Wells Fargo injects £770m for giant Lone Star debt buy

US lender builds UK presence by taking big position in £2bn loan-on-loan financing for Lone Star’s purchase of projects Rock and Salt from IBRC

US bank Wells Fargo has established itself as a force in UK lending by taking a £700m-plus share of a £2bn loan made to Lone Star. Lone Star chose to bring in Wells Fargo alongside Citi and Royal Bank of Canada to finance its acquisition of most of the loans in the Rock and Salt portfolios sold by Irish Bank Resolution Corporation (IBRC). KPMG, IBRC’s liquidator, announced Lone Star’s win last Thursday.

Citi and RBC Capital Markets have financed previous non-performing loan portfolio purchases by the US private equity fund, but the £3.5bn IBRC loans package, with a £5.2bn-plus face value, is the largest traded since the financial crisis. Dallas-headquartered Lone Star is one of Wells Fargo’s biggest US clients. The pair teamed up in January 2013 to buy Eurohypo’s UK book in the Project Acorn sale by Commerzbank. Wells took over Eurohypo’s team and performing book, while Lone Star took the non-performing debt.

The former UK Eurohypo team is now the heart of Wells’ new and growing European business and is said to have a pipeline of lending deals. It is thought to be one of the banks lined up to provide an unsecured corporate credit line for British Land, which is expected to be about £500m in size, depending on banks’ appetite and pricing. Lloyds, which said last week that it completed £6.9bn of balance sheet lending last year, is leading the deal. Wells also took about £50m in Capital & Counties’ just-completed £665m refinancing of  its Covent Garden retail and mixed-use estate in London. HSBC and BNP Paribas led that deal and took about £150m of debt each.

The facility has a margin of 1.65%. The margin on the £2bn, short-term loan-on-loan finance for Lone Star is thought to be about 400 basis points. Since acquiring the former Eurohypo business, Wells also provided £84m of debt for Legal & General’s UK Property Income Fund II, alongside Santander. Lone Star also contracted to buy Paris’s Coeur Défense office complex for €1.3bn in the past few weeks, funded by a €935m whole loan entirely underwritten by Bank of America Merrill Lynch.

Lone Star’s two jumbo deals demonstrate that liquidity has returned to the lending markets for very large transactions in the past six months. Real Estate Capital revealed last month that BAML syndicated €318m to AXA Real Estate across the senior and stretched senior tranches. AXA Real Estate’s decision to take such a large participation means BAML’s first choice now is thought to be syndication, rather than securitisa-tion, of the remaining €517m between three or four other investors. BAML’s Gregory Clerc is working on the distribution.

A 180-200 basis points margin is offered for the 60% loan-to-value senior tranche, with a higher margin for the stretched senior debt, comprising a tranche with a loan-to-value ratio of up to 72%, said a potential investor who had been approached. Lone Star paid 40% less for Coeur Défense than Lehman Brothers paid at the top of the market. With projects Rock and Salt it is taking on more than 1,000 loans; about 90% are secured on UK assets, the rest on Irish and German property.

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