PPC benchmark securitisation pending

December 2017 by Finacity

Finacity has been awarded the role of securitisation advisor on behalf of Greece's Public Power Corporation (PPC). The move is expected to pave the way for the first Greek securitisation for a corporate entity and establish a benchmark for other non-performing loan transactions.

A consortium led by Finacity and Qualco has been tasked with enhancing PPC's working capital and managing the arrears of its clients. Finacity will conduct a feasibility study to evaluate the extent to which PPC will be able to raise funds using its receivables portfolio as collateral, while Qualco will be responsible for the portfolio management and debt servicing of current, non-current and non-performing receivables. Junior members of the consortium include Deloitte, KPMG, Deutsche Bank, IBM Hellas and Estia Business Group.

Study components will include data analytics and liquidity of the pool, the servicing of the receivables and legal and accounting aspects. The initial goal is to look at NPL receivables, but the intent is to gradually cover the whole portfolio.

"PPC is limited in its financing, which tends to be bank based, so securitisation aims to help with liquidity and diversification of funding sources," says John Doyamis, president of Estia Business Group. "This coincides with funding levels of 9.4% for corporate bonds, which is very expensive. Furthermore, securitisation doesn't require a corporate guarantee, since you only have to focus on the quality of the assets."

Moreover, sources in the Greek NPL market note that through a securitisation, PPC can reduce its responsibilities as a quasi-public institution, given the leeway this option offers to more forcefully maximise recoveries.

Securitisation reporting is another positive feature, according to Jason Kim, senior director at Finacity. "It can be used as a receivables management tool, since it allows investors and the company to have insight into that granular detail, which is crucial for maximising proceeds," he says. "Furthermore, the securitisation of NPLs would be credit enhanced and other assets would not be encumbered."

The structural format will be a true sale securitisation. Kim observes: "Receivables will be securitised in true sale fashion, given that synthetics are not done for funding purposes. Additionally, it may end up being public or private, but it will be a non-recourse transaction."

The study coincides with a period of rapid reorganisation for Greece's electricity authority. An agreement to sell PPC-owned lignite-fired power plants - currently producing nearly half of PPC's electricity - is pending.

The process was launched following Greece's latest bailout review to bring around 40% of the PPC's lignite-fired generation capacity under the control of other market participants. Along with other measures, the divestment of lignite plants is expected to bring the market share of PPC below 50% by 2020.

The feasibility study will be finalised in 1Q18.

This article was published in Structured Credit Investor on 19 December 2017.