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Long awaited Bluebonnet swamped with interest

If ever there was an eagerly anticipated deal, it is Bluebonnet Finance. The €1.34 billion securitization of a portfolio of non-performing German loans was launched in December 2006 but had been in the works ever since Lone Star Funds bought a €3.6 billion pool of NPLs from HypoReal Estate in late 2004. Securitization was always the planned exit from the investment, but getting from A to B was a lengthy process.

Euromoney Liquid real estate March 2007 

» at a glance

Deal: Bluebonnet Finance NPL securitization
Amount: €1.34 billion

» Arranger: Citigroup

Several potential structures were submitted to the rating agencies before the final deal emerged. It is backed by a mixture of performing, sub-performing and non-performing assets worth €2.8 billion (but the lion’s share (62%) is non-performing). The pool is grouped into engagements, which link all exposures to particular debtors together.

Bluebonnet is the first deal in an untested asset class. Given the nature of the assets backing any NPL deal, the workout strategy is of paramount importance. The only other European jurisdiction where NPLs have been widely securitized is Italy, and several of those deals have fallen significantly behind schedule.

The Bluebonnet business plan envisages two main resolution strategies. NPL claims will be settled either by standard foreclosure or direct asset sales and performing or restructured loans will be settled with the debtor or refinanced. As NPLs dominate the pool it is the success of the first strategy that will make or break the deal’s performance.

Compulsory sales involve a public auction. If the highest bid at auction falls below 70% of the estimated market value of the property the sale can be blocked and a second auction takes place.

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