Lone Star’s main Irish unit pays $34.6m ‘dividend’

Lone Star’s main Irish entity paid $34.6 million (€31 million) to its parent last year, returning some of the capital it received in recent years to part-fund the US private equity firm’s purchase of billions of euros of European assets.

Lone Star Investment Finance (LSIF), a special purpose vehicle set up in Dublin in 2000 to lend to other group subsidiaries and affiliated companies, saw its operating profit fall to $5.96 million last year from $17.4 million in 2014, according to accounts filed with the Companies Registration Office.

The $34.6 million payment to its parent was classified as a “dividend” in the accounts.

LSIF, which held $5.15 billion of assets at the end of December – less than 20 per cent of which are based in Ireland – incurred €2.46 million of tax last year, though it deferred the payment of €1 million of this, according to the report.

Assets

Dallas-based Lone Star was among the first wave of overseas investors to acquire Irish property assets, following the crisis – initially buying a portfolio of non-performing commercial property loans from AIB in 2012 at a 60 per cent discount to their €650 million nominal value.

All told, the group founded by billionaire financier John Grayken two decades ago is understood to have invested €5 billion in Irish assets in the past four years across 10 transactions.

The group’s funds own 600 acres of land in Dublin with the potential for 7,000 homes: in Adamstown, where it has partnered with developer Joe O’Reilly’s Castlethorn Construction; Portmarnock, where it is working with Ballymore Development; and Skerries.

Lone Star funds, whose investors include pension, endowment and sovereign wealth funds, together with its asset management affiliate, Hudson Advisors, employ 130 staff in Dublin.

Its Ireland-based portfolio, including hotel chain Jurys Inn, which it acquired last year in a €900 million deal, and subprime lender Start Mortgages, bought in 2014, employ a further 420.

Tax

Dublin-based LSIF’s function is to part-finance assets held in other special purpose vehicles (SPVs), also mainly based in Dublin, that are linked to Lone Star.

It funds these vehicles, also known as Section 110 companies, by way of profit participation loans that are linked to the performance of the underlying assets.

The company had $4.75 billion out on loan to various subsidiary and affiliated SPVs.

Minister for Finance Michael Noonan moved in recent months to clamp down on overseas investors' use of Section 110 companies, and other structures, to hold billions of euros bought after the crisis to minimise their tax bill.

The Finance Bill, which is currently working its way through the Oireachtas, proposes applying a 25 per cent corporation tax rate to Irish property loans contained in Section 110 firms.

However, one of the exemptions to the planned measure is when the company providing the profit participation loan to the SPV falls within the Irish tax net.