Four shortlisted for Lloyds’ £778m Project Forth (updated)

Lloyds Banking Group has shortlisted four parties for its third UK non-performing loan (NPL) portfolio – the nominally-valued £778.6m Project Forth, CoStar News understands.

The shortlisted parties, who are understood to have been informed last Friday, are Kennedy Wilson and Deutsche Bank in a joint bid, Cerberus Capital Management and Lone Star, writes Paul Norman and James Wallace.

There is also understood to be a fourth bidder.

The winner will likely secure around 50% loan-to-cost financing to support the acquisition, which Deutsche Bank is expected to provide if its joint bid with Kennedy Wilson is successful.

Cerberus and Lone Star have an increasingly wide pool of lenders prepared to offer financing including JPMorgan – which financed Oaktree Capital Management’s Project Harrogate with around £130m in a less than 18-month loan – Citigroup, Royal Bank of Canada, BAML, GE Capital and M&G Investments.

CoStar News was first to report on Lloyds assembly of Project Forth one month ago.

Project Forth is expected to trade at at least a 50% discount, given the distressed nature of the underlying circa 100 properties, predominantly in Scotland and the North of England, and the level of default among the securing loans.

All Project Forth’s 41 loans are defaulted, either because they are past maturity or through covenant breaches.

They were all originated between 2006 and 2011. The underlying value of the property is £411m.

Two large properties make up approximately one-third of the value and offer the eventual winner the greatest opportunity for value creation, one of which is the Rock shopping centre in Bury which is valued at around £100m. Lloyds and administrator Deloitte brought in Hammerson to manage the Thornfield developed scheme on a fee basis.

Morgan Stanley has been appointed by Lloyds to sell the NPL portfolio.

Lloyds and Morgan Stanley are expected to close the NPL sale before the end of the year.

Lloyds’ second live NPL, the €€2bn Irish Project Pittlane, comprised of two separate sub-pools, Project Pittsburgh and Project Lane, is also expected to close by the end of the year. Lloyds has invited bidders to offer for individual pools, or both. Shortlisted bidders across the two pools are understood to include Kennedy Wilson and Deutsche Bank, Lone Star and Apollo Global Management.

Deloitte is managing the sale of Project Pittlane.

Lloyds will then be able to report next February, in its annual results, substantial commercial real estate deleveraging across the UK, Ireland and Australia through loan portfolio sales.

The closure of the combined Project Pittlane and Project Forth will be Lloyds fifth NPL trade in 2012, following projects Patterson, Prince and Harrogate in Australia, Ireland and the UK, respectively.

All parties declined to comment.

pnorman@costar.co.uk and jwallace@costar.co.uk

About CoStar News

Finance Editor, CoStar News
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