Trade Alert: Greece

GREECE

Greek banks held EUR 58.7bn of non-performing loans (“NPL”), the highest proportion of NPLs in Europe, at a ratio of 35.8 per cent as of September 2020. In a speech delivered on 15 January 2021,  Bank of Greece Governor Yannis Stournaras stated that new NPLs resulting from the pandemic will amount to EUR 8-10bn.

On 18 March 2021, the European Central Bank stated that it welcomed the extension of the Hercules Asset Protection scheme (“Hercules”) into 2022. Hercules is a non-performing loan (“NPL”) securitisation programme, which stipulates that the Greek government will guarantee the senior tranches of each transaction. For the guarantee to become effective, certain conditions in relation to, among other things, the credit rating of the senior tranches and the sale of the junior tranches, must be met. In addition, the transaction must result in an accounting de-recognition of the NPL portfolio.

The four major Greek banks (Alpha, Eurobank, Piraeus, and the National Bank of Greece) concluded EUR 11bn of NPL sales in 2020; ongoing disposals are outlined in the Notable Transactions section of this month’s Trade Alert. It is expected that as a result of planned disposals, the NPL ratio should fall to approximately 25 per cent; however, such estimates do not account for the emergence of new NPLs as a result of the pandemic.

The Bank of Greece has outlined plans to set up an Asset Management Company (“AMC”) that would take up legacy NPLs, as well as those designated for the Hercules scheme and NPLs resulting from the pandemic. Under the initiative, which is currently being reviewed by the Greek government, the AMC would build on existing contractual terms of loan servicing companies. Greek banks would transfer NPLs at net book value to the AMC, which is expected to create incentives for banks with higher coverage ratios.   

GREEK LEGAL SYSTEM

Greece operates under a civil law legal system, with a unicameral legislature. The legislative branch is comprised of the Parliament and the President of the Republic, currently Katerina Sakellaropoulou. 

The predominant legislative function is vested in Parliament, which is required to exercise its power within the bounds of the Constitution. The Constitution is the country's supreme law, although Article 28 provides that ratified international conventions and EU legislation shall prevail over any other provision of law (following its accession on 28 June 1979). 

The Greek Parliament vote for bills to become law in three voting sessions: firstly, in principle, secondly, per article and lastly, as a whole. Once the bill has been passed, it is put before the President of the Republic to declare and publish in the National Gazette. 

SPECIAL THANKS

We appreciate the assistance of Vassilis Stergiou and Anastasios Kalergis of Potamitis Vekris with the following discussion of Greek law, regulation and practice.

KEY POINTS FOR TRADERS

• Banking licence not required to purchase loans but a Servicing Agreement is required.
• Greek loans generally transferred directly by banks or by way of securitisation.
• Assignment of rights is the preferred method of transfer. 
• Notification to borrower of assignment and public registration required.
• 15 per cent withholding tax on interest payments by Greek borrowers to foreign tax-resident lenders, subject to any relevant double tax treaties.

BANKING LICENCE REQUIREMENTS

There are no banking licence requirements under Greek law either for domestic lenders or for non-resident entities that purchase debt of a Greek borrower. If the debt arose from loans granted by a credit or financial institution¹, then it can be purchased pursuant to the Greek Law no. 4354/2015 which regulates transfers and servicing of NPEs² (the “NPE Regime”)³ or by way of securitisation.

Pursuant to the NPE Regime, the transfer of Greek debt, including both performing and non-performing loans, is only permitted where the purchaser of the loan (the "Acquirer") has entered into a servicing agreement with a credit servicing company (the "Servicer") licensed by the Bank of Greece (a "Servicing Agreement"). A Servicing Agreement is also required in the case of a transfer of loans pursuant to a securitisation regime. Servicers licensed under the NPE Regime are entitled to enforce the rights and claims arising in respect of underlying credit agreements that they manage by virtue of law. 

METHOD OF TRANSFER

Pursuant to the NPE Regime, transfers take place by way of assignment of rights; this is the most commonly used form of transfer as it secures the transfer of any ancillary rights of the loan (including security rights and rights to interest payments). Following the completion of transfer, the borrower and the guarantors should be notified about the transfer of the loan.

In the case of securitisation, registration with the competent agency is deemed as notice. Novation is not often used as a form of transfer as it carries the risk of releasing existing security and resetting hardening periods.

SECURITY AND TRUSTS/AGENCY

The concept of a trust is not recognised under Greek law and it is not common to use a security agent. However, parallel debt structures (although not expressly provided for under Greek law) are utilised. 

TAX AND STAMP DUTY CONSIDERATIONS

Interest payments by Greek borrowers to foreign tax-resident lenders are subject to a 15 per cent Greek withholding tax, which may be reduced under applicable double taxation treaties.

Licensed servicers are obliged to pay the Bank of Greece a levy for the loans that they service. However, if the loan is non-performing, the levy is not applicable. VAT will apply to fees payable under the servicing agreement.

FORMALITIES, NOTARY REQUIREMENTS AND ENFORCEABILITY

Pursuant to the NPE Regime, the transfer agreement should be filed with the competent pledge registry and no rights are obtained against third parties before the registration of the transfer agreement. Notification to the borrower and the guarantors is also required and if a borrower pays the transferor before this notification, the borrower is released from its debt. 

TRANSITIONAL MEASURES IN RESPONSE TO BREXIT
 

By operation of Article 92 of Law 4764/2020, UK-authorised insurance undertakings that conducted insurance business in Greece under the right of establishment or the freedom to provide services on a cross-border basis prior to the UK’s withdrawal from the EU can continue to do so until 31 December 2021. They will not be able to enter into new contracts or renew or extend any contracts concluded prior to the UK’s withdrawal from the EU. Reinsurance undertakings will also be able to continue operating until 31 December 2021. However, UK-authorised insurance intermediaries are considered third-party undertakings following the UK’s withdrawal from the EU.

 LMA UPDATES

The LMA published a note on the use of forward-looking term SONIA reference rates (“TSRRs”):

• Market participants should consider whether a loan is within the specified use cases for TSRRs, which TSRR to use, and appropriate fallbacks in case of either temporary unavailability or permanent cessation.
• The LMA also stresses that participants will need to consider whether the concepts of market disruption and break costs are appropriate for loans based on TSRRs.
• Credit adjustment spreads have been used to mitigate any value transfer resulting from actively transitioning a loan agreement from GBP LIBOR to SONIA; market participants should refer to the Bank of England’s paper that sets out available methodologies.

The LMA also updated its EU Bail-In Legislation Schedule, as well as the User Guide, on 10 March 2021 to reflect:

• Bail-In legislation that has come into effect in Iceland (“Icelandic Act No. 70/2020”) and the relevant “Write-down and Conversion Powers” which mean any power exercised in accordance with laws and regulations in effect in Iceland (including but not limited to those that transpose Directive 2014/59/EU; the Bail-In Legislation; instruments, rules and standards implemented by the Resolution Authority).
• The removal of the UK bail-in regime (more information on the relevant provisions following the UK’s departure from the EU is available here).

NOTABLE TRANSACTIONS

CGG GROUP (“CGG”)

CGG, the geophysical services company, announced on 19 March 2021 that its parent company CGG S.A. had successfully priced an offering of USD 500m and EUR 585m senior secured notes due 2027 and expected to issue them on 1 April 2021. As per an earlier release on 15 March 2021, CGG S.A. launched an offering of senior secured notes in an aggregate principal amount equivalent to approximately USD 1.2bn. The notes will be guaranteed on a senior secured basis by certain CGG S.A. subsidiaries. CGG announced its full 2020 results on 5 March 2021; in its Q4 quarterly report, the company stated that its financial objective is positive cash net flow in 2021 and highlighted the recent recovery of Brent oil price, as well as the impact of Covid-19 vaccinations on economic recovery.

SEADRILL PARTNERS LLC (“Seadrill”)
 

Further to the update in Trade Alert No 35, Seadrill gained conditional court approval of its disclosure statement, subject to minor procedural changes, on 24 March 2021. A combined hearing on the disclosure statement and plan is scheduled for 30 April 2021. The court also approved, on 18 March 2021, a management services agreement under which managers Energy Drilling, Vantage Drilling International, Odjfell Drilling Limited and Diamond Offshore Drilling will manage drilling units. According to Seadrill, the new structure is a result of competitive offers and will result in different managers for different units.

INTRALOT SA (“Intralot”)

Intralot, the Greek company that provides gambling, gaming, and betting systems, announced on 23 March 2021 that it would reduce the duration of the contract between its Moroccan subsidiary and the Moroccan state lottery organisation; the contract will now expire in September of 2022. The amendment, according to Intralot, reflects the repercussions of the pandemic in the lottery industry. On  12 March 2021, Intralot   confirmed in a letter to the Hellenic Capital Market Commission that it remains in discussions with holders of senior unsecured notes due 2021 (“the Notes”). Intralot further stated in the letter that it would fulfil coupon payments which were due 15 March 2021 on notes maturing in 2021 and 2024. The company had entered into a lock-up agreement on 14 January 2021 which, per a press release on 2 February 2021, had the support  of noteholders holding in excess of 82.62 per cent of the Notes.

ICSID UPDATE – VENEZUELA
 

On 1 March 2021, an ICSID Tribunal refused to allow the Venezuelan opposition leader’s legal team to appear in connection with a resubmitted claim by ExxonMobil. The Tribunal decided in favour of Nicolás Maduro’s legal team and rejected a request by Juan Guaidó’s legal team to represent Venezuela in the dispute with ExxonMobil. In so doing, the Tribunal stated that the question of representation was one of procedure and rejected the notion that deciding on the matter would result in recognition of a particular Venezuelan government. Furthermore, the Tribunal rejected the Guaidó legal team’s argument that the Netherlands’ support of Guaidó should weigh in his favour due to the fact that the Netherlands is a party to the underlying Bilateral Investment Treaty. The Tribunal emphasised that it was important for the status quo regarding Venezuela’s representation to be maintained; in turn, this was not to be affected by arguments based on individual states’ recognition of Guaidó.

The decision aligns with previous decisions by other ICSID Tribunals in terms of the importance it places on the maintenance of the status quo and stated that in itself, this was reason enough to decide in favour of Maduro’s legal team, as it also “provides continuity in the interest of orderly proceedings”.

GREEK NPLs – UPDATE

The National Bank of Greece (“NBG”) announced on 26 March 2021 that it agreed to sell a 90 per cent stake in Ethniki Insurance (“Ethniki”) to CVC Capital Partners. The agreement is based on a valuation of EUR 505m for 100 per cent of  Ethniki, including a payment of up to EUR 120m upon meeting agreed upon performance objectives for NBG’s bancassurance channel by 2026.

On 16 March 2021, Piraeus Financial Holdings (“Piraeus”) announced plans to reach a single-digit non-performing exposures (“NPE”) ratio in the next 12 months. The plan includes two NPE securitisations named Sunrise 1 and Sunrise 2, with respective gross book values of EUR 7bn and EUR 4bn.

Earlier, on 2 March 2021, Piraeus announced that it reached an agreement with Intrum AB (“Intrum”) for the securitisation of another NPE portfolio named “Vega” (“Vega Securitisation”). The portfolio comprises of three special purpose vehicles with a total gross book value of EUR 4.9bn. The agreement between the parties provides for the sale of 30 per cent of the securitisation’s mezzanine notes. In February 2021, Piraeus Bank applied for the provision of a guarantee by the Greek state on senior notes of c. EUR 1.4bn, as part of Hercules and in accordance with law 4649/2019. As part of the transaction, Piraeus is contemplating distributing 65 per cent of the mezzanine notes of the Vega Securitisation to its shareholders; it is envisaged that Piraeus Bank will retain 5 per cent of the instruments. The transaction is subject to approvals, including the consent of the Hellenic Financial Stability Fund.

On 22 February 2021, Alpha Bank announced that it will sell a EUR 10.8bn loan portfolio to U.S. fund Davidson Kempner. In its press release, Alpha Bank stated that it expects its NPL ratio in Greece to fall to 13 per cent. The deal also includes the sale of the loan servicing subsidiary Cepal Holdings. The transaction is expected to close in Q2 2021, subject to obtaining all the required consents. Alpha Bank’s CEO, Vassilios Psaltis, called the deal a “turning point” for the bank and stressed that it will be decisive in de-risking the balance sheet.

NBG announced, on 12 February 2021, that it completed the disposal of an NPL portfolio with principal amount of EUR 1.6bn to Bain Capital. On 22 December 2020, the NBG had announced that, in the context of its deleveraging strategy, it had entered into an agreement with Bain capital on the basis of which it would dispose of a Romanian-risk non-performing exposure portfolio valued at EUR 174m. The sale is subject to approvals from the Hellenic Financial Stability Fund and the Competition Council of Romania.

On 5 February 2021, the European Bank for Reconstruction and Development (“EBRD”) and Intrum announced that they were to jointly invest in a loan portfolio originated by Piraeus Bank.

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CONTACT 

Please contact Louisa Watt, Iden Asl, Lucy Hartland or Menelaos Karampetsos with any queries regarding this month's Trade Alert.

¹ "Credit institution" and "financial institution" are defined in Greek Banking Law and Regulation (EU) 575/2013

² NPEs are defined by the European Banking Authority (the "EBA") as non-performing exposures that satisfy any of the following criteria: (i) material exposures which are more than 90 days past due; or (ii) the debtor is assessed as unlikely to pay its credit obligations in full without realisation of collateral, regardless of the existence of any past due amount or the number of days past due.

³ Under Greek Law 4353/2015, as initially enacted, any loan or credit agreements which are due and unpaid for a period of more than 90 days fall within the definition of "non-performing loan".