On Thursday, the Financial Times reported that Blackstone Group (BX) has agreed to purchase risky commercial-property loans worth 1.4 billion pounds ($2.3 billion) from U.K.-based Royal Bank of Scotland Group Plc (RBS).
Blackstone would buy a 25% stake in the loan portfolio and also takeover the management of the assets, in an attempt to recover as much value as possible. The loan portfolio includes some of the most problem property loans in nursing homes, pubs, auto showrooms and parking garages. Additionally, these loans require proper management and working with borrowers either for restructuring or for sale.
Blackstone has substantial experience in dealing with such loan portfolios, mainly in the U.S. The company, along with RBS, anticipates about 12–15% return on the loans. Moreover, RBS would have a share of profits that Blackstone makes from the portfolio, but would not share any loss arising out of it.
RBS was one of the largest commercial property lenders in the U.K., but it was forced to write-down huge amount of its loan portfolio following the financial crisis. This particular deal with Blackstone would be one of the largest sales of such U.K. property debt and mark a significant step towards RBS’ disposal of troubled loans. Blackstone faced competition from other bidders such as Starwood Capital Group Global LLC and Lone Star Funds for acquiring these loans.
Since the financial crisis, RBS has been trying to trim its balance sheet and strengthen its capital position by selling non-core assets. The deal with Blackstone is a part of this strategy.
Blackstone is also poised to benefit from the deal as it would help the company to hold on to assets in U.K., and thereby enhance its long-term strategy of global diversification.
Currently, Blackstone retains a Zacks # 3 Rank, which translates into a short-term ‘Hold’ rating.
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