Lone Star completes purchase of £900m Lloyds loan book

The Dallas-based private equity and real estate investment firm announced today it had closed on its acquisition of a mortgage-backed loan portfolio from the UK government-backed bank.

Lone Star Funds, the Dallas-based private equity and real estate investment firm headed by John Grayken, has completed its anticipated purchase of a distressed £900 million (€1.1 billion; $1.4 billion) loan book from UK bank Lloyds Banking Group.

The firm announced today that certain affiliates of its second real estate fund, Lone Star Real Estate Fund II, which closed on $5.5 billion in June, had closed the transaction but declined to reveal how much was paid for the loans.

While little detail was included in its announcement, it was previously reported that the loan book contained 35 loans secured against commercial properties and that approximately one third is non-performing while the other two-thirds are either unpaid mature debts or performing loans.

Lone Star was tipped by various media earlier this month to win the portfolio, one of the earliest sizeable loan books to come out of the UK’s part-nationalised banks, ahead of US rivals Cerberus Capital Management and Colony Capital.

Blackstone’s purchase of a £1.36 billion loan book from Royal Bank of Scotland is also in its final throws of completion although that deal is altogether more complicated as it involves a joint investment by RBS and Blackstone into a separate entity that would then work through the loans.

Lone Star’s investment is altogether more linear as it equates to a straight investment. Its equity in the deal is being supplemented with debt from Citigroup and Royal Bank of Canada, their anticipation also tipped earlier this month.

Lone Star’s loan servicing arm, Hudson Advisors, will now work through the loans in an attempt to generate as much value from them as possible.

Angus Dodd, managing director at Lone Star, said: “We are confident of the ability of the Lone Star Funds to deliver constructive solutions to banks and, as further de-leveraging takes place in the property sector, the Lone Star Funds are well-placed to invest in further opportunities as and when they arise.”

Lloyds is expected to bring further loan books to the market in time as it looks to whittle down its £23.6 billion loan schedule currently encased within its corporate real estate business support unit.