Minimum Participation Condition For Novo Banco’s Sale To Lone Star Waived

The sale to Lonestar of Portugal’s 75% stake in Novo Banco will proceed after the private equity firm assented to the waiver of a minimum participation condition. The condition stated that at least 75% of bondholders in the nationalized bank must accept a tender offer.

“The bank has decided to waive the minimum participation condition. The Resolution Fund and Lone Star have agreed that…all conditions precedent to the agreement…have been satisfied or waived,” said a statement issued by Novo Banco.

Successful votes

Under the condition 36 votes were needed but only 16 votes were obtained. Most of the votes which accepted the offer were mainly for shorter dated bonds while the unsuccessful ones were mostly for longer maturity bonds whose issuance was at a substantial discount.

Formal permission will still have to be granted by the European Commission though approval has already been given in principle. Consequently Novo Banco will proceed with a view to completing the deal.

Earlier Novo Banco had indicated that it had secured the approval of bondholders with regards to discounted debt buybacks. In a statement Novo Banco revealed that orders amounting to $5.6 billion had been received allowing the bank raise the capital ratio required for Core Tier 1 banks. The transaction’s deadline had been slated for October 2.

Bond buyback

Though the bond buyback was able to meet the main goal of generating savings amounting to 500 million euros, the target of gaining approval from three-quarters of the bondholders was not attained. Had the bond buyback failed to be completed, bondholders would have been asked to inject into the bank new equity or risk the bank being winded down.

The sale of Novo Banco to Lone Star had been agreed upon in March this year with the government of Portugal hoping to have the deal concluded by next month. Under the deal the U.S. private equity firm will be required to inject into the bank funds amounting to one billion euros. According to a Caixa Banco Investimento banking industry analyst, the closure of the sale will benefit the financial system in Portugal.

Novo Banco was carved out three years ago from Banco Espirito Santo, a bank which collapsed due to debt. Two years to a couple of bond series were moved to Banco Espirito Santo from Novo Banco leading to some bondholders disputing the decision to this day. Litigation from these bondholders is not expected though.

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