Ares Management completed the purchase of a $3.5 billion portfolio of specialty finance loans from PacWest Bancorp.
The giant alternative asset manager is paying a total of $2.07 billion, with $2.01 billion before transaction costs being paid upfront, for loans with a principal balance outstanding of $2.21 billion. It is also assuming $187.14 million of the $1.33 billion unfunded commitments in the portfolio. Ares will pay the remainder as unfunded commitments are disbursed and subsequently closed, according to an SEC filing.
Shares of both companies jumped Monday, with Ares closing above 2 percent and PacWest up more than 6 percent. PacWest, a regional bank based in Beverly Hills, California, has been selling assets after pressure on regional banks increased following a run on deposits of three regional lenders, including Silicon Valley Bank, First Republic and Signature Bank, led to their collapse.
The portfolio consists of “high-quality, senior secured, asset-backed loans with commitments of about $3.5 billion,” Ares said in a statement. PacWest’s lender finance unit originated the loans, which are backed by assets across a variety of industries, including consumer loans, small business loans, timeshare receivables, auto loans, asset manager and fund finance loans, residential real estate loans and commercial real estate loans.
It is understood that the transaction took several months to complete.
In a wide-ranging interview with Private Debt Investor, Joel Holsinger, partner and co-head of alternative credit at Ares, said that “not a lot of people can do a transaction of this size, or provide a complete solution given the size and scale of the deal”. Ares, based in Los Angeles, had approximately $360 billion of AUM as of 31 March, with $24 billion of it in Ares Alternative Credit.
They go way back
Holsinger noted that Ares has a very long relationship with PacWest, which it has borrowed from and done deals with as co-lenders.
“We’re here to partner with banks, not to compete,” Holsinger said. He said that banks are going through an asset optimisation process, given the mismatch between assets and liabilities that contributed to the downfall of SVB and others. He said Ares is talking to many regional and smaller banks about purchasing some of their assets.
“We’re seeing the first wave of sales of high-quality, floating rate assets that are shorter duration,” Holsinger said, adding that there is a lot of price discovery going on and banks are still owning these assets in a different form.
The next wave, he said, would involve banks deciding whether they want to be in a particular business, such as leasing, at all. In that case, banks might sell an entire unit, including a loan portfolio and the people.
“Banks and insurance companies used to buy a lot of assets above par, but they have no bid now,” Holsinger said. Whereas in the past assets could be warehoused and securitized, those costs have risen dramatically because of the inversion of the yield curve.
PacWest’s president and chief executive, Paul Taylor, said the transaction would improve its liquidity and capital as it continues to implement its announced strategy to focus on relationship-based community banking.
Earlier this month, PacWest completed the first part of the sale of a separate $5.7 billion loan portfolio to real estate investment company Kennedy Wilson Holdings. In March, PacWest received $1.4 billion from a financing facility provided by Atlas SP Partners, an investment firm owned by Apollo Global Management.
“We’re as busy as ever,” Holsinger said, with activity occurring not just in the banks but on the loan origination side of non-bank lenders. “We’re still only in the first inning.”