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Bloomberg
Banca Monte dei Paschi di Siena SpA will offer a voluntary debt-for-equity swap on 4.29 billion euros ($4.6 billion) of subordinated securities as part of its effort to reduce the amount of stock the struggling Italian lender would need to sell in its turnaround plan.
The bank is offering shares in exchange for Tier 1 securities and Tier 2 subordinated debt, according to a statement published after a board meeting. It’s offering 85 percent of nominal value for most of the Tier 1 securities, and 100 percent for the Tier 2 debt. After the swap, the bank plans a 1-for-100 reverse stock split.
The voluntary conversion of junior bonds is the centerpiece of a 5 billion-euro recapitalization plan for Monte Paschi. The bank committed to completing the capital raising by the end of the year, possibly in several tranches and with a portion reserved for a potential anchor investor, while running the debt-for-equity swap. Shareholders will meet Nov. 24 to approve the proposed capital increase. No date was announced for the swap to take place.
One Tier 1 issue, 700 million euros of floating-rate preferred securities known as “fresh” securities, can be swapped at 20 percent of face value, and the lender is considering whether to add another 1 billion-euro issue of “fresh” bonds that were sold in 2008.
Investor Negotiations
Some of the institutional investors holding Monte Paschi’s junior debt, including Attestor Capital, Bybrook Capital, Centerbridge Partners, Eton Park Fund and Eyck Capital Management, teamed up to negotiate terms of the conversion, people with knowledge of the matter said last month.
The funds would accept offers to swap lower Tier 2 bonds into shares worth 100 percent of face value of the notes after the capital raise, two people familiar the matter said before the terms were announced. They would also exchange upper Tier 2 securities for more than 90 percent of face value, and deeply-subordinated hybrid securities known as Fresh bonds for at least 30 percent, said the people, who asked not to be identified because the discussions weren’t public.
The recapitalization effort comes amid a vote on constitutional reform in Italy on Dec. 4 that may spark political uncertainty and market volatility. The referendum centers on constitutional amendments that would limit the power of the Senate. Prime Minister Matteo Renzi has previously said he will quit if the changes are rejected.
The bank aims to collect bondholder agreements on the swap before the vote to limit the impact on the recapitalization, people said last month.
Morelli’s Challenge
Monte Paschi, which emerged from European stress tests released in July as the region’s weakest lender, is struggling to restore profitability and raise capital. Chief Executive Officer Marco Morelli, 54, in the job for just two months, is seeking to persuade shareholders that the bank can turn a corner by cutting bad loans and reorganizing the business to improve returns.
Separately on Monday, Paschi said it will sell a nonperforming-loan platform to Cerved Group. The buyer will pay 105 million euros, and possibly 66 million euros more if the unit reaches certain targets by 2024.
Monte Paschi’s 379 million euros of September 2020 junior notes dropped to as low as 69 cents on the euro this month, down from 82 cents when the bank announced plans to raise capital at the end of July.
The swap offer is directed toward both institutional and retail investors for 2.06 billion euros of Upper Tier 2 notes, while the rest of the offer is for holders who aren’t designated as “qualified investors,†the bank said.