Former Bank of Scotland (Ireland) loans set for bond refinancing deal

Some €5 billion in home loans issued by Bank of Scotland (Ireland) before the financial crash are poised to be refinanced on global bond markets in a series of deals, starting in the coming weeks.

London-listed Lloyds Banking Group, which inherited Bank of Scotland's €32 billion Irish loan book under its rescue takeover of HBOS a decade ago this month, sold its remaining €5 billion Irish mortgage portfolio to Barclays in May.

Barclays has repackaged an initial pool of €585 million of performing loans from the portfolio in a so-called residential mortgage-backed securities (RMBS) transaction.

It plans to issue bonds backed by interest income from the loans in financial markets after a series of presentations with potential investors this week, according to market sources.

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The portfolio contains 3,089 mortgage accounts and extended to 2,546 borrowers, according to credit ratings agency Moody’s. The top 20 borrowers account for 7.9 per cent of the portfolio, equating to an average loan of just over €2.3 billion.

About €70 million – or 12 per cent – of the loans had paperwork issues at the time of the portfolio sale in May, including title issues where a third party was registered as an owner of the property or a borrower not being registered as the owner because of administrative issues, according to Moody’s.

Bank of Scotland has so far sorted out 15 per cent of title problems. It will be obliged to buy back any loans that continue to have paperwork issues after two years.

At the time of the €5 billion loans transaction earlier this year, Barclays had lined up UK asset manager M&G Investments and US investment group Pimco to invest in the planned RMBS transactions. Barclays will also hold on to at least 5 per cent of the lines, in line with securitisation rules introduced in the wake of the global financial crisis.

Most of the Bank of Scotland loans in the RMBS deal currently being marketed were written between 2007 and 2008. Almost 10 per cent of the loans have been restructured in the wake of the downturn, with none of them currently more than a month in arrears.

Lloyds handed back the Bank of Scotland (Ireland) licence to the Central Bank in 2010 and has since sold off most of its Irish loans. The remaining Irish portfolio stands at just €4.5 billion.