Lone Star in driver’s seat for £900m UK loan book

The US firm, Lone Star Funds, was notified yesterday evening that it had been made preferred purchaser in the auction of £900m of UK loans being sold by Lloyds Banking Group.

Lone Star Funds is closing in on a deal to buy a £900 million (€1 billion; $1.4 billion) loan portfolio called Project Royal from Britian’s Lloyds Banking Group.

Reports earlier today suggested the US firm had received notification yesterday evening that it had been selected as preferred partner to the British bank for the purchase of a package of 35 loans secured against UK commercial real estate.

If ultimately successful, Lone star would use the services of its captive loan serving arm, Hudson Advisors, to manage the assets. Around one third of the portfolio is made up of non-performing loans, while the other two thirds of the assets are made up of either unpaid matured debt or performing loans.
Lloyds Banking Group is selling the portfolio because it wants to shrink the volume of real estate loans held on its book, which total some £23.6 billion warehoused in its corporate real estate business support unit.

It also emerged today that Royal Bank of Canada and Citigroup have been lined up to finance Lone Star’s prevailing offer to buy the package. Between them, the two banks have offered to put up £300 million to help pay for the assets, according to reports.

Underbidders for the loan book include two other US firms, Cerberus Capital Management and Colony Capital.

Success for Lone Star in the UK would follow its winning hand in the purchase of Anglo Irish’s $10 billion US property loan book in August this year. Dallas-based Lone Star won out in that auction alongside Wells Fargo and JPMorgan Chase & Co for the 248-strong US real estate loans portfolio.

The firm has also enjoyed success on the fundraising front. In June, it closed on $5.5 billion for  Lone Star Real Estate II.