share our view of the main trends in these debt markets, drawing from our on-the-ground network of offices in Colombia, Mexico, Peru, Portugal and Spain.


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