RBS sells $2.5bn worth of loans to Cerberus

December 2016 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

Ulster Bank, the Irish division of the Royal Bank of Scotland, confirmed that it is to sell a number of non-performing loans (NPLs) to private equity firm Cerberus.

The loans, part of the Project Oyster loan portfolio, are related to properties in both the Republic of Ireland and Northern Ireland. They comprise 71 percent business loans, 19 percent buy-to-let and 10 percent owner-occupied home loans. The portfolio also includes around £22m in agricultural loans in Northern Ireland alone. The total face value of the loans is €2.5bn. The mortgages Cerberus has taken over are on the brink of repossession; indeed, 95 percent are two years or more in arrears, while all of the loans are the subject of legal action by the lender. How Cerberus will handle the homeowners remains to be seen.

For Ulster Bank, the decision to sell the loans was made as it looks to improve its balance sheet. A spokesperson for the bank said: “Ulster Bank has confirmed the completion of a sale of significantly impaired loan portfolio, predominantly in the Republic of Ireland, enabling the bank to strengthen its balance sheet for the benefit of its customers. The loans involved are all in Ulster Bank’s problem debt management unit and have been in arrears or under specialist management for a significant period of time. We will be in contact with all affected customers in the coming days to help them as their loans transition to their new owner.”

The portfolio was first offered for sale by Ulster Bank in May, however it was delayed somewhat by the UK’s referendum on EU membership. The portfolio includes around 900 mortgages secured on family homes in the Republic of Ireland. The sale of this portion of RBS’ so-called ‘bad bank’ is likely to be the last to be sold off, and it is not the first time that RBS has agreed to sell Irish real estate loans to Cerberus, having sold around £4.8bn worth in the fourth quarter of 2014 for around £1.1bn.

For Cerberus, the deal is the latest in a series of transactions in the European NPL space of late. The Irish market in particular has been an area of interest for the firm, which has bought loans from Ulster Bank and Nama.

Cerberus has also been in talks to acquire the last of Irish state backed bank Permanent TSB’s UK Capital Home Loans mortgage portfolio in a deal worth around £2.5bn. Cerberus has been the biggest buyer of bad debt in Europe for some time. In 2015, it acquired €28bn worth of debt including mortgages from failed UK lender Northern Rock, sold by the UK government.

John Snow, Cerberus’ chairman, said in May 2016 that he expects to continue to see opportunities to acquire European NPLs until 2021 at least. Regulatory pressures and falling trading revenues have driven banks across Europe to drop assets in the years since the financial crisis.

Indeed, as banks have been required to strengthen their balance sheets and reduce their operations, the private equity market has stepped in over the last six years. Prominent US investment firms including Cerberus, Oaktree Capital and Apollo Global Management acquired real estate debt and foreclosed assets worth a record €85.9bn in 2015.

Richard Summerfield