AIB’s Project Alder to sell off more than €1bn worth of toxic debt

AIB is ramping up preparations for its latest sale of toxic debt, code-naming the process Project Alder, with sources suggesting the value of the loans to be sold is set to top €1 billion.

Market sources said that the bank is expected to bring the loan book to market later this year, with a deal expected to close before the end of the year.

However, the bank is not likely to include large tranches of mortgages secured on family homes, the prospect of which has proven to be politically contentious in recent years. As a majority State-owned bank, the large-scale sale of family home loans could prove particularly problematic for AIB.

While some principal dwelling home (PDH) loans may end up in the final Project Alder loan sale, it will primarily be focused on other categories of non-performing loans (NPLs).

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These will include small business and other corporate loans. A PDH loan taken out by an individual or other “borrower connection” may end up being sold along with the borrower’s commercial loans, as was the case with AIB’s previous book of problem debt, Project Beech, which was sold to US investment fund Cerberus earlier this year. Around 220 owner-occupier mortgages were included in that sale.

Stripped out

That loan book started out as considerably larger than the €1 billion worth of debt which was ultimately sold, with around €3.4 billion considered for sale. However, some loans were stripped out as the closing date drew closer. Sources said that they expect Project Alder to be similar in scale to Project Beech. A source said that final decisions on the loan sale have not been made yet, and the composition of the book and the project name may change before it is brought to market.

It will be the fourth time AIB has sold off loans in recent years. Speaking at the bank's agm last month, the lender's new chief executive Colin Hunt said that it was "still carrying a large chunk of deep long-term arrears that simply must be reduced by year end".

Mr Hunt added that “those individual customers who do meet their loan repayments are, in effect, negatively impacted by those who don’t pay”. The bank expects to reduce its level of non-performing loans to around 5 per cent by the end of this year.

Boom-era loans

Non-performing debt sales have been a major feature of the Irish banking sector in recent years, as lenders seek to reduce their exposures to soured boom-era loans amid pressure from investors and regulators. Many Irish lenders are expected to push ahead with loan sales this year, with Bank of Ireland and Ulster Bank both said to be examining a process.

A spokesman for AIB said that the bank has “reduced non-performing exposures [NPEs] from €31 billion in 2013 to €4.8 billion. The vast majority of the reduction in NPEs has been achieved through working with customers. We remain focused on reducing non-performing loans to more normalised levels.

“Supporting customers in difficulty remains a key priority for AIB and, where feasible, we will continue to implement sustainable solutions for customers who engage with the bank on a case-by-case basis.”