Hercules II: A new set of labours

The Hellenic Asset Protection Scheme, also known as “Hercules”, was firstly introduced on 16 December 2019 through the enactment of law 4649/2019 (the HAPS Law). Α new set of amendments was introduced in July 2021 aiming to extend the application of the HAPS Law and assist the Greek banks to reach single-digit percentages of NPLs.

Since the enactment of the HAPS Law and during its initial term, all Greek systemic banks applied for a HAPS guarantee on the senior notes of a series of landmark securitisation transactions in the Greek market. Consequently, the Greek systemic banks’ NPL ratios were significantly reduced during the first round of the Hercules programme. Now, a new set of amendments has been introduced aiming to extend the application of the HAPS Law and assist the Greek banks to reach single-digit percentages of NPLs.

The background

The initial duration of the HAPS Law ended on 10 April 2021, 18 months from the European Commission decision approving the Hercules scheme , with an overall budget of up to EUR 12 billion. After the first successful round of the HAPS Law, Greece notified the European Commission of an extension of the programme for another 18 months. The European Commission published a new decision on 9 April 2021 approving the extension of Hercules (the European Commission 2021 Decision) for 18 months from the date of such publication. Accordingly, the duration of the HAPS Law is extended until 9 October 2022, with a new budget of an overall notional amount of guarantees of up to EUR 12 billion.

The improvements

The recent amendments to the HAPS Law can be broken down into four main categories:

1. Financial leasing agreements have been included to the types of assets that are eligible for a HAPS guarantee. This addition may require improvement, as the amended provision only refers to financial lease agreements granted by credit institutions, impliedly excluding financial lease receivables originated by financial leasing companies (which are the most common providers of financial leases in Greece). Moreover, the securitisation of non-terminated financial leasing receivables creates a number of tax considerations that need to be addressed legislatively.
2. The 24-month grace period for the triggers for deferral of interest on the mezzanine notes and the servicer remuneration may be extended for up to 6 months. The extension can be granted by the Minister of Finance in case of extreme conditions that may affect the Greek economy and the markets, following a joint request by the purchaser of the loans and the servicer and provided that (a) the securitisation structure and cash flows may be jeopardised by the extreme conditions; and (b) the rating agency certifies that the credit assessment of the senior notes will not be affected by the extension of the grace period. This provision will grant a much needed flexibility to the servicers tο address economic adversities such as those arisen from Covid-19, which created unforeseen impediments to the realisation of the respective business plans, outside the servicers’ control.
3. The performance on collections will still be measured on the basis of actual net collections against the projected net collections in accordance with the business plan approved by the rating agency. A new language that was introduced in the HAPS Law clarifies a point of potential confusion, explicitly providing that the starting point for the measurement of the actual net collections will be from the starting date of their calculation in accordance with the rated business plan. This addition confirms the interpretation that the market (and the Ministry) have applied to the HAPS Law until now.
4. The Spread Ratio Factor for the calculation of the HAPS guarantee fee has been (slightly) increased from 50% to 56.9%. This amendment was introduced in order to align the Spread Ratio Factor with the European Commission 2021 Decision and to reflect the current market conditions.

These changes entered into force as of 18 July 2021, the date of publication of the law amending the HAPS Law on the Government Gazette. The amendments do not include any grandfathering provisions, but the Ministry of Finance will apply the provisions of the amended HAPS Law to all pending applications for which no ministerial decision granting guarantee was issued before 18 July 2021.