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Cerberus named buyer of £13bn loan book

The US private debt manager plans to wind down the Granite securitisation underpinning financing for £7.5 billion of the loans.

Cerberus Capital Management has been named the successful bidder on a £13 billion ($19.8 billion; €18.4 billion) portfolio of loans sold by UK Asset Resolution (UKAR), PERE sister publication Private Debt Investor has reported.

The sale comprises performing and non-performing residential mortgages and unsecured loans from the legacy book of Northern Rock Asset Management.

The total portfolio includes £12 billion of loans within the Granite securitisation vehicle plus a further £1 billion of non-Granite assets.

As a result of the sale, UKAR expects to repay around £5.5 billion off a government loan extended to NRAM, which covered £4.54 billion on the balance sheet of NRAM, used to part-fund Granite, and another £1 billion of loans included in the sale. Proceeds from the sale include a £280 million premium over book value as at 30 June 2015, UKAR said.

“A key consideration for UKAR in selecting the successful bidder was the continued fair treatment of customers,” UKAR said in a statement. There will be no changes to the terms and conditions of the mortgages in the transaction.

The sale brings the total UKAR balance sheet reduction to £73.5 billion since its formation in 2010. The government-backed entity was set up to oversee the orderly management of mortgage books issued by Bradford and Bingley and Northern Rock. UKAR will continue to service the loans.

Due to the complex nature of the Granite securitisation, Cerberus will purchase NRAM, subject to regulatory approval, UKAR said.

Cerberus intends to refinance the Granite assets. This will involve buying the £12.04 billion mortgages out of Granite, which will then be wound up. The US private debt firm has agreed to sell £3.3 billion of the assets to TSB Bank, according to the statement. One market observer speculated that Cerberus might create another securitisation using the assets, as reported.

UKAR and Cerberus declined to comment beyond the statement.

Granite was the residential backed securitisation programme established by Northern Rock in 2001. As of June 2015, the loans were funding by 167 securities with a total balance of £7.5 billion. The remainder is funded by NRAM.
The assets and liabilities not included in the transaction will be transferred from NRAM to a newly established subsidiary of UKAR, called NRAM (No.1).

Cerberus has $28 billion in assets under management. The purchase of the loans from UKAR follows the group’s acquisition of Capital Home Loans, a UK buy-to-let mortgage lender, which completed in July 2015.
Credit Suisse International advised UKAR on the sale.