Erste Abwicklungsanstalt (EAA), the German bad bank established five years ago, has called for initial expressions of interest by tomorrow afternoon to acquire Westdeutsche Immobilien, the pfandbrief-funded European commercial property lending bank.
However, this is understood to have shrunk further over the five months of this year in addition to a “carve-out” loan portfolio of around €900m, predominantly comprising property loans which are not pfandbrief eligible.
JP Morgan in Germany has been mandated to sell EAA’s shareholder equity in WestImmo, which stood at €877m at the end of 2013. However, this will fall to approximately €575m after a circa €50m dividend to be taken by EAA against WestImmo’s €50.3m post-tax annual profit as well as the reduction of the carve-out which retains high levels of equity.
EAA will be seeking a cash price for the WestImmo bank, which includes 290 employees, relative to the €575m, although it is not known if it is seeking a premium to the discounted price paid when WestImmo was acquired during the financial crisis.
Preferred buyers are expected to be those able and intending to continue to run the pfandbrief bank as an ongoing performing lending business, with prospective bidders expected to fund much of the €11bn performing commercial property loan book through pfandbrief issuance.
CoStar News reported back in January that PIMCO, ING Bank and Aareal Bank were all circling over West Immo in the second half of last year, with Aareal dropping out and instead acquiring Lone Star’s Corealcredit Bank for €342m.
Prior to this came Apollo Global Management’s high profile attempted purchase collapsed in December 2011, illustrating the difficulty of funding the acquisition of a bank on short-term money markets. Two and a half years on, and the recovering macro economy and financing markets make for a much improved market to raise unsecured debt to acquire such a large business, in addition to pfandbrief issuance.
Around seven parties are expected to register their interest tomorrow, including Starwood Capital, which manages the world’s largest mortgage REIT in the US.
EAA said in an expression of interest notice: “Expressions of interest for the sales process must be submitted in writing by 30 May 2014 at 6 pm (CET…. EAA will be unable to consider any expressions of interest received after the deadline for this sales process. All expressions of interest must provide details of the purchaser.”
All parties declined to comment.