Cerberus bags biggest loan book to date

The sale of roughly £12 billion in par value loans is expected to be concluded by the end of November.

A Cerberus Capital Management-led consortium has been named the preferred bidder on a £12 billion ($18.4 billion; €16.6 billion) loan book sold by UK Asset Resolution, the bad bank set up to oversee the loans of one of the earliest casualties of the credit crunch, Northern Rock.

The sale is expected to conclude by the end of November, sources close to the situation said.

The loan book is comprised primarily of performing residential mortgages and is not expected to trade at a large discount, PDI understands. The portfolio yields around 4.5 percent and the underlying assets could be prime candidates for securitisation, a market source observed.

Morgan Stanley is advising Cerberus on the loan book and a number of banks are financing the transaction. Other bidders for the loan book include Deutsche Bank, Blackstone, Citi, Och Ziff, Goldman Sachs, JP Morgan, Car Val, TPG and TSB, according to press reports.

Cerberus, UKAR and Morgan Stanley declined to comment.

At £12 billion par value, the book is the largest single sale of loans in the aftermath of the credit crisis, PDI understands. This year, PwC predicts that banks could shed around €120 billion in unwanted loans, which would make it a record-breaking year in terms of sales and an increase of 20 percent on last year. New York-based Cerberus was the top buyer of loans in Europe last year with €17.7 billion in non-performing loans purchased by the US firm, accounting for nearly 22 percent of the market.

This week, the Irish bad bank, the National Asset Management Agency, confirmed that the €6.25 billion Project Arrow, the biggest portfolio of loans to be sold in Ireland to date, will also go to Cerberus.

UKAR was established by the UK government to manage the securitised Granite mortgage portfolios of the now defunct Northern Rock, as well as the mortgage book of Bradford and Bingley.

Cerberus has around $23 billion of assets under management, according to PDI Research & Analytics.

* This article was updated on 28 October to clarify the sale of Project Arrow to Cerberus.