Cerberus Banned by Sabadell From NPL Deals Amid Legal Tussle

Banco Sabadell SA has blacklisted Cerberus Capital Management LP as buyer for its non-performing loans amid an ongoing legal dispute between the two firms.

The Spanish bank has told its advisers handling NPL sales to exclude Cerberus from several recent deals, according to people familiar with the matter. The ban is still in place and it’s not clear if and when Sabadell is planning to lift it, the people said, asking not to be named discussing private information.

A representative for Sabadell declined to comment. Representatives for Cerberus didn’t respond to several requests for comment by email and phone.

Cerberus and Sabadell have an ongoing legal dispute in Spain involving a real estate joint venture named Promontoria Challenger I, according to one of the people familiar with the matter. This fight started after Sabadell sought to use a put option to force Cerberus to acquire its 20% stake in the venture, valued at about €200 million ($235 million) in 2021.

Sabadell also won a lawsuit against Cerberus last year in the UK that likewise centered around their real estate JV. The court ended up awarding €358 million to the Spanish bank.

Locked Out

The Sabadell ban has locked Cerberus out of the competition for NPL portfolios from one of Europe’s most prolific sellers of the assets, while the US firm is among the biggest buyers.

Sabadell has been working on at least six sales of NPL portfolios in the last few months, worth a combined €435 million, Bloomberg News has reported.

The decision to blacklist Cerberus also marks another low in a relationship that played a pivotal role in Sabadell’s effort to remove non-performing assets from its balance sheet in the wake of Spain’s devastating property crisis. The Promontoria JV came out of a major deal concluded between the two in 2018, in which Sabadell sold real estate assets with a net value of €3.9 billion to the US investment firm.

The Spanish lender cut its NPL ratio — a key metric of asset quality — to 2.5% at the end of the third quarter, from 8.5% a decade earlier. A lower percentage signals a stronger balance sheet.

Read More: Cerberus Buys $4.5 Billion of Sabadell’s Real Estate Assets (2018)

A large chunk of Europe’s NPL deals still originate in Spain, even though transactions have been slowing over the past years. The country’s real estate crisis more than a decade ago saddled many banks with huge levels of bad debt.

NPL sales help banks improve their asset quality, which generally lowers their capital requirements and frees up money for other purposes including lending, investments or payouts. The buyers tend to be specialized investment firms that purchase the portfolios at a discount to the nominal value and then seek to maximize the repayments from the defaulted borrowers.