Cerberus Capital Management, the New York-based firm, has agreed to buy a loan portfolio from Ireland’s National Asset Management Agency (NAMA) with a book value of € 4.5 billion amid ‘fierce’ competition generally for such assets in Europe.
The deal struck represents the largest single transaction agreed by NAMA since the organisation was set up in December 2009 to clear up Ireland’s financial institutions with their over-exposure to property assets.
In a statement today NAMA said its advisor, Lazard, had recommended the sale of the portfolio – code named Project Eagle – be made to Cerberus. It added that the package of loans was owned by Northern Ireland-based debtors and secured by assets in Northern Ireland, the Republic of Ireland, the UK, and other European locations.
It also said the sale had taken place against a backdrop of competition coming from bidders in Europe and the US. Financial details were not revealed, but it has been reported that Cerberus has paid more than £1 billion (€1.2 billion; $1.65 billion) for the NAMA loan book. The portfolio stretches to 850 properties and it is said California-based Pacific Investment Management Company (PIMCO) initiated the sale by making an approach a few weeks ago.
NAMA chairman, Frank Daly, and chief executive officer, Brendan McDonagh, said in a statement today that the transaction represented “a significant achievement”. They said: “It is NAMA’s biggest single transaction to date and we are satisfied that the sales process will deliver the best possible result for the Irish taxpayer. NAMA management of this portfolio has been measured and supportive taking into consideration the particular circumstances in the Northern Ireland economy. We are assured by Cerberus that they will adopt a similar approach.”
John Snow, chairman of Cerberus, called it a “mutually beneficial transaction”. “This investment, and the underlying assets in Ireland and other European markets, will be an important foundation for our overall European strategy.”
News of the transaction follows an interview with Lee Millstein, senior managing director at Cerberus, in December, when he said the firm’s European deal pipeline was at its strongest point in the cycle since the onset of the Global Financial Crisis in 2008. He told PERE: “Clearly, we think the biggest opportunity is the deleveraging and cleaning up of the European banks. It is not just the NPLs on bank balance sheets – €1.2 trillion and growing – but also huge amounts of real estate and companies that they have taken back through some kind of administration or foreclosure process.”
Today’s announcement by NAMA follows close on the heels of the winding up of almost €20 billion worth of loan sales by Irish Bank Resolution Corporation (IBRC), which was created in 2011 to handle the assets of Anglo Irish Bank and Irish Nationwide Building Society. KPMG, the Special Liquidators of the IBRC, said more than 90 percent of the loan book with a €20 billion par value had been sold to private equity and institutional investors, including Lone Star, CarVal Investors, Goldman Sachs, Deutsche Bank, Oaktree Capital Management, Sankaty and Apollo Global Management.
Andrew Jenke, portfolio solutions group partner at KPMG, who advised on the loan book disposal process, said: “The sale of almost €20 billion of commercial real estate and residential mortgage loans is an important and powerful signal to the market. Since 2008, there has been a persistent view that there simply wasn’t the liquidity to pull off deals of this scale. However, we have found in the last five months that there has been more than ample appetite amongst private equity and institutional investors for large loan portfolios.”
He added: “While the five IBRC loan portfolio disposals, which ran concurrently, equate to half of the entire live commercial real estate loan sales market, the competition for the assets was fierce. As the European banking industry looks to the Asset Quality Review and considers the possible ramification that some banks may fail, the IBRC loan disposals show that an effective wind down can be achieved in the loan portfolio disposal market at the moment.”
“Overall, the process has shown that a committed and well organised seller can capture market attention and capitalise on the strong level of demand from buyers and funders for non-core bank assets, across Ireland, the UK and Europe. The European banking industry will be taking note.”
Jonathan Hunt, associate director in KPMG’s portfolio solutions group, who managed the five loan sales processes, added: “The sales process showed us that key purchasers and their financiers are awash with liquidity and that there are very few similar opportunities for buyers to deploy capital at this multi-billion Euro scale. We have also seen a notable increase in third party loan on loan financing from investment banks, at increasingly favourable terms, driving buyers’ pricing in the Irish and UK markets. Accordingly, investors are looking to capitalise on a wave of loan portfolio sales over the next two years in Ireland as both state owned and non-state owned financial institutions clear their balance sheets of non-core and non-performing loans.”