Debtors resist loans transfer to Cairn Homes

Some 6 per cent of the Project Clear loans acquired by London-listed housebuilder Cairn Homes from Ulster Bank in December have not yet been transferred to the Irish housebuilder because the consent of the underlying borrower has not been given.

This emerges in a prospectus for Cairn’s capital raising plan, which will net the company €168.9 million subject to shareholder approval next month.

Cairn paid €378 million to acquire loans with a face value of €1.7 billion from Ulster Bank on December 6th last. Investment group Lone Star also contracted to buy loans in the portfolio sale as part of the deal.

Debtors resisting

The prospectus states that 94 per cent of the loans that Cairn had agreed to acquire had been transferred to the company by February 19th. But debtors holding the balance – some €22.68 million of what Cairn paid – had yet to agree to them being transferred to the fledgling housebuilder.

If the debtors are still resisting their loans being transferred on December 11th this year, then “enforcement steps” will be taken by Ulster Bank “with the intention that the collateral would be realised” and the proceeds passed to Cairn.

The document states that even when Ulster Bank enforces against a borrower any sale of the collateral “may not easily occur”, and the bank might not be able to enforce against the security if the debtor is not in default or if they are insolvent. The development land connected to the loans that remain to be transferred comprises one of 25 “core sites” on its books and “could have a material adverse impact on the group’s business financial condition, results of operations and prospects”.

Development sites

The portfolio Cairn acquired from Ulster Bank consists of 120 loans secured against 1,200 acres of land, across 28 residential development sites, and 21 borrower connections.

Cairn’s strategy is to gain control of the underlying sites from the borrowers and it expects to take charge of about 90 per cent of them within 10 months.

Cairn has outlined a number of other risks attaching to its future performance in the prospectus. This includes possible issues with the Land Registry around title to sites secured in Rathgar, Killiney, Hanover Quay and Foxrock. The company has also flagged that it cannot “guarantee that dividends will be declared in the future”.

It has also highlighted potential conflicts of interest, including chairman John Reynolds being a director of Computershare Investor Services, Cairn's registrars.