June 27, 2018 / 10:56 AM / 6 months ago

Hedge fund Winterbrook considers some Novo Banco debt in default

LONDON/LISBON (Reuters) - London-based hedge fund Winterbrook Capital said it considers several notes issued by Portugal’s Novo Banco, which was carved out of Banco Espirito Santo in 2014 and sold to U.S. fund LoneStar last year, to be in default.

FILE PHOTO: A man sells umbrellas near ATM machines of a Novo Banco branch in downtown Lisbon, Portugal April 10, 2018. REUTERS/Rafael Marchante

Winterbrook said on Wednesday it had written to the board of Novo Banco, explaining that the default results primarily from various resolution measures taken by Portugal’s central bank in 2014 and 2015, and already contested by various bondholders.

It particularly concerns the decision at the end of 2015 to transfer more than 2 billion euros ($2.3 billion) of bonds from the rescued Novo Bank back to BES, which is being liquidated.

Winterbrook said its advisers wrote to the board on June 1 and June 19 to flag “various events of default” concerning certain notes under the 10 billion euros and 20 billion euros medium term note programmes originally issued by BES Finance.

A group of bondholders, which includes large investors such as Pimco and BlackRock, that lost more than 1 billion euros after the transfer of bonds, has launched legal challenges in a bid to get compensation, but Portugal’s slow-moving courts have yet to decide on the issue.

Winterbrook, which is not part of the original lawsuits, said that because BES is now in liquidation and unable to make payment on claims against it, the guarantee for certain liabilities is no longer in full force, which triggers various insolvency events on certain notes.

It would not provide details on the notes and its holdings.

A source with direct knowledge of the situation said Winterbrook held over 20 percent of at least one series of notes with an issue size of up to 110 million euros, which it now considered in default.

“An Event of Default has arisen because the Guarantee from Novo Banco S.A. of amounts payable under the Notes has ceased to be in ‘full force and effect’,” Winterbrook said in a statement.

A Novo Banco spokesman declined to comment.

The intervention by Winterbrook coincides with Novo Banco’s plans to issue up to 400 million euros of subordinated notes this week, as part of which it would exchange for some of the notes Winterbrook says are in default.

Novo Banco, rescued by the state and acquired last year by U.S. private equity firm Lone Star, in March reported a record net loss and a fresh capital injection from Portugal’s bank resolution fund.

Reporting by Simon Jessop, Andrei Khalip and Axel Bugge; Editing by Alexander Smith

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