Business World

Tuesday 19 June 2018

Pimco/GS in €1.8bn bond switch for Danske book

The GS-Pimco consortium fended off steep competition for the portfolio from three other contenders, including the UK insurer, Prudential, as well as Elliott Management, a US hedge fund, and Bank of Ireland. Photo: Reuters
The GS-Pimco consortium fended off steep competition for the portfolio from three other contenders, including the UK insurer, Prudential, as well as Elliott Management, a US hedge fund, and Bank of Ireland. Photo: Reuters

Gretchen Friemann

Goldman Sachs and Pimco are likely to securitise some or all of the €1.8bn Danske retail book early next year as the US giants move quickly to reap a profit on the deal.

An agreement to sell the portfolio of 13,000 mortgages was struck on Tuesday evening after a lengthy period of negotiation and due diligence.

Danske confirmed yesterday it has sold the portfolio of performing loans - acquired from its ill-fated expansion in 2004 when it took over National Irish Bank - to a Goldman Sachs-financed entity, Proteus Funding.

According to sources Pimco declined to be named as an official partner on the deal although it's understood the Californian-based funds behemoth has stumped up the majority of the cash for the acquisition.

The 13,000 bundle of mortgages exchanged hands for close to 95c in the euro, as previously revealed by this newspaper.

About 10,000 of the home loans are extended to primary dwellers with the remainder classified as buy-to-let loans.

The GS-Pimco consortium fended off steep competition for the portfolio from three other contenders, including the UK insurer, Prudential, as well as Elliott Management, a US hedge fund, and Bank of Ireland.

While the Danske portfolio contained a large volume of low-yielding tracker mortgages - some with rates of less than 1pc - the deal was hotly pursued by Bank of Ireland as it offered a rare opportunity to grow the loan book in an environment where lenders are hobbled by onerous regulations. Permanent TSB and AIB did not bid.

It is understood the GS-Pimco consortium intends to refinance the loans, potentially the entire portfolio, in the first quarter of next year, in what would mark the largest securitisation of performing Irish mortgages since the crash.

A paucity of euro-denominated residential mortgage-backed securitisations or RMBS, which convert home loans into tradeable securities by ascribing each tranche a different credit rating, has helped fuel demand for this once unloved asset class.

Earlier this month PTSB attracted an effective negative yield on a €500m RMBS deal. Most of the loans included in that deal carried a top-notch rating and it was this tranche that secured a sub-zero yield.

The expected securitisation of the Danske book is likely to receive a similar reception, as the mortgages are performing, and enables GS-Pimco to bank a profitable spread on the loans.

Danske has notified borrowers of the ownership transfer and stressed that "customer agreements" remain unaffected.

The largest loan sale so far this year entailed a fee bounty for investment banks and lawyers with Matheson, Maples and Calder, Clifford Chance and Allen & Overy all involved in the deal. Bank of America Merrill Lynch advised Danske.

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