Credit Suisse’s sale of a €2.6bn loan portfolio to Lone Star Funds has completed. The portfolio of unsold CMBS loans is secured mainly by assets in Germany and the UK, as well as Dutch, Swiss, Spanish, French and Belgian properties, according to sources. Credit Suisse provided vendor finance worth 70% of the loan portfolio and also retained a 49% equity stake. It will manage out the rest of its loan book.
US fund manager Lone Star paid 60p in the pound for the debt package, taking into account the level of vendor financing. Other bidders for the portfolio, which included some tranches of unsold CMBS from historic deals, included Orion Capital Managers and Westbrook Partners.
The transaction was structured as a joint venture between the buyer and the seller, with Lone Star managing the vehicle set up to buy the assets. Any profits will be split between the equity investors after the senior financing from Credit Suisse is paid down.
In its second-quarter results, Credit Suisse wrote down the value of its property loans by 44%. Since 2007 the group has reduced its CMBS exposure by more than 80%, taking it to €6.6bn by the end of June. It has been liquidating its European loan book and disposals include the sale of a $1bn (€674m) debt portfolio to the Carlyle Group in May last year, as well as a €642m portfolio of European retail and office loans to GE Real Estate last July.
Targeting distressed assets
Lone Star is one of several companies looking to buy real estate debt, although it is the only one to have completed a deal of this scale. It has historically targeted distressed markets, with a focus on Germany, where it has been buying non-performing loans since 2003 and already has a large work-out platform called Hudson Advisors. It is now extending its reach to other European countries, including the UK, and sees opportunities for the purchase of CMBS as well as direct assets and operating companies.
However, most banks have held back from selling debt because their pricing expectations are often not aligned with those of investors. Many institutions are sitting on their loan books in the hope that the value of the underlying real estate will recover by the time they restructure the debt or try to sell it on.
In the UK, the Asset Protection Scheme is still being finalised and the concept behind the insurance scheme has been criticised for holding up the market. UK lenders are disinclined to sell off assets in fire sales because banks’ losses will be capped at 10% if a loan fails.
