The trickle of toxic debt being sold by Italian banks is turning into a torrent as UniCredit prepares to announce the disposal of more than €5 billion in bad loans to private equity investors.

UK group AnaCap Financial Partners has bought a €1.9 billion portfolio of non-performing loans to Italian small- and medium-sized companies for a significant discount to their face value. The deal comes ahead of an even bigger transaction that UniCredit is close to agreeing for the disposal of its bad loans management business and a €3.4 billion portfolio of toxic debt.

The moves by Italy's biggest lender represent the country's largest distressed debt sales by gross value for several years. They show that bad loan disposals are picking up in Italy, boosted by the arrival of several distressed debt investors in the country.

While Irish, UK and Spanish banks have been big sellers of bad debts in recent years, Italian banks have been slower to do so. Experts predict that is starting to change. Italian banks have recently taken big writedowns on their bad debt portfolios and put large chunks of them into non-core divisions ahead of this year's stress tests by the European Central Bank, making it less painful for them to agree disposals.

Justin Sulger, head of Anacap’s credit opportunities fund, said it was mostly buying unsecured loans to small Italian companies that have gone into bankruptcy and have their assets tied up in litigation. “They are in various stages of legal proceedings and collection procedures,” he said. “Frankly we can afford to take a longer horizon and manage them out over time to recover more value, while the bank is looking deploy the capital tied up by these loans in other areas.”

It is the second such deal by AnaCap with UniCredit after the two announced a transaction for a €700 million portfolio of non-performing loans in February. – (Copyright The Financial Times Limited 2014)