Britain’s second largest bank Barclays PLC BCS, which is simplifying businesses by selling off risky assets to primarily focus on core banking operations and boost bottom line, sold a £500 million ($744 million) portfolio of UK leveraged mid-market loans. The loans were sold to alternative investment manager and direct lending specialist Ares Management, L.P. ARES.
The move comes on the heels of a partnership, which was announced between the two companies, to jointly provide financing solutions to junk-rated U.K. mid-cap companies. The joint financing will be offered in the form of senior and unitranche term debt, revolving credit facilities (“RCFs”) and capex facilities to mid-sized firms in the UK.
While the partnership deal relates only to Barclays’ corporate banking, it does not affect Barclays Investment Bank or its strategy. The company has been maintaining distance and disposing leveraged loans, which require huge capital, given the stricter balance sheet rules implemented since the 2008 financial crisis.
The current affiliation between Barclays and Ares is expected to be beneficial for both the companies. While Barclays’ strong UK Corporate Banking franchise will aid the partnership, Ares’ track record as a leading direct lender in the UK market with more than $8.4 billion of assets under management across Europe will support the joint venture success.
Karl Nolson, Head of Debt at Barclays Corporate Banking, said: “Our clients want financing options that bring together the best of the direct lender community and the flexibility provided by banks like Barclays. By forming this strategic partnership with Ares, we’re doing just that – ensuring that Barclays remains at the vanguard of innovation and will continue to deliver real benefits for our clients.”
A similar deal was inked in early December by The Royal Bank of Scotland Group plc RBS to ramp up its lending activities in Europe. The state-owned bank partnered with Hermes Investment Management, M&G Investments and AIG Asset Management to provide loans to mid-sized companies that are backed by private equity investments.
We remain encouraged by Barclays’ continued streamlining and restructuring moves that should pave the way for boosting the overall financial performance of the company. However, muted revenue growth amid a low rate environment and the burden of numerous litigations keep us apprehensive.
Barclays currently carries a Zacks Rank #2 (Buy). A similar-ranked stock in the foreign banks space includes Erste Group Bank AG EBKDY.
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