Bidders for Lloyds’ £625m Project Harrogate loan sale have all lined up finance as lenders’ appetite to provide debt increases for loan sales.
Private equity firm Lone Star is understood to be working with Royal Bank of Canada, which, along with Citi, provided the senior debt behind its £900m purchase of Lloyds’ Project Royal non-performing loan (NPL) portfolio.
The Canadian lender also funded Lone Star’s purchase of the Excalibur portfolio from Deutsche Bundesbank.
Rival private equity player Cerberus Capital Management has again teamed up with Goldman Sachs, which backed its second-placed bid for Project Royal, and competed to finance RBS’s Project Isobel sale.
US investment and management giant Kennedy Wilson is working with Deutsche Bank, which will provide equity and debt as part of its €2bn tie-up with the Beverly Hills-headquartered firm. The partners have already completed two NPL deals in Ireland.
The fourth shortlisted party, investment manager Oaktree Capital Management, is believed to have teamed up with a US lender for its loan-on-loan finance package.
After a six-week due diligence period, the four shortlisted parties will submit second-round bids on Wednesday with financing term sheets from lenders who are understood to be providing leverage of between 50% and 60% loan-to-cost.
Other parties vying to provide finance for the NPL deal include Starwood Capital, Macquarie Bank and Merrill Lynch.
In a turnaround from earlier non-performing loan sales, the number of lenders willing to provide loan-on-loan finance has increased as parties compete for the higher margins on these deals.
JP Morgan, which is running the process for Lloyds, is also available to provide debt for any deal, although it is expected to be more expensive than external finance.
Project Harrogate, also known as Project Royal II, comprises about 70 loans secured against slightly fewer than 60 secondary properties throughout the UK owned by about 25 different borrowers.
bridget.o’connell@estatesgazette.com
