Deal Maker of the Year Awards 2013 WINNER - DANNY FRANS
DEAL: Lone Star and Credit Suisse acquire credit portfolio from Royal Park Investments for €6.7bn
NAME: Danny Frans COMPANY: ROYAL PARK INVESTMENTS POSITION: CEO WEBSITE:
www.royalparkinvestments.com
FIRM PROFILE
Danny Frans is Chief Executive Officer of Royal Park Investments SA/NV, since end 2008, responsible for the general and daily management of the company. Royal Park Investments SA/NV is a special purpose company, created and incorporated on November 20th, 2008, for the purpose of acquiring and managing in ‘run-off’ the legacy structured credit portfolio of the former Fortis Bank SA/NV. Prior to joining Royal Park Investments SA/NV, he worked with Fortis Bank SA/NV, since 2002, first as a Senior Portfolio Manager and later as Head of Structured Credit Management Group at Fortis Bank SA/NV Brussels, a position he held since mid-2007. Before Fortis bank SA/NV, he worked for Bacob Bank, where he, during 1996, participated in the innovative creation of the first Belgian residential mortgage backed securitization. He has more than 19 years of experience in Structured Finance and 11 years in Trade Finance.
DEAL OVERVIEW
Introduction Royal Park Investments SA/NV (“RPI”) was set up as a special purpose vehicle, by ageas (formerly Fortis Holding), the Belgian State, represented by SFPI/FPIM and BNP Paribas, with the purpose of acquiring and managing a part of the structured loan portfolio of the former Fortis Bank. RPI was incorporated on 20 November 2008. The portfolio was taken over on 12 May 2009 for a purchase price of EUR 11.7 billion. The corresponding nominal value of the portfolio amounted to EUR 20.5 billion at that time. RPI’s task was to restrict and hedge the risks in the first place and also to increase the recovery value of the assets whenever possible.
Unique team of specialised analysts and managers Despite the fact that RPI was only a temporary initiative, the management succeeded in gathering the right specialists, in some areas, who also had the right attitude and mind-set. Today the management still calls this one of the most important tasks for a company start-up: investing in human capital. Right from the start RPI had a number of experienced portfolio managers, who were later joined by new portfolio analysts, who were responsible for the continuous analysis and follow-up of the individual assets in portfolio, the further development of models and stress tests and taking sales initiatives. Daily management was not restricted to portfolio management alone, but has been further expanded to treasury management, responsibility for the follow-up of the commercial paper (“CP) programme and other outstanding loans. RPI was a run-off story, but it was quickly understood that bringing this mission to a good end would mean a ticket or a next chapter in the curriculum vitae on the way to a new project and future career moves.
Successful Commercial Paper Programme On 23 December 2009 RPI launched it Commercial Paper (“CP”) Programme on the market in order to refinance USD 5.8 billion and GBP 235 million financial debt with BNP Paribas Fortis. The RPI management was optimistic about the place-ability of RPI CP with external investors and this optimism was boosted during a pre-road show which RPI organised in June 2009 with about 20 large funds in the United States. RPI’s major motives were: diversification of financing sources, improved asset and liability management and more efficient funding. The major factors which contributed to the success of the programme were: the team’s structuring capacities to adapt the ‘market standard’ to
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www.finance-monthly.com Early repayment of super senior debt
On 30 June 2012 RPI repaid its super senior debt of EUR 5 billion to BNP Paribas Fortis. This repayment took place 12 months early than planned. This was a milestone in the history of RPI. On the one hand, from that moment onwards each euro cent was used for the repayment of the senior debt, which also resulted in a reduction of the guarantee given by the Belgian State. On the other hand, the assets of RPI - which had been a collateral for BNP Paribas Fortis until that time - were also released. RPI was set up as a defeasance structure, the portfolio was always managed in run-off and with a cash sweep mechanism, where the net income was used to further repay all debt and capital.
the specific character of RPI and outline a structure/procedure which guarantees timely payment despite the restrictions which were inherent to the government structure and the handicap caused by the difference in time zone, an excellent support from the Belgian government which issued a guarantee which fully met the expectations of the investors, the implementation of a CP administration, implementation of cash management and CP management systems.
One-stop-shop via supporting administrative functions The supporting administrative functions, including back office, accounting and IT platform, were initially outsourced to BNP Paribas Fortis. Mid 2010 these services were set up in-house to achieve maximum integration of services. In the course of the past years RPI succeeded in organising itself as a one-stop-shop, with several front-to-end services. The daily management was performed by a team of specialists in structured loans, with a clear Belgian grounding, operating under BGAAP bookkeeping and with knowledge of the Belgian economy and politics. Of course, all this happened according to set management rules, shareholders agreements and under supervision of the Board of Directors.
Successful financial transactions
In order to avoid the insecurity and volatility with regard to the interest curve, RPI concluded a number of financial transactions. These transactions were effected with an end date spread over a number of years, on a part of the non-financed portfolio, whereby the variable interest income is converted to fixed-interest income. These financial transactions proved to be very effective, were concluded at a profitable time and their result, either by reaching maturity at the end of the fixture period or by an early reversal and making surplus value, substantially contributed to the result of the previous years. A result which was always used to cut back debts.
Active legal investigation into potential fraud Early 2011 RPI had taken the necessary steps with regard to the legal investigation into potential fraud and infringements with regard to (i) subscribing mortgage loans, which were then packed in several Effective date securitisation transactions, such as US RMBS and CDOs (‘Foreclosure-gate’ and ‘Robo-signers’) and (ii) the failure to respect investment criteria and conditions with regard to the underlying portfolios, by the manager, in a number of CDOs.
Complaints against several business banks RPI officially filed a complaint against several banks before the court of the state New York and the federal court in Los Angeles, United States. RPI claims negligence and incorrect, false and misleading descriptions in several transaction documents. These were used in the sale of many securitised US mortgage loans to the former Fortis Bank and its entities. The complaint states that a number of business banks incorrectly projected information in a number of transaction documents.
Very good financial results RPI has always succeeded in producing very good financial results in the past years, despite difficult market conditions and against a background of not just the ‘subprime’ crisis, but also the Eurozone crisis. These strong results were always based on the income on the portfolio, surplus value generated by actions on certain assets and efficient treasury management, in particular in terms of interest rate and foreign currency risks. Over the past years RPI has paid approx. EUR 375 million in taxes on the result and approx. EUR 125 million guarantee premiums to the Belgian State.
Sales agreement with significant surplus value During an extraordinary general meeting the RPI shareholders - Ageas, the Federal Participation and Holding Company and BNP Paribas - decided to sell all assets in the RPI portfolio to the tandem Lone Star and Credit Suisse via a so-called block sale. To this end, RPI concluded a sales agreement on 26 April 2013. Lone Star/Credit Suisse acquired the RPI portfolio for an amount of EUR 6.7 billion. On the basis of RPI’s financial position during 2013 this was translated into an intrinsic value of approx. EUR 2.4 billion.
The sale at an intrinsic value of EUR 2.3 billion represented an added value of about EUR 700 million or a 41% increase compared to the original capital which was contributed by the shareholders.
Shareholders have opted, for shareholders strategic and political reasons, to sell the portfolio in April 2013, to avoid potential future downside risk and to get out of RPI equity at zero loss, with another EUR 700 mio extra capital gains.
have chosen to step out before full repayment of debt and equity at maturity, instead of continuing the run-off and to cash the potential upside on the recovery value.
After the sale of its portfolio it was decided that RPI will continue to perform the remaining business activities. This mainly involves several court cases which have been initiated in relation to a number of assets.
BELGIUM
Shareholders
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