The reason for Goldman and CarVal’s withdrawal from the race is unclear, and currently remains unconfirmed to NAMA, but the joint venture bidders are not expected to submit a binding bid when they are called in early October.
The withdrawal of the joint venture NPL bidders leaves Cerberus Capital Management and Apollo Global Management vying for Project Arrow, which has an unpaid balance of €7.2bn.
NAMA selected the final three – Goldman and CarVal; Cerberus; and Apollo – just over two weeks ago.
The NAMA sale of Project Eagle to Cerberus last year is currently the subject of an investigation by the UK’s National Crime Agency (NCA). The matter centers on alleged misappropriation of funds paid by Cerberus’ law firm Brown Rudnick to a local firm in Northern Ireland, Tughans.
Last Friday, the Financial Times reported that the inquiry took on a transatlantic dimension with the Department of Justice (DoJ) in the US having sent a subpoena for information to Cerberus.
Cerberus has denied any wrongdoing and has stated that the firm “has not been accused of any wrongdoing and has welcomed any inquiry associated with the acquisition of the Project Eagle portfolio”.
Immediately after the initial finalists were selected, Lone Star, which did not make it through based on the private equity firm’s submitted pricing for the giant NPL, tried unsuccessfully to re-enter the process.
It remains to be seen whether this latest development in the race for Project Arrow results in a change of heart for NAMA in allowing Lone Star to re-enter, or is significant enough to encourage the private equity firm to make its case again.
NAMA has tended to prefer at least three finalists on NPL deal to ensure the necessary price competition – by comparison, on Project Jewell there are five finalists.
Among the possible reasons for Goldman and CarVal’s voluntary withdrawal is, perhaps, a general dampening in appetite for the granular, tertiary residential and commercial properties throughout Ireland, driven in part by the upward pressure on financing margins in recent weeks.
Investment banks – which typically finance NPLs up to 70% of the portfolio’s loan-to-cost (LTC) – have becoming notably more risk-averse, in response to renewed concerns over China’s economic slowdown.
This is increasing senior margins and the flex clauses that banks want to negotiate in order to distribute the loans underwritten in the syndication markets.
In this environment, NPL bidders may have to bid tighter. Alternatively, and more simply, first round bids may now have considered too ‘toppy’.
Project Arrow is comprised of 1,532 loans from 367 separate borrowers securing 2,402 properties. Real estate value is thought to be below €1bn, with a trade expected to be under €900m.
The largest loan is sub €10m and no individual asset has a current real estate value above €5m.
The underlying property portfolio is comprised of by residential assets; a mixture of mainstream commercial asset types; land and development sites; and hotels and leisure assets. By geography, 96% are located in Ireland and just 3% of assets are in the UK. Just above one-third – 36% – of the properties are in receivership.
Cushman & Wakefield’s Corporate Finance team in London is selling Project Arrow on behalf of NAMA.
All parties declined to comment.