Global investment manager PIMCO, a subsidiary of Allianz Investment Management, seems to have emerged the winner for the second time recently in private debt auctions to buy legacy Lehman Brothers commercial debt portfolios from the Deutsche Bundesbank.
Earlier this month, a report from PriceWaterhouseCoopers said that PIMCO had bought a CMBS portfolio valued at €1.14bn from the Bundesbank back in April. That non-performing loan portfolio was originally backed by assets pledged by Lehman’s German branch to the Bundesbank in 2008.
Some of the securities in that portfolio, known as the Excalibur portfolio, were sold to private equity group Lone Star, in a transaction which we reported on in REFIRE in April. However, the PIMCO deal only recently came to light with the PwC report.
That deal involved the €1.14bn Diversity Funding CMBS, which was the Lehman Brothers securitisation of its acquisition of troubled UK bank Northern Rock’s entire commercial real estate loan portfolio, called Project Gospel. Lehman had paid €1.6bn to Northern Rock for the portfolio in late May 2007, reflecting a 1.3% premium to par value less than two months before the peak of the UK commercial property market.
The Diversity Funding securitisation came to market in November 2007, with €114.4m worth of bonds across four classes – the Ds through Gs – left unsold. These were spun into the Excalibur portfolio and ring-fenced from Lone Star’s January and April acquisitions. The Diversity Funding portfolio comprised 1,159 fixed and floating rate loans backed by 2,000 UK properties, with a weighted average LTV of 68%. The granular portfolio was 43% made up of office, 21% in retail and 16% industrial, with a diverse geographic spread, and with the 10 largest loans making up 20% of the pool.
Now PIMCO has secured its second tranche, the nominally-valued €238.78m Portfolio Green CMBS portfolio, in a private debt auction arranged by London-based AgFe, the European structured finance advisory firm.
According to trade publication CoStar News, Portfolio Green is the securitisation of two German real estate loan portfolios, the so-called projects Yellow and Blue, which Lehman Brothers bought from AMB Generali, in late 2005 and early 2006, and combined to create the true-sale €576.5m Portfolio Green German CMBS in November 2007. The underlying property portfolio consisted of 151 properties in western Germany and 54 in the eastern part of the country, mainly multi-family, mixed-use, retail and office real estate, with the balance in kindergarten property, nursing homes, land, a hotel and a distribution centre.
AgFe advised the Bundesbank that the best price would be achieved for Portfolio Green through the assembling of the entire debt portfolio, which was partially held inside Lehman’s separate collateralised debt obligation, Excalibur, which traded to Lone Star in two tranches in January and April – as earlier reported in REFIRE.
Chunks of the portfolio have been sold off piecemeal over the years, so that by the April 2012 interest payment date, the balance of Portfolio Green had decreased by 59.2% to €238.78m, made up of a granular pool of 199 loans granted to 48 borrower groups. The largest loan made up 32.5% of the total pool balance, while the largest five loans amounted to €128.03m or 53.6% of the outstanding pool balance.
Despite the complexity of the various loans which the Bundesbank has been holding as security, it did say in a statement that it expected all the legacy loans from Lehman at least to sorted out and valued by the end of this year. Along with the Bundesbank, the now moribund Eurohypo has been the most active seller of loan portfolios this year, particularly of many of its performing loan portfolios in the USA.
The PriceWaterhouseCoopers report estimates that the total non-performing loan volume being held on the books of German banks was about €196 billion at end-December 2011, down only marginally from the €214 billion at mid-2010.