Covinoc is a local specialized servicer, which for more than 50 years has provided recovery and portfolio management services to financial intermediaries in Colombia. The company is the largest NPL servicer in the country in terms of assets under management (approximately $ 1.4 billion as of December 2010), distributed over more than 300,000 loans. Covinoc’s shareholding structure includes: Lantro S.A. (19.4%), Ircanda S.A. (19.4%), Inversiones la Costa Ltda (19.0%), Arigu SAS (17.4%), IFC (12.98%), Delta Associates Inc (10.1%), Nicolas Gomez y Cia Ltda (0.9%), Nicolas Gomez Nieto (0.9%)

The proposed transaction consists of an investment of up to $30 million, earmarked at financing the acquisition of non-performing loans.

30.0 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	30.0
Equity

* These investment figures are indicative

Covinoc is headquartered in Bogota, Colombia and has offices in 14 cities of the country. In addition the Company has also operations in Guatemala.

The proposed project is expected to have a high development impact in the following areas: (i) Economic Development: The successful implementation of the project will aid the development of a secondary market for distressed assets which in turn will serve as a stabilization factor for the financial system. This should enable institutions to focus on productive use of capital which can result in higher liquidity and increased capitalization levels at the lending institution level. (ii) Business Environment: As financial intermediaries increase the sale of their distressed assets to independent private investors, the transparency of those institutions' balance sheets would improve as these assets would be priced according to market conditions. In addition, the demonstration effect of the project will help promote international insolvency standards and creditors' rights while providing investors with risk mitigation, divestment routes, and out-of-court resolution mechanism. All of these factors will greatly increase the region's attractiveness to local and foreign investors. (iii) Financial Infrastructure: IFC's involvement in this project would allow Covinoc to positively impact the market place by building capacity in the financial markets. The project is expected to increase the ability of financial intermediaries in the country to offload their assets, particularly non-performing ones, improve liquidity and devote these resources to originating new transactions.

- Liquidity: Providing liquidity for distressed assets investments when liquidity is scarce for these types of investments. Accordingly, IFC would be enabling further private sector investment in this sector. - Market Support: The vast number of opportunities for distressed assets investments in the United States and Western Europe is significantly crowding out other regions, including Latin America. Through this project, IFC would support the appropriate evolution of the regional distress assets market, and hence contribute to the stability of the financial industry. - Local Knowledge: IFC has been active in the region's markets and is familiar with the players and the regulatory environment. IFC can also leverage its client network significantly increasing the servicer's ability to source deals, while at the same time provide another value added service to its customers.

This project involves the creation of a Special Purpose Vehicle (SPV) to purchase and service yet to be identified portfolios of non-performing loans in Colombia, Peru and Central America and has been classified as a Category FI project. The servicer is an existing client with an existing Social and Environmental Management System (SEMS). Considering the nature of activities supported, the servicer will be required to: (i) maintain or upgrade its SEMS for commercial NPL assets to ensure that investments under the SPV are screened and processed to identify environmental and social risks, if any, and to avoid supporting activities on the IFC FI Exclusion List or with substantial unresolved social or environmental issues; (ii) work with applicable commercial assets being resolved to ensure that the projects are operating in compliance with the IFC exclusion list and the applicable national environmental and social laws and regulations, or have an action plan to achieve the same within a reasonable time frame; (iii) identify responsible, qualified persons to manage and implement the SEMS; (iv) apply the labor standards established by the IFC Performance Standard 2: Labor and Working Conditions; (vi) comply with local consumer protection and other applicable laws and follow international best practices or professional standards in its collection practices; and (iv) submit annual reports to IFC.