Inside IBRC’s £1.46bn Project Salt

More than 30 separate first round bids were lodged last Friday for the first two IBRC property non-performing loan (NPL) portfolios, the £4.82bn Project Rock and the £1.46bn Project Salt, as KPMG pours through an enormous matrix of possible sales options for the multiple tranched NPLs. 

ibrc-logoProject Rock is comprised of 14 separate tranches split into three large multi-borrower tranches, and 11 standalone single borrower loan tranches. Project Salt is comprised of two large tranches split predominantly by geography.

KPMG, mandated to liquidate IBRC, has invited bids for the entire NPLs, a single tranche, or any combination of multiple tranches which paves the way for an innumerable range of possible first round bidding outcomes.

All the familiar private equity funds and investment banks have bid across both projects Rock and Salt, along with borrowers, hedge funds, property investors and developers as the potential sell-off of almost €17bn, including the possible sales of projects Evergreen, Stone and Sand.

However, since Michael Noonan, Ireland’s Minister for Finance, issued two restrictive hurdle measures on 10 May – capping the discounts on future cash flows and asset valuations to 4.5% and 2.32%, respectively – there has been some doubt as to whether a private sector trade is possible, and thus avoiding a mass loan transfer to NAMA.

Notwithstanding the improved sentiment on both sides of the Irish Sea since Noonan’s ministerial instructions doubts have lingered, with the notable exception to the over-arching sentiment for the two-tranche £1.46bn Project Salt, which is thought to have recieved a raft of compteing bids.

Project Salt is the only IBRC NPL which is ring-fenced from Noonan’s discount methodology because the majority of loans were originated in the UK within two subsidiaries which are not part of liquidation proceedings, IBRC Property Lending Limited (IPL) and IBRC Asset Finance (IAF).

While a small number of loans remains within Project Salt tranche I and II, due to cross collateralisation, the majority weighting of the discounted offer will be unrestricted, raising expectations of a likely trade before year end.

Project Salt is comprised of 609 loans to 233 borrowers, which include 91 separate borrower connections, with a gross loan balance of £1.46bn, against a quoted real estate value of £914m across 350 properties, which implies Salt’s aggregate LTV is 159.7%.

At the end of July, just under three-quarters, or 73%, of the gross loan balance was expired.

There is a concentration of £888.4m of Salt’s loans in five loans above £100m, reflecting 60.8% of the total NPL.

By sector, there is a concentration in retail and mixed-use properties, with 153 of retail reflecting £406.3m of Salt’s real estate value, and 94 mixed-used assets, worth £357.6m.

Project Salt’s geographic split is 60% weighted to Germany, followed by 30% to the UK, while Croatia, Hungary, Slovakia and Belgium, inter alia, make up the balance.

KPMG has sliced Project Salt into two tranches, broadly by geographic focus in tandem with borrower connection consistency.

Project Salt – tranche 1

The first tranche is the German-dominated NPL. Tranche 1 has a gross unpaid balance of £855.5m, of which 61% was expired by end of July, and comprised of 248 loans from a concentration of just seven separate borrower groups.

Across all the loans in tranche 1 there is a reported real estate value of £663.8m, which on aggregate implies a 128.9% LTV for the sub-pool.

Almost four-fifths, at 79%, of tranche 1 is secured by German property, with a carrying value of £523m, with the UK, Poland and Switzerland making up the balance by unpaid balance at 13%, 7% and 1% respectively.

Edinburgh House Estates is the largest borrower in tranche 1.

Project Salt – tranche 2

The second tranche is smaller, more concentrated, UK-focused and in considerably greater distress. Tranche 2 has an unpaid balance of £606m across 361 loans from 137 borrowers, and encompassing 147 properties.

The carrying real estate value of tranche 2, at £250m, implies a 242% LTV and includes £155m of loans for which no remaining real estate secures the original loans, implying the need claim back the outstanding balance through personal and corporate guarantees.

By sector, nearly half the value is in the 50 mixed-used assets, 43%, followed by 21 offices, 20 industrial assets, 19 residential investment assets and 12 retail properties. By geography, tranche 2 is almost three-quarters UK-secured assets, at 74%, with the balance predominantly made up from Croatia, Hungary, Poland and Slovakia.

All parties declined to comment.

About CoStar News

Finance Editor, CoStar News
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