Since 2013, Cerberus has bought 20 European loan portfolios to become the biggest buyer of non-performing loans in Europe. Lone Star and Blackstone have also been active, buying loans worth €20bn and €10bn respectively in the last 2.5 years. Each of these companies would have paid a fraction of the face value of the loans as bad banks eagerly sell them to repair their balance sheets.
There are now several major players in the loan sales market, but Cerberus are now the most active player in Ireland and the UK. Last week, Cerberus bought £550m worth of RBS loans for 41% of their value, and in December, they acquired £4.8bn in Irish RBS loans for 23% or their value.
Cerberus has been very successful in acquiring so called "mega deals" (portfolios worth €1bn or more). They've won 7 mega deals in the past year and a half, including NAMA's €5.6bn Project Eagle and €1bn in Danish loans (Project Mermaid).
Their success is likely to continue, as they have huge cash resources. Mega deals are becoming more common, and according to Reuters, are almost always bought by U.S. investors. PwC estimates that European banks will likely sell €100bn in loans this year. Should this estimate prove true, it would top the record €91bn in loan sales recorded last year.
Cerberus has already built up a reputation for buying loans in Europe, making it more likely that they will win future bids. As Richard Thompson, head of the portfolio advisory group at PwC, said, "Over time the big players build up... a track record with the main vendors, so I think they will continue to dominate the market."
There could be huge opportunity for Cerberus to buy even more, since Thompson believes that there are "2 trillion euros of unwanted loans across Europe sitting on banks' balance sheets."
US private equity firms can achieve annual returns of 15-20% percent on the right deals. There is fear, however, amongst borrowers that the new owners of their loans will be far more aggressive than the original lenders in an effort to hit those high returns. This may be the case; however, it is incumbent upon the borrower to get their heads around the process very quickly and find a new capital partner.
For the last two years, GDP Partnership has been helping borrowers affected by loan sales. We have been working hard to form relationships with capital partners both in the UK and USA to assist those in this position. With loan sales continuing to make headlines and mega deals expected to continue for the next year at least, we anticipate a very active year facilitating people who need new capital partners.
If you are affected by loan sales, please get in touch with our office today.
Conor Devine MRICS