Wall Street investment bank Morgan Stanley recently acquired a portfolio of €336 million of restructured Irish mortgages from private equity giant Lone Star, and is currently seeking to refinance the portfolio in the bond markets, according to market sources.
The transaction opens up a fresh front for Dallas-based Lone Star as it seeks to take money off the table in Ireland, having been among the most active buyers of distressed assets in the market in the wake of the crash.
Morgan Stanley is currently marketing residential mortgage-backed securities (RMBS) – or bonds where interest payments are financed by income from the portfolio of loans – linked to the portfolio in the international financial markets.
Almost half of the loans involved in the deal were originally written by Irish Nationwide Building Society (INBS), with the remainder made up of mortgages issued Bank of Scotland (Ireland) and subprime lenders Start Mortgages and Nua Mortages. Lone Star bought these loans at deeply discounted rates following the financial crisis.
The portfolio – known as Shamrock Residential 2019-1 DAC – is mainly made up of restructured loans that are now meeting their new terms.
In late 2016, Lone Star was the first overseas private equity buyer of Irish mortgages, following the property markets collapse, to tap global debt markets to refinance the loans.
The firm has since used RMBS deals to refinance hundreds of millions of euro of such mortgages, mainly comprised of non-performing home loans. Other private equity firms have followed Lone Star’s lead.
The latest deal is different in that it involved Lone Star initially selling the loans to Morgan Stanley, which is now going about refinancing them in the capital markets with an RMBS deal.
Separately, Lone Star has sold portfolios of performing and so-called re-performing loans to Bank of Ireland in recent years.
The Shamrock Residential portfolio is made up of 1,711 loans with an average current outstanding balance of €204,598, according to a report by debt ratings agency DBRS, which has reviewed the loans.
Two-thirds of the mortgages have been restructured in the past and most have been nursed back to performing status on a sustainable basis, according to DRBS.
A small portion of the restructures have involved the mortgages being split in two: a portion where the borrower is making full interest payments and paying down the principal of the loan, and a part where payments are frozen until a future date.
About 4.4 per cent of the loans have been restructured in a way where the borrowers will be entitled to have part of their debt written off in time.
Some 23.3 per cent of the loans – made up of owner-occupier and buy-to-let mortgages – are currently in negative equity, meaning that the size of the loans are greater than the value of the underlying property.