Loan sales continue to be big news in the UK and Ireland of late, with the announcement last month that Ulster Bank has completed the sale of Project Finn – another £1.3bn of property loans now officially off their books. Hot on the heels of this is the news that NAMA are continuing their own wind down by shortlisting three investors for their largest trade to date, namely, Project Arrow. This book comprises €7.2bn of non-performing loan portfolios, which is expected to trade in the region of €1bn in October of this year. Cerberus Capital Management, who are well known, in the North of Ireland have again shown their intent in this space by making the shortlist along with Goldman Sachs and Carvals in a joint bid with Apollo also in the mix.
Selling loans is a great way for banks to get their balance sheets in order in a very short timeframe. We all understand this must happen for them to be in a position to lend again and certainly in the last few months we have seen some evidence that the banks are now looking to lend money again, which is a positive for the economy.
However, one group of people who I feel has largely been ignored in this exercise are the actual borrowers who are responsible for the loans.
It is now very clear that there was little to no duty of care shown to any of the borrowers whose loans have been sold by any of the banks and although not surprising, is still very bad form at best. The result being that there are now hundreds of businesses in the country with no bank to support them and literally struggling to get by month to month.
So what actually happens if your loan has been sold? Typically, you will be contacted by the investor’s service provider who will invite you to a meeting and advise you of the process. In that meeting, you will be asked to prepare a proposal for how you propose to settle all of the debt. Not some of the debt, not what your accountant thinks is enough money for the debt, all of the debt. You will then need a capital partner to provide you with finance if you want to retain your portfolio and your business. The real problem comes if you cannot find a capital partner and or you don’t hit the number the new owner of your loan is looking for.
This is a new space for people in Northern Ireland and it's vital you take advice from people who are actually experts in this field, but more importantly, who have delivered successful outcomes for people who are unfortunate enough to find themselves in this position.
GDP Capital is one such platform set up to help borrowers refinance away from private equity companies. Over the last eighteen months we have been working hard to form relationships with new capital partners both in the UK and USA, who are willing to get involved in this space.
In 2015, we have been successful in a number of situations in this regard and in terms of our own business we anticipate a very active thirty six months facilitating people who need new finance partners.
The starting point is always to educate yourself around the process, and then you can progress matters.
I am hopeful that our banks can play a role in this process, but they will need some help from mezzanine and equity funders. That I feel will be the real challenge facing borrowers in this space.
Conor Devine MRICS
Principal, GDP partnership