Lone Star completes £2.3bn Project Churchill win in largest NPL deal of the year

Lone Star yesterday completed the £2.3bn acquisition of Aviva’s final major UK loan portfolio sale, Project Churchill, in the largest NPL trade in Europe this year.

Lone Star logo - newJPMorgan, which backed Oaktree in the first round and Apollo in the second round, has acquired a £200m portion of long-dated, performing Churchill loans from Lone Star.

As part of the deal, JPMorgan was given the right to participate in the loan-on-loan financing package, led by Citi and Morgan Stanley. JPMorgan is expected to take up to £200m.  

These trades have subsequently reduced Citi and Morgan Stanley’s financing to circa £550m each, of which the two investment banks are expected to syndicate more than half.

The margin of the financing is around 350 basis points over three-month LIBOR, reflecting the granularity of the underlying UK property portfolio and macro concerns driving receding liquidity in financing markets since the end of the summer.

The number of lenders offering loan-on-loan financing, in particular, has reduced after a couple of investment banks aggressively competed on pricing to win deals, with earmarked syndication as the exit which they were subsequently unable to close out.

Inevitably, the reduction in number of available lenders, together with the non-real estate macro factors, has aligned to put upward pressure on credit spreads.

Project Churchill’s total unpaid principal balance (UPB) is approximately £2.7bn, while the carrying property portfolio valuation is £2.4bn. Lone Star’s £2.3bn purchase price, therefore, reflects a sub 5% discount to real estate value and an almost 15% discount to unpaid balance.

Lone Star’s price paid falls within the price range for Churchill reported by CoStar News in July, in a report on the initial three-strong finalists which also included Cerberus Capital Management.

At the time of the Lone Star’s selection as preferred bidder back in early September, a spokesperson for Aviva said the Churchill NPL sale was “represented less than 1% of Aviva plc’s gross assets as at 30 June 2015”.

The vast majority of the NPL portfolio is in three of the Project Churchill’s four tranches, which comprise:

  • Tranche A: the high-yielding performing loan tranche with an UPB of £1.17bn, secured by 483 properties valued at £1.29bn;
  • Tranche B: a £527.9m non and sub-performing loan pool advanced to 25 separate borrowers and secured by 209 properties valued at £459.7m; and
  • Tranche C: an entirely defaulted tranche with an UPB of £913.6m advanced to 47 borrowers and secured by 305 commercial properties valued at £594m.

The underlying 1,020-strong property portfolio spans distribution warehouses, care homes, department stores, multi-let retail, office and industrial properties, shopping centres, a Rolls Royce depot as well as central London and regional office centres.

For Loan Star, the Churchill win is its third major UK deal this year and one of two European ‘mega’ NPL deals.

Most recently, this includes after shareholders in Quintain, the listed London residential property developer and owner, accepted its revised offer of £745m three weeks ago.

Back in February, Lone Star closed the £1bn off-market acquisition of Moorfield’s Project Laser UK portfolio. The bulk of the secondary property portfolio, sourced from Moorfield’s two maturing private equity funds, was financed with a £593m whole loan from RBC Capital Markets and Wells Fargo.

On the Continent, Lone star’s major wins this year included Commerzbank’s €2.2bn pan-European commercial real estate (CRE) loan portfolio, acquired alongside JPMorgan.

The pan-European loan portfolio comprised of performing, sub and non-performing loans secured by commercial properties predominantly in Central and Eastern Europe and Nordic countries.

In May, Lone Star acquired a 10-strong mixed-use pan-European real estate portfolio for around €185m from Aviva Investors, financed with a €120m loan from Deutsche Pfandbriefbank (PBB) and UniCredit Bank Austria.

Deloitte sold Project Churchill on behalf of Aviva.

Earlier this year Deloitte was also the sell-side advisor for another of this year’s major and complex loan portfolios, Lloyds’ nominally-valued €3.7bn Project Poseidon, which was shared between a Goldman Sachs and CarVal Investors’ joint venture, and Bank of Ireland.


About CoStar News

Finance Editor, CoStar News
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