This content is from: Local Insights

Mexico

In 1996 the Mexican government organized an entity called Valuación y Ventas de Activos SA (VVA) for the purpose of organizing a series of sales of loans made by Mexican banks. The aggregate amount of the loans is said to exceed US$42 billion. The loans are held by Fondo Bancario para la Protección de Activos (FOBAPROA), a trust administered by Banco de México, the central bank.

The FOBAPROA loans were acquired from various Mexican banks, most under programmes designed to strengthen the Mexican banking system. However, some of the loan portfolios were held by banks that have been the subject of intervention by the authorities and contain some performing loans.

In July 1997 VVA conducted the first auction of a FOBAPROA loan portfolio, one identified as CC-01-97, consisting of 36 performing and sub-performing loans with a combined principal balance of approximately Ps150 million or US$19 million (the First Portfolio). Bidders were required to bid on the entire First Portfolio, not on individual loans in it, but had the option of bidding on an all-cash basis for 100% of the portfolio or bidding for a 55% interest in an entity that would own the loans (FOBAPROA would own the remaining 45% interest).

Of the First Portfolio loans, seven represent 80% of the outstanding balance. Almost all of the loans were secured by real estate; six of the loans, representing 53% of the total balance, were secured by real property located in Mexico City. Eighty-nine percent of the outstanding balance consisted of performing loans, and therefore may not be representative of the overall FOBAPROA portfolio, which is thought to contain primarily sub-performing or non-performing loans.

To become a qualified bidder, an interested party had to request an initial information package, pay a qualification fee of Ps11,500, complete a questionnaire and return it to one of VVA's loan sale advisers, either Bankers Trust Company (in the case of US bidders) or GBM-Banco de Atlantico (in the case of Mexican bidders). Applicants accepted as qualified bidders were required to deliver a Ps1.5 million guarantee deposit, a signed confidentiality agreement and a list of authorized representatives. Such bidders were then allowed access to confidential loan information, a 'data room' and the proposed purchase and sale agreement.

In mid-July, VVA announced that the winning bidder for the First Portfolio was an affiliate of Goldman Sachs, with a bid of approximately 50% of the outstanding balance. The closing of the purchase was scheduled to occur before the end of August. Subsequent to this announcement, the government announced that VVA would be phased out and that FOBAPROA would take direct charge of the remaining portfolio sales, which are expected to take place in stages over the next few years.

Adrián Zubikarai, John Rogers and Francisco Gil

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