Permanent TSB (PTSB) has agreed to sell a portfolio of boom-time buy-to-let mortgages for €700 million, with many of the loans out to borrowers that are only required to make interest payments until their debt matures.
The deal is expected to free up more than €50 million of capital, according to sources. It comes as PTSB is seeking to build its capital reserves to buy €6.8 billion of more attractive mortgages and business loans from Ulster Bank, as the UK-owned lender retreats from the Irish market.
The buy-to-let loans are being sold at a discount to their gross balance sheet value of €770 million, PTSB said in a statement on Wednesday evening. They will be bought by a special-purpose vehicle financed by funds managed by US bond investment giant Pimco, through a process known as securitisation. This will see the vehicle issue bonds to the funds, where interest payments are financed by interest from the mortgages.
The deal is being arranged by Citigroup, with the 5,170 loans involved set to be managed on a day-to-day basis in future by Pepper Asset Servicing.
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The nature of the portfolio — with half of the loans either on interest-only contracts or only making partial capital payments and some 6 per cent of the debt categorised as non-performing — means that PTSB has had to hold higher levels of expensive capital against the loans than a normal owner-occupier mortgage book.
The transaction follows on from a similar sale of €1.4 billion of interest-only buy-to-let mortgages two years ago.
Meanwhile, Moody’s upgraded its view of PTSB’s creditworthiness earlier on Wednesday, on the back of the bank receiving regulatory approval over the summer for the Ulster Bank loans purchase, which will increase the size of its loan book by almost 50 per cent.
The leading ratings agency has raised its rating by three levels to A2. That remains five rungs below its top-notch AAA rating.
Moody’s has also upgraded its rating on the ultimate holding company above PTSB to so-called investment grade.
“Moody’s expects the transaction to close in [the fourth quarter of] 2022, after which PTSB will have a more relevant share of the Irish mortgage market, a slightly more diversified business model, a broader foundation to support significantly improved profitability along with stable asset risk and a solid deposit-based funding profile,” the agency said.
PTSB agreed last year to buy €7.6 billion of Ulster loans, comprising mortgages, small business loans and an asset finance portfolio, as the UK-owned lender exits the market. The book is expected to have shrunk to €6.8 billion the time it is completed.
The bulk of the loans, made up of non-tracker mortgages, are set to transfer this year, with the remainder, comprising small business loans and an asset-financing business, moving early next year.
PTSB is also acquiring 25 of Ulster Bank’s 88 branches, which would see its total branch network grow to close to 100.
