Inside IBRC’s £4.8bn Project Rock: the multi-borrower tranches

IBRC’s £4.82bn Project Rock non-performing loan portfolio (NPL) is arguably Europe’s most intriguing legacy property debt sale yet, given the size and scale of the multi-tranched portfolio, the spread of underlying loan and asset quality and the politics which govern the pricing and probability of a sale.

ibrc-logoThe extent to which Rock trades is arguably the last biggest developing story of the year, with the definitive end of year deadline for a trade – or transfer to NAMA – meaning an outcome, either way, will be revealed soon.

Of course, the politics of this deal is well known.

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 – which many bidders feel impose an artificial minimum price for the legacy property loans which are mismatched by the quality and inherent risk.

Notwithstanding the upswing in secondary markets over the subsequent near seven months, whether the recovery is sufficient to enable bidders to arrive at a new net present value for the loans applying the two capped discount metrics and achieve required internal rate of returns remains unclear.

Project Rock has been sub-divided into 14 separate tranches: the first three tranches are large multi-borrower sub-pools while the remaining 11 tranches consist of individual borrower group tranches, many with multiple underlying loans.

As a result, the matrix of first round bids submitted by the universe of bidders is likely wide.

At the full portfolio level, Project Rock is comprised of 816 loans from 319 borrowers and 217 borrower groups with a gross unpaid balance of £4.82bn, against a recorded real estate value of £3.94bn, implying an overall LTV of 122.3%.

The three multi-borrower group tranches have a combined gross unpaid loan balance of £2.6bn, while the 11 individual borrower group tranches make up the £2.2bn balance.

Approximately 42% of Rock is comprised of expired loans, and there are 123 loans with an outstanding balance above £100m, while £661m of cash was generated from Rock over the 13 months to the end of July this year.

By geography, Rock is 86% secured by UK real estate, or £4.14bn by unpaid loan balance; followed by 7% against US real estate, or £337.4m; and 3% in each Germany and Northern Ireland, or £144.6m; with Ireland, Sweden, Spain and Hungary together making up the balance with 1% or less.

By sector, Rock is weighted to hotels, mixed-use and leisure properties, with 24%, 22% and 21%, respectively, based on carrying real estate value. These three segments amount to £2.5bn of real estate value, or just under two-thirds of Rock’s total portfolio by property value, at 63.8%.

Here, CoStar News uncovers what is in the first three multi-borrower tranches.

Tranche 1

Rock’s first tranche is entirely secured by UK collateral, with all in mainland UK save for less than 1% by real estate value in Northern Ireland.

Tranche 1 is £817.5m by gross unpaid balance and is comprised of 170 loans from 44 borrower groups with a carrying value of £848m, implying a current LTV of 96.4%.

However, there was an estimated £34m mark-to-market interest rate swap liability across tranche 1 on a notional swap value of £273m.

Tranche 1 consists of 68 mixed-use properties and 25 leisure assets, which together comprise £658.4m, or 77.6% of the sub-pool’s real estate value.

Just over half of the loans in tranche 1, at 53% by unpaid loan balance are expired while the loans generated £158m in cash flows over the 13 months to the end of July.

Among the largest loans in tranche 1 are:

  • a £27.6m loan secured against Stadium of Light, the football ground of struggling Premier League side, Sunderland, owned by Ellis Short, the former managing director of Lone Star’s Asia Pacific business. The Stadium of Light was valued by Drivers Jonas on a depreciated replacement cost (DCR) basis in July 2011, which delivered a value of £107.3m. The legacy Anglo Irish Bank loan, which matures at the end of July 2014, is priced at a margin of LIBOR plus 3%;
  • a £189.14m legacy Anglo Irish Bank senior loan to PD Parks Limited, a holding company for Parkdean Holidays, a self-catering holiday park operator, secured by 24 UK-wide sites. In 2010 Anglo Irish extended the senior loan to 30 June 2014, at a LIBOR plus 2.75% margin.
  • seven loans with a combined outstanding balance of £156m secured by a portfolio of 291 freehold pubs with a real estate value of £215m. The pubs are owned through GRS Pubs Limited, the property company subsidiary of London Town plc, which has been in administration since February 2010 when PwC’s David Chubb and Mike Jervis were appointed as joint administrators. One of the loans, a £32.05m facility, is in breach of its covenant and as a result is repayable on demand, which the firm’s auditor, BDO, has confirmed it does not currently have the available cash to do if requested.
  • 25 loans, with a gross outstanding balance of £157m, to David Pearl’s Vendart, which is owned through Structadene Limited, are secured by a portfolio of 43-strong UK-wide property portfolio. The carrying real estate value is £215m.

Tranche 2

Project Rock’s tranche 2 – another virtually entirely UK-secured subpool – has a much greater degree of distress.

With a gross loan balance of £1.4bn, against a carrying real estate value of £837m, this implies a weighted average LTV for tranche 2 of 167.7%. In addition, there was an estimated £43m mark to market on the swap as at the end of July.

Just over three-quarters of loans are expired, at 77%, and there is a concentration of three borrower groups accounting for £515.2m of the unpaid loan balance of tranche 2.

By sector, there are 117 mixed-use assets and 22 residential investment properties which together make up 53% of tranche 2’s £837.1m carrying value. Office, leisure and pubs follow next, reflecting 14%, 13% and 10% of tranche 2’s real estate value, respectively.

  • eight loans to separate special purpose vehicles (SPVs) worth a combined £276m in gross unpaid balance to Opal Property Group Limited (OPG).The eight loans by eight student accommodation blocks, two professional accommodation blocks and two hotels. Colin Haig and Brian Green of KPMG were appointed joint administrators over the loans on 18 March. The assets comprise:
    • Student accommodation blocks: Wimslow Park in Manchester; Opal Court in Leicester; Opal 1 in London; Chandos Hall and Weston Hall, both in Manchester; Opal 1 and Opal 2, as well as Atlantic 1, all of which are in Sheffield
    • Professional let apartments: Opal Villas in Plymouth; and The Pines in Disley
    • The Place in Manchester; and the Manchester Conference Centre.
  • 19 separate loan facilities to the UK property portfolio majority-controlled by Meir Gurvitz, an Israeli property investor, through related companies of Arazim Investments are in tranche 2. The recorded unpaid balance is £122m, against a carrying real estate value of £104m, including these five assets owned through subsidiary Olympia Securities Commercial PLC:
    • Vesuvius UK, Brown Street, Newmilns, Ayreshire.
    • Teleware House, York Road, Thirsk, North Yorkshire
    • 02 Call Centre, Hardy’s Gate, Dumers Lane, Bury,
    • Aldermanbury House, 2-4 Godwin Street, Bradford,
    • 33 and 34 Maylan Road, Earlstrees Industrial Estate, Corby, Northamptonshire
  • a £49m legacy Anglo Irish Bank to Conduit Skegness Limited, a company which owns Fantasy Island, a family resort in Skegness. Conduit Skegness Limited owed a total of £56.6m in bank loans, as at the end of 2012, and in the calendar year recorded a net annual loss of £14.3m and net group liabilities of £23.7m. The booked value of Conduit Skegness Limited land and buildings fell from £50.4m to £27m over the 12 months to the end of 2012, driven by a revaluation and a £14.6m impairment charge.

Also in tranche 2 is: a 16-strong Dooba Investment Properties portfolio, secured by three loans with an unpaid balance of £117m; an £82m facility secured by 17 assets owned by Cinema Holdings; and a £91m facility secured by 83 Pall Mall Investments properties.

Tranche 3

Tranche 3 has a gross loan balance of £399.1m, with a carrying real estate value of £245.5m, implying a weighted LTV of 162.6%. By real estate value, tranche 3 is predominantly comprised of German and Northern Ireland commercial property, at 45% and 41% respectively.

Project Rock’s tranche 3 has 218 loans, secured by 177 separate properties. By value, tranche 3 is retail-focused with 35 properties which account for over half the portfolio underlying real estate value, at £132.6m or 54%.

Trache 3 has 31 mixed-use properties, worth £35.3m; followed by 22 offices worth £22.1m; six industrial properties worth £21.1m and; 52 residential investment properties worth £8.2m. The balance is comprised of 31 leisure, pubs, hotels and miscellaneous assets, together worth £26.1m.

Half of tranche 3 is expired, and in the 13 months to the end of July the sub-pool generated £128m.

Among the largest borrower groups in tranche 3 are:

  • The remaining seven properties secured by a legacy €241m Anglo Irish Bank senior loan to finance a joint venture German retail fund between Taurus Capital Markets, a subsidiary of Taurus Investment Holdings, and Anglo Irish Bank Private Banking. Tranche 3 has around £115m remaining of the original euro-denominated loan, with an estimated real estate value of £108m. The portfolio is comprised of retail assets located throughout Germany, with tenants such as Rewe, Edeka, Metro and Tengelmann.
  • IBRC placed four vehicles connected to Northern Irish investor Barney Eastwood into administration back in March 2012. The current gross loan balance is £80m, although the carrying value is recorded as just £25m implying a 320% LTV. IBRC’s separate guarantees over the companies, through a mortgage debenture, are secured by the remaining commercial properties which are now in tranche 3 of Project Rock:
    • Town Centre shopping complex in Ballymena, in Northern Ireland
    • Castle Lane in Belfast, through the Eastwood Discretionary Trust;
    • A 25-acre development site on Belsize Road in Liburn, through Wildrose (Maheralave) Limited;
    • IBRC also has an all monies  cross guarantee to recover any shortfall from related companies, Wildrose Properties (3) Limited, Wildrose Properties (7) Limited and  Wildrose Properties (16) Limited.
  • a £45m legacy Anglo Irish Bank loan, secured against a 19-strong portfolio of Northern Irish properties owned by Prentice Estates, remains in tranche 3. The IBRC £45m unpaid loan is the majority part of Prentice Estates’ £49m senior loan, which in total is secured by a portfolio valued at £29.4m, as at the end of last year, according to a Companies House filing published in October. The property portfolio has been written down from just over £70m in 2009, to £59m in 2010, and then £51.9m in 2011. Prentice’s properties include the Causeway Exchange office building in Belfast city centre, which is leased by the Department of Culture, Arts and Leisure.

About CoStar News

Finance Editor, CoStar News
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