Lone Star is poised to become the first overseas private equity buyer of Irish mortgages following the property market’s collapse to tap the global debt markets to finance the loans.
The Dallas-based firm, which has spent more than €5 billion acquiring Irish assets over the past four years, has set up a company, called European Residential Loan Securitisation 2016-1 DAC, to hold €563.9 million of loans originally granted by Irish Nationwide Building Society (INBS).
Some 63.8 per cent of the loans are classified as non-performing, while only 32.6 per cent are meeting their terms.
Ratings agency Moody’s, which has been asked to rate the portfolio before the bonds are sold, said the transaction is the first it has looked at in Ireland that is partially backed by non-performing loans.
Loans in default
Moody’s warns that legal procedures to “recover” the underlying value of properties where loans are in default can be lengthy.
“Whilst the Mortgage Arrears Resolution Process ensures that legal proceedings are only initiated for borrowers (owner occupied) if no restructuring solution can be found, it could also lead to an increase in the recovery timings,” the ratings agency says in its documents relating to the portfolio.
Moody’s estimates that the performing loans within the portfolio will make a 13 per cent loss. It estimates the performing loans to make up just 24 per cent of the book, using more onerous criteria that standard classifications.
The portfolio stems from Lone Star’s 2014 acquisition of INBS mortgages, through a company called Shoreline Residential, from the liquidators of Irish Bank Resolution Corporation (IBRC), which took over the building society in 2011.
The loans were part of a collection of mortgages, with a par value of €1.8 billion. The remaining loans were bought by Mars Capital, an affiliate of US private equity firm Oaktree, and Bank of Ireland, which was interested only in performing mortgages.
Pepper Finance Corporation (Ireland) services the loans involved in the residential mortgage-backed security, while Hudson Advisors, an asset management affiliate of Lone Star, acts as a consultant on how mortgages are handled.
The Moody’s document shows that where legal proceedings on owner-occupied homes have started, the servicing company employs a number of strategies to recover money. These include assisted voluntary sales, voluntary surrender of a property, selling the home to a housing association under a mortgage-to-rent scheme or obtaining a court order to seize the asset.
“In the case of buy-to-let loans, the servicer strategy is to request the borrower to voluntarily sell the property if the loan is deemed to be not affordable,” it said. “If a borrower is not co-operative, the property will be placed into receivership until the servicer has sold the property.”
