A new serious participation in the smooth implementation of the Hercules securitization business plans is the intention Ministry of Finance direct the decision on whether the management companies are red loans has the right to conduct auctions at the plenary session Supreme Court. Given that it will take several months to apply to the Plenum of the Supreme Court before a decision is made, the right of service providers to commit acts of enforcement, such as auctions for the sale of real estate, is called into question. Such a development of events, according to representatives of management companies, will be a strong blow to the Hercules securitizations, which are largely dependent on the expected income from the liquidation of real estate.

To date, four system banks have included “Hercules” securitization of bad loans in the amount of 47.9 billion euros and received guarantees from the Greek state for 18.7 billion euros. The State Guarantee means that if the proceeds received from these loans through the organization and liquidation of assets, i.e. auctions, are not sufficient to pay back the investors who invested in the bonds issued under the securitization, the State will be obliged to cover this damage with guarantees that it has taken on himself in the context of Hercules.

The issue of servicers’ authority to hold auctions arose in connection with a recent Supreme Court decision banning real estate auctions by companies acting as trustees who bought out bad loans under the Hercules state guarantee mechanism. The Supreme Court has issued three consecutive judgments on this issue, in particular under no. 822/2022, 1102/2022 and 1343/2022, which caused confusion on this issue, since the first (822/2022) prohibits the corresponding right for management companies, unlike the other two (1102/2022 and 1343/2022), which legitimize their right to conduct real estate auctions.

The courts of first instance have already “frozen” payment orders, i.e. the first stage of enforcement action.

The confusion was caused by a legislative loophole existing in two securitization laws, namely Law 3156 of 2003 and Law 4904 of 2015, which allow different interpretations of the key issue of auctions, on which the implementation of securitization business plans largely depends, which were included in “Hercules”.

The decision to appeal to the Supreme Court of the Whole represents a departure from the Treasury Department’s original intention to resolve the issue at the legislative level, eliminating a legal loophole between the two laws and clarifying that asset managers legally represent the SPVs created in each loan securitization, and thus they are legalized to participate in auctions. The decision was reportedly taken to avoid the political cost of tying the government to real estate auctions.

Already, according to information from management companies, the courts of first instance “frozen” payment orders, i.e. the first stage of enforcement measures, a development with a chain effect on the market, which is expected to culminate in a complete freeze on auctions.

This development is a bomb at the Hercules foundation as it blows up the scheduled auctions on which the management companies rely on a significant portion of the projected returns, so that the securitization costs and the bondholders of both the mezzanine and the senior bonds are paid, for which the Greek state guaranteed. According to management companies, this decision also explodes the secondary market for red loans, i.e. selling loans from funds to other funds to advance securitization proceeds, and could also work as a fuse in the Eurostat investigation into whether Hercules securitizations will be included in public debt, which is in full swing.