PTSB hires Citigroup to shift €900m of split mortgages from books

Permanent TSB has hired Citigroup to help shift €900 million of split mortgages off its balance sheet through a refinancing in international bond markets, as it races to appease regulators by lowering its level of problem loans.

Sources said that Citigroup had been helping PTSB with options for this portion of its loan book before the Dublin-based bank decided a month ago to pull split loans from a multibillion-euro portfolio sale, known as Project Glas.

It is expected that PTSB will launch the so-called residential mortgage-backed securitisation (RMBS) as soon as September. A spokesman for PTSB declined to comment, while no comment was available from Citigroup.

While PTSB had been the most active user of split-mortgage restructurings for distressed borrowers in recent years – where repayments on a portion of home loans are put on ice until a future date – it has not been able to reclassify these loans as “performing” debt under European regulatory guidelines.

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PTSB’s inclusion of €900 million of split loans, across 4,300 accounts in Project Glas, quickly emerged as the most politically contentious element of the transaction when it was put on the market in February.

The bank announced on May 16th that it had withdrawn the split loans from the sale as the overall size of the portfolio shrank from €3.7 billion to €2.2 billion.

PTSB currently has the highest portion of non-performing loans (NPLs) among bailed-out Irish banks, at 26 per cent of its loan book. Banks across the euro zone are being pressed by the European Central Bank (ECB) to reduce their NPL ratios to the 5 per cent European average, or face the prospect of being forced to set aside more provisions and capital to cover this debt.

Special purpose vehicle

In order for the split mortgages to be moved off PTSB’s balance sheet, more than 50 per cent of the equity in a special purpose vehicle housing the loans would have to be bought by third parties, such as pension funds.

Crucially, however, PTSB is shaping the paperwork around an RMBS deal so that it would continue to service the loans, according to sources. This means it would maintain day-to-day contact with the underlying borrowers.

The Irish Times has previously reported that the bank had been looking at an off-balance-sheet transaction as its preferred option for "derecognising" split mortgages from its books.

While it would be the first deal of its kind for a mainstream Irish lender, US private equity giant Lone Star, and a former affiliate of Oaktree, have taken to the RMBS market in recent years to refinance loans in default that they snapped up here in the wake of the financial crisis.

Meanwhile, PTSB has set a deadline of July 19th for final offers for the remaining loans in Project Glas, which equates to 11 per cent of its entire loan book.

Lone Star and Cerberus are understood to be among the short-listed parties working on bids. The portfolio is subdivided into Project Nepal, comprised of buy-to-let loans deep in arrears, and Project Tibet, which is mainly made up of distressed owner-occupier mortgages.