‘Restructuring Funds’; an Alternative Tool for a Systemic Approach to Active Management of Unlikely to Pay (UTP)

Abstract

This paper is aimed at illustrating an innovative tool/strategy to address the general, wider and multifaceted NPL issue from a banking perspective, focusing in particular on UTP; a half-way strategy between a traditional “hold/forbearance” approach and a traditional “portfolio reduction” approach, producing a change in the type of exposure. Such a new, complementary, tool is aimed at overcoming market inefficiencies that other “traditional” approaches/tools currently present and, at the same time, helping to effectively reduce the legacy assets at bearable levels. At the same time this is a “debtor-level” approach that pursues the concentration and coordination of all the exposures of the banking system vis-à-vis the same debtor, as a precondition for a successful restructuring process of corporate borrowers in distress. Such a tool can be identified in a so called “Restructuring Fund”, a specific and peculiar kind of AIF.