Lone Star is on track to buy the £900m Project Royal portfolio by the end of the year after being named as preferred bidder this week.
The US private equity firm was informed by vendor Lloyds Banking Group on Tuesday night that it was the preferred party to take control of the portfolio of more than 30 real estate loans.
The exclusive position is a coup for the Texas-based firm, which earlier this year narrowly lost out to Blackstone in a closely contested battle to partner with Royal Bank of Scotland in the workout of £1.3bn loans in the Project Isobel deal.
In the final round of this high-profile process it was up against rival private equity firms Cerberus and Colony Capital, which also made it onto a shortlist with bids of around £650m for what was originally a £1bn portfolio.
Since the book was officially put up for sale through JP Morgan Cazenove at the end of September, a number of loans have repaid, shaving £100m from the face value of the portfolio.
The final price will reflect this reduction, so could be agreed at around £550m, reflecting a discount of close to 40%.
Lone Star is understood to have lined up £300m of senior debt from Royal Bank of Canada and Citigroup, which is priced at 600 basis points over Libor.
It is working with its loan servicing subsidiary, Hudson Advisors, on the deal.
The depth of interest from investors and the speed at which the deal has progressed provide a boost to Lloyds, which had £78.9bn of global real estate loans, according to its half-year results in August.
This includes £23.6bn of debt in its corporate real estate business support unit including the Project Royal loans, which are evenly split between non-performing, defaulted loans; loans that have matured and not been repaid; and performing loans.
The loans are secured against a range of asset types including secondary office, retail and industrial, with an average loan-to-value ratio of around 140%.
