AIB lines up record €3.4bn loan portfolio sale

AIB’s latest troubled loans portfolio sale, initiated in recent weeks, contains debt that was originally valued at €3.4 billion, according to sources.

That’s three times the previously reported size of the collection of non-performing loans (NPLs), known as Project Beech. It is comprised of buy-to-let mortgages and borrowings against commercial property and development land.

Portfolios of loans put up for sale can contract by the time a deal goes through, as borrowers strike restructuring arrangements with banks or refinance elsewhere. However, if the transaction goes ahead as currently planned, it would be the largest individual book sale, based on original loan values, by a bailed-out Irish bank in the wake of the financial crash.

Sources said that Project Beech should achieve about €1.4 billion and is expected to conclude in the first half of next year.

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The move follows AIB's sale of €1.1 billion of problem loans to a consortium led by US distressed-debt firm Cerberus earlier this year. This helped the bank reduce its level of NPLs ratio to 11 per cent of gross loans as of the end of September from 16 per cent in December 2017.

Main bidders

Cerberus and rivals Lone Star Funds and Oaktree have been among the main bidders on Irish NPLs in recent times, alongside investment bank Goldman Sachs. They would be expected to be among parties circling the latest portfolio to come on the market.

Euro-zone banks with high levels of distressed debt are under mounting pressure from the regulators to lower their NPLs ratio to the European average, which currently stands at about 3.5 per cent.

The Central Bank said in its latest macro-financial review, published last week, said that "asset sales or foreclosures may represent the only viable option" to reduce some categories of NPLs across the State's banks.

A spokesman for AIB declined to comment specifically on the current planned transaction.

Key priority

“We remain focused on reducing non-performing loans to a level more in line with European norms and, where feasible, we will continue to implement sustainable solutions for customers who engage with the bank,” he said. “Supporting customers in difficulty remains a key priority for AIB, and while we do see loan sales as part of our overall plan, our key priority remains to restructure customers on a case-by-case basis.”

Some 90 per cent of the reduction in AIB’s NPLs from €31 billion in 2013 to €7.2 billion at the end of September has been through working with individual customers, he added.

Permanent TSB (PTSB), which had the highest level of NPLs among taxpayer-rescued Irish lenders at the start of this year, at 26 per cent, has since entered deals to remove €3.4 billion of such loans from its balance sheet. These comprise an agreed portfolio sale and deal to refinance a batch of restructured loans in the bond market through a process known as securitisation, and are set to push PTSB's NPLs ratio below 10 per cent.

Bank of Ireland also signalled in July that it may sell NPLs, given the high amount of expensive capital regulators are forcing banks to hold against such assets.