Marathon pays €400m for Project Chamonix as Lloyds readies Project Thames UK NPL

Marathon Asset Management, the US hedge fund, has paid €400m for Lloyds Banking Group’s Project Chamonix non-performing loan portfolio (NPL), reflecting a 52.9% discount to par value.

Screen shot 2013-02-22 at 16.06.26Goldman Sachs’ Special Situations Fund and Cerberus Capital Management were understood to have both made final bids at around €350m, implying Marathon paid a €50m premium to the joint underbidders.

TPG’s credit team also lodged a bid in the final round, after Apollo Global Management dropped out of the process last month.

Lloyds sale of Project Chamonix comes just as the bank brings to market its next UK NPL, the circa £500m Project Thames, which is exactly the same NPL portfolio as Project Wagner.

CoStar News understands that the Project Wagner codename was an earlier moniker in an earlier iteration of the NPL when it was initially assembled last November.

The €50m difference between Marathon’s winning bid reflects just over a 14% premium to the cover bids, in what has become a trend of Lloyds NPL winners each time significantly pricing beyond the underbidders.

Eastdil Secured sold Project Chamonix on behalf of Lloyds.

Marathon is understood to have bid on an all-cash basis and will likely now seek around a 50% loan-to-cost (LTC) financing deal, which implies there is a live circa €200m loan-on-loan financing mandate for lenders to consider.

The nominal €850m Project Chamonix is comprised of 18 loans, from 11 borrowers, secured by around 250 properties made up of largely discounted supermarkets in regional towns in Germany as well as DIY stores.

The annual rental income from Project Chamonix is around €60m, while there is a concentration of properties from one individual borrower, Marcol, founded by Terence Cole and Mark Steinberg in 1976.

HBOS financed Project Chamonix’s German grocery stores between 2005 and 2007, typically on five-year loan durations, while tenants where signed up with 12-year leases, which implies the unexpired lease term ranges between four and six years.

Project Chamonix is the first Continental NPL which Lloyds has assembled, having come to the market last November.

Lloyds reports it 2012 annual results next Friday, in which the bank will report considerable progress in the de-leveraging of its non-core real estate division, headed by managing director of the CRE Business Support Unit, Richard Dakin.

Lloyds’ shed £4.1bn in UK commercial real estate loans over the nine months to the end of last September.

The vast majority of Lloyds’ real estate de-leveraging remains through the visible process of running down loans until maturity, restructuring debt facilities at lower LTVs and property enforcement, but in the last 12 to 18 months NPL portfolio sales have become an increasingly large minority of the bank’s overall de-leveraging strategy.

Marathon, the hedge fund set up by Bruce Richards, started a London team 12 months ago to buy non-performing European loans and has launched a Europe Credit Opportunities fund to buy real estate and corporate loans from de-leveraging banks in the UK, Ireland, Spain, Portugal and Italy.

The team is led by Eric Clause, who joined last year from Arrowgrass Capital Partners, a hedge fund.

Lloyds and Marathon declined to comment.

jwallace@costar.co.uk

About CoStar News

Finance Editor, CoStar News
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