US private equity giant Kohlberg Kravis Roberts has announced that it is to take over around €1 billion of non-performing loans from two Italian banks. Financial News explains the complexities of a deal, which, if successful, could provide banks with a way to clean up their balance sheets.

What exactly was announced? The buyout firm is to take over €1 billion worth of loans to around six companies from Italian banks Intesa Sanpaolo and UniCredit. The non-performing loans will be acquired through a new special purpose vehicle that is controlled and managed by KKR. While the banks will no longer have control over the debt, they will retain some interest by getting new loan notes issued in exchange for the transfer.