AIB confirmed on Thursday that a consortium led by US distressed-debt firm Cerberus has agreed to acquire €1.1 billion of bad loans at a discounted rate in order to drive down its level of non-performing assets.
The bank said the consortium also includes Central Bank-regulated Everyday Finance, an Irish asset management business acquired by London-based Link Financial Group from Finance Ireland in 2016.
Some 70 per cent of the loans in the portfolio – called Project Redwood – are five years in arrears, “reflecting a lack of sustained and meaningful engagement and/or debt sustainability,” AIB said in a statement on Thursday. About 90 per cent were more than two years behind in repayments.
“The portfolio is underpinned by investment asset properties and excludes private dwelling houses and family farm homes,” the bank said, adding that it involves 800 customers with an average loan balance of €1.4 million. Restructured loans were excluded from the sale.
The bank said it would receive a €800 million cash consideration for the loans and signalled that it would be able to free up some provisions held against the assets as a result of the sale.
The Irish Times reported on Saturday that Cerberus was leading the race to buy the Project Redwood book, which originally contained about €3.8 billion of loans when AIB began to assess interest in the portfolio last year.
The reduction partly reflects AIB’s ability to restructure some €400 million of soured loans during the sales process, as well as a decision to remove other types of loans. It is also believed that some of the loans that had originally been earmarked for Project Redwood will be included in a follow-up NPL transaction being lined up, called Project Beech.
Buyer appetite
“Despite the increased public opposition to NPL sales . . . the agreement to sell to an affiliate of Cerberus is confirmation that NPL buyer appetite remains supportive,” said Davy analysts Stephen Lyons and Diarmaid Sheridan in a note to clients. “AIB has no intention to sell home loans and its preference remains to pursue case-by-case restructuring where possible, which represents 95 per cent of the NPL reduction success to date.”
Goodbody Stockbrokers analyst Eamonn Hughes estimates that the Project Redwood disposal will help to bring AIB’s non-performing exposures ratio below 10 per cent by the end of the year from 14 per cent at the end of March. The bank is on track to move the ratio to about 5 per cent by December 2019, in line with the current European Union average that regulators are pushing banks to achieve, he added.
AIB is not alone scaling back a portfolio up for sale. Permanent TSB said on Wednesday that the so-called Project Glas non-performing loans portfolio it put up for sale in February has shrunk to €2.2 billion from €3.7 billion, mainly as it withdrew €900 million of split mortgages that had originally been in the pool.
Cerberus has been among the most aggressive buyers of impaired Irish loans following the property crash, having bought about €300 million of loans from AIB last year, which were mainly secured against commercial property in the North and elsewhere in the UK.
The firm acquired the National Asset Management Agency’s £4.5 billion (€5.1 billion) Northern Ireland portfolio, known as Project Eagle, in 2014 at a deep discount to par. The deal is currently the focus of several investigations in the Republic, Northern Ireland and the United States following claims that business figures and politicians were to benefit from the transaction.
Cerberus subsequently acquired another portfolio in 2015 from Nama, called Project Arrow, which had a face value of €6.25 billion, as well as loans from Ulster Bank and Permanent TSB.
