KPMG Ireland, the special liquidator over IBRC, has lined up PricewaterhouseCoopers (PwC) to revalue a €4bn pool of Irish property loans, known as Project Delta, while UBS has been retained to revalue a similar nominally-sized pool of corporate loans, dubbed Project Taylor.
In the first of a two-phase strategy which will lead to the disposal of €8bn of legacy property and corporate loans, to conclude the accelerated wind-up of the failed Irish bank, PwC and UBS have been mandated to co-ordinate the re-valuation of all the loans, and the subsequent sales process.
For the Delta pool, this will incorporate feeding in all newly-commissioned property valuations which is to be undertaken by Savills, Jones Lang LaSalle and CBRE, along with an assessment of each loan’s performance history, borrowers’ credit worthiness as well as the covenant strength of the underlying tenants and the lease profile of each building.
The €4bn Project Taylor corporate loan pool which UBS is managing the revaluation and sales process for, included loans to hotel operators.
The original ambitious timetable – to conclude the sale of the loans or transfer to NAMA by the end of August – is thought to have since been relaxed, given the scale of logistical complexities involved in determining fair value of the legacy debt.
KPMG is expected to undertake, with PwC on Delta, a simultaneous multiple sales strategy.
Borrowers will be invited to bid to buy back their debt, based on PwC’s assessment of each loan’s fair value, along with third parties for individual loans as well as larger pool bids by private equity funds and hedge funds for either sub pools of Delta or even the entire loan portfolio.
When the loans are available for sale will depend largely on PwC, the valuers and the lawyers’ ability to disentangle some considerable logistical problems, which KPMG has inherited from IBRC.
One of the critical problems within the IBRC Irish property loan book is the absence of key information relating to property leases, which are required to form an assessment of each asset’s value and, in turn, the saleable value of the associated debt.
Much of this leasing information is missing across the Irish property loan book, an issue compounded by the fact that these loans are underperforming and, as a consequence, the borrowers’ relationship with IBRC are often non co-operative – a legacy which KPMG has inherited.
This information gap, in the worst case scenario, could result in incorrect loan revaluations which potentially borrowers could seek to exploit, when revisions understate fair value.
To protect against this, KPMG will only negotiate the sale of debt back to borrowers where total co-operation is extended to PwC in assessing a loan’s value, including the disclosure of current leasing information.
PwC will have to ultimately take a view on these situations on a case-by-case basis, and apply a discount rate to each loan’s sale price relative to the level of uncertainty, using much the same methodology which private equity and hedge fund loan buyers assess the level of discounts to apply to loan portfolios.
For the second phase – which accounts for the remaining €16bn of the total €24bn IBRC loan book as of last month, down from €27.53bn as at 30 June 2012 – KPMG has now received as many as 12 tender proposals to carry out the equivalent loan valuation work.
After the eventual sale of projects Delta and Taylor, the remainder of IBRC’s property loan exposures will comprise around €6bn of Irish loans, circa €7.5bn in UK commercial property loans, as well as residual circa €500m US property loan exposure.
CoStar News understands the bidders include PwC, Deloitte, Eastdil Secured, Smith & Williamson, Duff & Phelps and possibly investment banks including UBS and Rothschild.
KPMG is evaluating the proposals and is expected to make appointments within the next two weeks.
All parties declined to comment.