Lloyds Sells Off Irish Property Loan Portfolio

Written by: Rachel McCormack
November 21, 2012

**Lloyds Sells Irish Property Loans for 10p per Pound**

Lloyds Banking Group’s (LON:LLOY) ill-timed takeover of Halifax Bank of Scotland in 2009 exposed it to billions of euros in property loans in Ireland just as the country’s real estate bubble burst. Three years later, the British banking group has agreed the sale of this inherited £1.46 billion portfolio of Irish property loans to Risali Ltd, an entity affiliated with Apollo Global Management (NYSE:APO), for a cash consideration of £149 million — a tenth of the assets’ face value, The Financial Times reported on 19 November 2012.

The lender, which is 40 per cent owned by the UK government, said that the transaction, expected to complete in the first quarter of 2013, will not have a material impact on the group because of “the significant impairment provisions held against the portfolio.” Lloyds explained that the write-down of the inherited Irish property loans is higher than the average across the Irish wholesale book “because of the particularly distressed nature of these assets.”

The portfolio to be sold to Risali is made up of around 700 individual loans, mainly property loans with some hotel debt also included. With commercial property prices in Ireland falling by at least 60 per cent from their 2007 peak, last year, these property assets generated losses of £202 million, Lloyds said in a statement on Monday.
**Project Pittlane Sale in Line with Lloyds’ Strategy**

Lloyds said that the sale of the Irish property loan portfolio, which was marketed under the name Project Pittlane, was in line with its strategy of shrinking its balance sheet by shedding non-core assets. In the first nine months of 2012, Lloyds reduced the amount of non-core assets it holds by £31 billion and by the end of the year the British lender plans a further £7 billion reduction.

!m[British Banking Group Sells £1.46bn Portfolio Of “Distressed” Irish Property Loans To Private Equity Group ](/uploads/story/869/thumbs/pic1_inline.png)The sale of Project Pittlane is also part of the final phase of the bank’s exit from the Irish loan market. Lloyds shrank its Irish loan book by £1.9 billion in the first half of the year largely as a result of disposals, leaving it with £16.1 billion of wholesale, mainly property-related Irish loans and £6.7 billion of retail loans – mostly mortgages. The Irish loan book was cut by another £1.1 billion in the third quarter, Lloyds said in a November 1st trading update.
**Transaction Comes Amid Increased Investor Interest in Irish Real Estate**
As iNVEZZ reported earlier this month, the Irish real estate market has recently been showing signs of stabilising. Property prices in the country have started to gain ground, while mortgage lending has posted its first year-on-year rise since 2006. Amid this mildly more positive market atmosphere, investors’ interest in Irish real estate is also on the rise.
Several private equity groups have bought assets in Ireland over the last few months, with the latest deal made last week by US investor Kennedy Wilson (NYSE:KW), which bought a flagship office block in Dublin city centre for just over €100 million (£80 million). The sale of Lloyds’ £1.46 billion Irish loan book to a private equity group also coincides with this increased activity on the market. Risali, which purchased the bank’s assets, was not the only bidder for the loan portfolio. According to the Irish Independent, the list of potential buyers of Project Pittlane included a joint bid from Kennedy Wilson with Deutsche Bank and financial investors Och-Ziff and Varde Partners, a second joint bid from investment managers CarVal Investors and Centerbridge Partners, as well as a standalone offer from private equity firm Lone Star.

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