National Australia Bank (NAB) has this morning confirmed the disposal of £625m of UK non-performing commercial real estate loans to Cerberus Capital Management.
Confirming CoStar News’ exclusive from Thursday evening, NAB reported to the Australian Stock Exchange that the loan portfolio sale, dubbed Project Chestnut, was a “substantial de-risking” of its legacy commercial property loan book.
The disposal, for which the gross liabilities are slightly reduced from Project Chestnut’s original £647m size, is expected to return around £485m to NAB, CoStar News understands, although the pricing was not confirmed in today’s announcement.
NAB said the sale will reduce the bank’s UK commercial real estate portfolio by 20% to £2.38bn as at 30 June 2014, and will reduce gross impaired loans by 48%.
In addition, the transaction will result in a small gain above net book value and will release an estimated £127m of capital for NAB Group, required by banks to hold against risky loans.
Incoming NAB Group chief executive office, Andrew Thorburn, said a focus on opportunities to accelerate the run-off in the NAB UK commercial real estate portfolio.
In the statement, Thorburn added: “We’ve progressively reduced our exposure to UK commercial property loans through organic run-off. This sale represents a substantial de-risking of the non-performing portfolio of the NAB UK CRE portfolio.
“As we signalled at the interim results in May we continue to look at opportunities to optimise return on equity by accelerating the sale of non-core assets.
“While pleased with the acceleration of the run-off in the NAB UK CRE portfolio our broader UK operations still face some challenges, in particular in relation to conduct related costs.”
NAB and Cerberus will work together “on a smooth transition” for impacted borrowers, the statement added.
Pimco and CarVal Investors were principal underbidders in the four-strong shortlist which also included Oaktree Capital Management.
Oaktree is not thought to have submitted a final bid owing to its concentration on the MEPC UK business park portfolio for circa £435m, CoStar News understands, which the private equity firm won last Friday.
Morgan Stanley was appointed to sell the two-tranche UK loan portfolio, comprised of loans originated through NAB’s UK banking subsidiaries, Clydesdale and Yorkshire banks.
NAB had been mulling a potential loan portfolio sale for several months, after it first confirmed its intention to permanently exit UK commercial property lending two years ago.
For a breakdown of the original loan portfolio, please see last Thursday evening’s exclusive story here.