Investment banks syndicate £1bn of £1.5bn Churchill loan

Citi and Morgan Stanley have syndicated £1 billion of the jumbo loan they made to Lone Star for the £2.2 billion acquisition of the Project Churchill loan portfolio, Real Estate Capital has learned.

The two investment banks successfully placed £1 billion, or ‘a yard’ of the £1.5 billion of debt that they co-underwrote, with a small club of institutional accounts. They will continue to hold the rest of the debt on their books.

The investors are several North American insurance companies, one of which is AIG, and a global pension fund. JP Morgan – which had been backing Apollo, the underbidder for the portfolio – took slightly under £200 million of performing loans and has been considering securitising these assets.

The £1.5 billion, three year loan, with two one-year extensions, was written at a margin of about 350 basis points, showing a good return for UK senior debt for the investors. The successful sell-down of a large volume in one deal shows that the syndication market for good private real estate debt deals has stayed firm, despite the volatility late last year and early this in the debt and equity capital markets.

One source close to the deal said: “This syndication ticks a lot of boxes regarding what is a good non-performing loan portfolio.

“It’s UK assets, which is good, because UK NPLs are becoming rarer; it has an excellent sponsor, which is key; and it’s a good mix of assets with a strong concentration in London and the South East.”

Lone Star paid Aviva Commercial Finance close to the £2.4 billion book valuation of the underlying properties to win the deal; the sale was agreed last August and closed in September.

The par value of the loans was about £2.7 billion with close to half past maturity, and for Aviva, the deal was a way to clear almost all its remaining legacy debt in one go.  It also freed up balance sheet as some of the longer-dated loans were heavily capital intensive.