Lone Star to refinance restructured mortgages in bond market

Mortgages originally written by Bank of Scotland (Ireland), Start and Nua

Lone Star will tap international debt markets to refinance hundreds of millions of euro of former Bank of Scotland (Ireland) and Start Mortgages home loans.

Lone Star will tap international debt markets to refinance hundreds of millions of euro of former Bank of Scotland (Ireland) and Start Mortgages home loans.

 

Private equity firm Lone Star is poised to tap international debt markets to refinance hundreds of millions of euro of former Bank of Scotland (Ireland) and Start Mortgages home loans that were once in trouble but restructured in recent years.

The Dallas-based firm, which has spent more than €5 billion acquiring Irish assets over the past five years, has bundled the loans into a company called European Residential Loan Securitisation 2017-PL1 DAC, which is preparing to issue bonds backed by the mortgage debt. It is understood there are more than €500 million of loans involved in the portfolio.

Some 76 per cent of mortgages have been permanently restructured, according to a note from credit ratings agency Moody’s, which Lone Star had hired to rate the bonds. Almost 19 per cent of the loans are classified as being in arrears, while the average loan size is 67 per cent of the value of the underlying property.

It is expected the bond sale will be launched within weeks.

The move comes four months after Lone Star sold bonds against €564 million of mainly non-performing loans, opening up a new avenue for buyers of Irish loans in recent years to take money off the table. It had acquired those loans, which originated from Irish Nationwide Building Society, from liquidators of Irish Bank Resolution Corporation in 2014.

Property bubble

Lone Star has also previously sold restructured loans to Bank of Ireland.

The loans in the current transaction were originally written by Bank of Scotland (Ireland) and subprime lenders Start Mortgages and Nua Mortgages, between 2003 and 2008, just before the property bubble burst.

Lone Star bought Start Mortgages, including €677 million of loans, as well as an additional €100 million of Nua Mortgages loans from South Africa’s Investec in September 2014 at a discount to par. A month later it bought €1.1 billion of non-performing Bank of Scotland (Ireland) mortgages from Lloyds Banking Group.

Lone Star, founded two decades ago by billionaire financier John Grayken, has been among the most active private equity firms acquiring Irish assets at knockdown prices in recent years.

Its 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; in Portmarnock, where it is working with Ballymore Development; and in Skerries. It acquired hotel chain Jurys Inn in 2015 in a €900 million deal.