Lloyds’ £1bn bond sell-off cuts real estate book

Lloyds Banking Group has made further significant cuts to its exposure to UK real estate through sales of hundreds of millions of commercial and residential mortgage backed securities.

In recent weeks, the bank has quietly sold CMBS and RMBS senior tranche bonds in the secondary market with a par value of over £1bn sources said.

“They completed the sales about three weeks ago at prices implying average discount margins of 270-280” one ABS investor said. “They got good prices because spreads have widened since to a 300 discount margin due to the problems with Greece”.

The tranches in individual deals sold ranged from £20m to £100m. “They were typically selling one ‘list’ per week and sometimes two” another investor said.

One of the biggest CMBS positions offloaded was about £100m of bonds in Opera Finance Metrocentre, secured on Capital Shopping Centres’ MetroCentre in Gateshead. Others included Opera Finance CSC 3, which is secured on two more CSC shopping centres, in Braehead in Glasgow and the Harlequin in Watford; the Epic Caspar deal secured on a UK-wide portfolio managed by the eponymous Henderson fund, which is being wound-up and sold; and a Sainsbury’s securitisation.

Another was from UNITE’s Student Accommodation Fund’s £285m securitisation – Lloyds has other exposure to USAF via recently extending a balance sheet facility for the fund.

A spokeswoman for Lloyds confirmed that the bank has been selling its CMBS and RMBS secondary portfolio, as part of a range of strategies for de-leveraging. “These sale are to do with running off the non-strategic portfolio”, she said.

“We don’t break out what we have de-leveraged where, but last year we reduced the book by £53bn”.

In real estate, the bank has used loan run-offs, consensual sales of assets by borrowers, enforcement and loan portfolio sales to cut the non-core book.

After selling the £923m Royal portfolio to Lone Star at the end of 2011, Lloyds is now selling two more non-performing property loan portfolios: Project Prince, c€400m of Irish loans, and Royal II, which could be up to £800m. Deloitte is advising on Prince and JP Morgan Cazenove on Royal II.

Jane Roberts, editor