Excalibur to give Lone Star a fresh cut of Lehman’s debt

US private equity firm lines up second deal for former Lehman’s loans

Lone Star is on track to complete the acquisition of a second tranche of loans from Germany’s Bundesbank by the end of this month. The US private equity fund is buying €960m of notes from Excalibur, the former Lehman Brothers collateralised debt obligation, which the Bundes-bank took over after the bank went bust.

The deal follows Lone Star’s acquisition from Excalibur in January of a loan made by Lehman to Carlyle’s third European real estate fund, CEREP III, with a face value  of €430m. The acquisition was made at a 35% discount to the nominal value and the second, larger acquisition is understood to have been made at a similar discount.

The property backing the loans is mainly in Germany. The assets include a portfolio of 38 properties, which were previously owned by Barg Group and have Deutsche Telekom as a major tenant (known as Project Octopus); a portfolio of 66 mainly offices in Dusseldorf, Frankfurt, Cologne, Munich and Hamburg, originally owned by Lehman Brothers Real Estate Partners (LBREP) and Atos (the Goodwater loan); and the German Offices Partnership, a fund originally run by GPT Halver-ton and now by Internos.

There is also a 14-strong office portfolio in the Netherlands, on which Kenmore was the borrower, known as the Landmark loan. Lone Star has been working on the Excalibur deals for the past two years. It has financed the latest acquisition with senior debt from Citigroup and Royal Bank of Canada, which also provided debt for Lone Star’s acquisition of Lloyds Bank’s £900m Royal portfolio last December.

Bundesbank was advised on the deal by AgFe. There were three more CMBS bonds in Excalibur which Lone Star decided it couldn’t underwrite, known as Diversity Funding, Project Green and two subordinated tranches of Windermere XII, the CMBS that financed LBREP’s acquisition of the Coeur Défense office complex in Paris.

Diversity Funding is a £1.14bn CMBS of a portfolio of loans that Lehman bought from Northern Rock. Excalibur received €114.4m-worth of the most junior classes in the CMBS, D to G. CoStar reported this month that all the Diversity notes, including the class A to class C notes, were traded to giant bond investor Pimco. Lone Star also clinched another loan portfolio last month, buying €200m of non-performing French and German loans from Société Générale.

The acquisition was financed with Macquarie Bank, according to CoStar. The loans were originally packaged as a €500m portfolio. Deutsche Bank, Bank of America Merrill Lynch, Starwood Capital and Fortress Capital also submitted bids for the loans.