Tuesday 22 January 2019

Tougher terms on AIB loan sale sees off heavy hitters

Bernard Byrne, chief executive officer of Allied Irish Banks Plc
Bernard Byrne, chief executive officer of Allied Irish Banks Plc

Gretchen Friemann

AIB's decision to set tough sales conditions on its €3.7bn sale of non-performing loans has forced a number of distressed debt funds out of the running for the largest loan sale undertaken by the part-nationalised lender.

It is understood US private equity giant Oaktree is among a string of heavy-hitters that have been excluded.

It illustrates how a less welcoming stance towards the so-called vulture funds, which have scooped up tens of billions of discounted Irish debts in the wake of the economic crash, has begun to curb their reach.

The Irish Independent understands the bank's insistence that the successful buyer must be a regulated entity caused a handful of well-known names to crash out of the process.

AIB declined to comment on the specifics of the deal.

But the sale of its multi-billion Redwood portfolio - which includes soured commercial, SME and buy-to-let loans, although no principal homeowner mortgages - potentially offers a precedent for the Permanent TSB auction of some €3.7bn home loans.

Three-quarters of the PTSB mortgages on the block by the State-backed lender are tied to owner-occupiers.

The decision has prompted a furious political backlash.

But PTSB, which remains 75pc owned by the taxpayer, has claimed its hands are tied as Brussels ratchets up the pressure to decisively tackle legacy-era debts.

The fear is PTSB's move to hack out a large section of its impaired residential mortgages lays the groundwork for AIB, Ulster bank and Bank of Ireland. According to the most recent figures from the Central Bank, of the €13.3bn troubled home loans on the banks' balance sheets, more than half (€7.1bn) are at the most troubled-end of the spectrum: the loans have been in arrears for more than 720 days.

Some of these borrowers will qualify for social welfare and therefore can avail of the Government's mortgage-to-rent scheme. Various restructuring methods may help resolve some of the troubled loans.

But sources point out that still leaves a substantial portion for private investors or the vulture funds - widely viewed as the logical and possible sole buyers of these assets.

Yet as the political atmosphere against these opportunists darkens, some question whether the restrictions will impact loan sale valuations. That in turn would affect taxpayers, as the principal shareholders in the banks.

According to sources, AIB's Redwood auction caused confusion among bidders initially.

Many of the distressed debt funds partner with, or in some cases own credit servicing firms that are in turn regulated by the Central Bank.

The private investors have reacted to tighter protections ushered in by the Government in 2015.

Many in the industry argue these rules are sufficient and claim Fianna Fáil's demand that all loan owners must be regulated may weaken appetite for the loans and potentially impact on valuations.

It is understood three bidders have advanced into the second phase of AIB's Redwood race with Goldman Sachs among the final contenders.

Some question whether AIB's restrictions have rendered the whole process more politically palatable or simply weakened competitive tension and spooked the market.

Irish Independent

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