Wednesday 25 April 2018

AIB's Project Redwood sell-off tests Fianna Fáil's calls to regulate vultures

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Gretchen Friemann

AIB has selected three distressed debt funds for the final round of bidding on its sale of soured commercial and residential loans, once worth €3.7bn.

The Irish Independent understands Lone Star, Cerberus and Goldman Sachs outmuscled private equity rivals such as Apollo and Oaktree to clinch a position in the last phase of the race, which was launched last year and is referred to as Project Redwood.

No traditional banks made the cut, underscoring the lack of interest in these assets from this corner of the market.

AIB, which is 71pc owned by the taxpayer, is understood to have imposed tough sale conditions, with the successful bidder required to own a regulated lending entity in the State.

The bank has declined to comment on the specifics of the deal - but it appears the Redwood sale will conform to Fianna Fáil's calls for so-called vulture funds to be regulated by the Central Bank.

It follows Permanent TSB's decision to earmark 18,000 impaired home loans for sale, revealed by the Irish Independent last week.

Three-quarters of the distressed exposures are tied to owner-occupier mortgages, spurring Fianna Fáil's finance spokesperson Michael McGrath to swing into campaign mode and demand greater protections for borrowers. His private member's bill, to be taken next week, will call for the 'vulture funds' to be subject to regulation.

Yet Redwood illustrates that the greatest gains in this market have gone to those funds that have dug in deepest and played the most aggressive line.

Read More: Donohoe: 'I can't delay PTSB's loan sale'

Both Lone Star and Cerberus, two of the most prolific purchasers of distressed loans, own banking entities, or retail credit firms, authorised by the Central Bank.

Lone Star does so via its ownership of former sub-prime lender Start Mortgages, Cerberus due to its recent acquisition of Start's former rival, StepStone. But unlike AIB, Permanent TSB has steered clear of restrictions on its mega-home loan sale.

Some might question the wisdom of that strategy given the inevitable political backlash to vulture funds carting off thousands of impaired mortgages.

Earlier this week, the bank broke its initial silence on the deal in the face of an intensifying hostile political reaction. PTSB stressed the majority of the 14,000 owner-occupier mortgages were in deep arrears and said many borrowers had failed to engage or were unable to meet the revised terms of the loans. It highlighted that some had "made no payments at all for years".

Taoiseach Leo Varadkar insisted "it is speculation to suggest the buyer may be a so-called vulture fund". He failed, however, to suggest a logical alternative.

Irish Independent

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