£1.4bn worth of commercial property debt has been offloaded by the Royal Bank of Scotland (RBS) onto Blackstone, which plans to use its experience gained from similar transactions in the US to draw sustainable value from the portfolio. The private equity group is buying a minority position but assumes control of the loans, seen as ‘among the riskiest’ by financial analysts.
The selection contains performing but high loan-to-value debt, and a number of sale and leaseback agreements. These are said to demand active asset management and will need to be either restructured or sold. Initially Blackstone will assume 25% of the debt and RBS are expected to continue debt disposal over an extended period of time.
The deal is the largest disposal of commercial property debt made by a UK bank since the property crash. The level of the bank’s financial exposure has been estimated at £80bn, making it the second largest commercial property lender during the boom years. This is part of a £258bn division of debt that RBS is working towards reducing. As of March this year, that had shrunk to £194bn, with property assets reportedly proving hard to shift.
Consequently the advisory investment bank Lazard has been brought on-board to assist with selling the bank’s various equity stakes in commercial property. The level has recently been reduced by a sale of Spanish commercial property loans and, once the figure falls below 50%, it will come off the balance sheet. Other initiatives rumoured to be under consideration include putting loans into listed vehicles or packaging and securitising them.
84% of RBS is still owned by the taxpayer following the funding bailout and the sell-off is part of a long-term plan to move the bank back into private ownership. The agreement has been structured so that RBS retains a future share of profits, forecast to be 12–15% per year, while minimising the potential losses from selling at a distressed price.
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