IBRC, the former Anglo Irish Bank, internally valued its UK loan portfolio at between €883 million and €568 million more than it was sold for last week to Lone Star, an international fund.
At a meeting in December 2012, the Department of Finance was given a valuation of this book at 74 cent in the euro as part of a strategic review of the bank two months before the State overnight put it into liquidation.
This compared with the 60-65 cent Lone Star actually paid for IBRC’s loan book. The loan book acquired by Lone Star had a face value of €6.3 billion (£5.2 billion).
An important distinction between the two valuations is that IBRC’s former management and board valued its loan book on the basis of a multi-year workout.
Taxpayer protection
By working longer with borrowers, the bank's former management and board felt they would return more to the taxpayer by, for example, using profits to pay down debt as well as waiting longer for European banking to normalise so clients could refinance.
Lone Star, however, made its bid for the book upfront, so it had to factor in the risk of unwinding a complex portfolio of 300 borrower connections with 1,300 individual loans relating to 1,500 assets.
Risks such as interest rates, borrower behaviour and movements in market sentiment weighed on the price any private equity fund would be prepared to pay for a loan portfolio of such scale.
Hudson Advisors Ireland, which manages loans on behalf of Lone Star, is reported to have hired a number of former senior Anglo bankers familiar with its loan book to help reduce this risk.
These include Eddie Byrne, Anglo's former head of lending in North America; and Paul Roddy, senior manager of specialised asset management.
Projects Rock and Salt
Lone Star acquired the vast bulk of IBRC's UK loan book which the bank's liquidator, KPMG, had grouped under the names of project Rock and Salt.
Among the loans Lone Star acquired are those related to Dragons' Den star Duncan Bannatyne's health chain Bannatyne Fitness and two large British hotel groups – Somerston Hotels and Puma Hotels.
A loan secured against the Stadium of Light, the football ground of Premier League team Sunderland, owned by Ellis Short, the former managing director of Lone Star's Asia Pacific business, is also believed to be part of the portfolio.
Finance to Lone Star was provided by Citi, RBC and Wells Fargo.
