Europe self liquidating loans

First, asset-based lenders and arrangers typically do not agree to investment, acquisition or restricted payment baskets, or to prepayments of junior indebtedness based on “builder” or “available amount” baskets (which grow based on a percentage of consolidated net income, EBITDA or retained excess cash flows) or achieving a specified leverage ratio.

Instead, these are replaced with an unlimited general basket so long as the borrower maintains a specified level of excess availability and a fixed charge coverage ratio of not less than 1 to 1.

In addition to AMCs, internal NPL work-out will always play an important role in NPL resolution, complemented by private information and trading platforms, and securitisation schemes.

The large stock of non-performing loans (NPLs) held on the balance sheets of euro area banks is a pressing financial stability issue for the euro area while it also represents sand in the wheels of the bank lending channel of monetary policy.

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There are many reasons why the resolution of NPLs in Europe needs to be accelerated.

First, bank resources – capital, funding, management attention and human resources – are tied up by assets that are not producing income while the scope for new lending to productive ventures is also curtailed.

Within the NPL resolution toolkit Asset Management Companies (AMCs) may offer significant benefits by bridging inter-temporal pricing gaps for asset classes such as commercial real estate loans.

We outline elements of an EU-wide blueprint for country-specific AMCs, including state aid aspects, asset and participation perimeters, asset valuation, capital and funding structure, and governance.

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