Arizona firm to buy Irish subprime loans at 75% discount

Balbec Capital, an Arizona-based distressed debt investment firm, has emerged as the winning bidder for a portfolio of deep-in-arrears Irish mortgages being sold by Goldman Sachs at more than a 75 per cent discount to their original €450 million value, according to sources.

Most of the loans originated from US group GE Capital's former Irish subprime mortgage business before the property crash. Goldman Sachs funded Australian financial firm Pepper Group's acquisition of the GE unit in 2012 and retained ultimate ownership of the loans.

The loan book that is being sold, which is known as Project Toucan, also includes some former Bank of Scotland (Ireland) mortgages that Goldman Sachs bought in 2014 as the UK lender wound down its Irish operation in the wake of the crash, under the direction of its parent, Lloyds Banking Group.

The deal is believed to mark Balbec's initial foray into the Irish non-performing loans (NPLs), which has been dominated over the past decade by buyers such as Lone Star, Cerberus, CarVal, Oaktree, and Goldman Sachs. The US firm was founded in 2010 and is led by a number of former Bear Stearns executives, including chairman Warren Spector and chief executive Charles Rusbasan.

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A spokesman for Goldman Sachs and spokeswoman for Balbec declined to comment.

Balbec has invested more than $7.1 billion (€6 billion) in 21 countries since then, focusing on debtors or assets that are “subject to bankruptcy, insolvency or other restructuring processes”, according to its website. It raised $1.19 billion last year for its fourth debt-acquisition fund, which has been targeting deals in the US, Australia and Europe.

The original value of loans in Project Toucan was more than €500 million. Some €450 million of this was secured against residential properties, including owner-occupier and buy-to-let homes, with the remainder comprised of unsecured debt.

The portfolio is comprised of 1,800 loans against about 1,000 properties. In many cases borrowers have not made any payments for several years, sources said. The loans are backed by property that is currently worth about €220 million.

Troubled loan book

The fact that the winning bid is less than half the property value – and more than a 75 per cent discount to the original size of the loan book – reflects how troubled the loan book is, the sources said.

Pepper will continue to service the loan book when the deal goes through.

Goldman Sachs has taken advantage of a window to sell the loans in what is expected to be a busy year for non-performing loan sales across Irish banks as they seek to shed legacy long-standing arrears cases as the sector faces a spike in Covid-related defaults.

AIB agreed last month to sell a portfolio of 4,000 deep-in-arrears mortgages to US investment group Apollo for a discounted price of €400 million, with Mars Capital Finance Ireland contracted to service the loans.

Bank of Ireland said in early March that it aims to sell a portfolio of non-performing mortgages this year.

KBC Bank Ireland has also signalled it may sell long-standing problem owner-occupier mortgages to avoid being forced by regulators to set aside more expensive capital against these loans.

Davy analysts said in a report last month that Permanent TSB (PTSB) may sell more non-performing loans, which tie up high levels of expensive capital, to free up reserves to support the planned purchase of performing mortgages and small business loans from Ulster Bank, which is retreating from the market.