Banco de Portugal today selected LONE STAR to complete the sale of Novo Banco. The Resolution Fund has consequently signed the contractual documents of the transaction. Signing of the agreement implies that the deadline is met for the sale of Novo Banco which had been set in the Commitments of Portugal with the European Commission. Upon completion of the transaction, the status of Novo Banco as a bridge institution will cease.

Under the terms of the agreement, LONE STAR will inject a total of € 1,000 million in Novo Banco, of which € 750 million at completion and € 250 million within a period of up to 3 years.

Through the capital injection, LONE STAR will hold 75% of the share capital of Novo Banco and the Resolution Fund will maintain 25% of the share capital.

The terms agreed also include a contingent capital mechanism, under which the Resolution Fund, as a shareholder, undertakes to make capital injections in case certain cumulative conditions are to be met related to: i) the performance of a specific portfolio of assets and ii) the capital levels of the bank going forward.  

Any capital injections to be carried out pursuant to this contingent mechanism benefit from a capital buffer resulting from the injection to be made under the terms of the agreement and are subject to an absolute cap. 

The terms agreed also provide for mechanisms to safeguard the interests of the Resolution Fund and to align incentives as well as monitoring mechanisms, notwithstanding the limitations arising from State Aid rules. 

The completion of the sale is conditional on the customary regulatory approvals (including by the European Central Bank and the European Commission) and on a liability management exercise covering the senior bonds of Novo Banco and subject to bondholders’ acceptance having created CET1 of at least € 500 million. 

Once completed, the sale allows a significant reinforcement of the capital of Novo Banco and the entry of a shareholder who undertakes a medium and long term commitment with the bank and holds the means necessary to execute a plan to definitely guarantee full recovery, in terms compatible with the decisive role that Novo Banco plays in financing the national economy. 

This is another step to the stabilisation the national banking sector, which benefits from the diversification of the sources of financing resulting from the entry of new investors. This development also enhances the credibility of the banking sector through the successful conclusion of an open, transparent and competitive sales process with international reach.