Market collapse: American private equity firm risks being swallowed up by Irish mortgages

By February 15, 2017Articles
As the property market continues crashing in Northern Ireland, Lone Star, a private equity firm based in the United States (US) is the first establishment to engulf the Irish mortgages. Since the mortgage crisis started to be felt in 2012, Lone Star dedicated over €5 billion to acquire Irish properties. The firm equally had to create a specific company under the name of European Residential Loan Securisation 2016-1 DAC to deal with the sum of €563.9 million representing loans granted by the Irish Nationwide Building Society. Nonetheless, this investment is taking a nightmarish turn.  

More about Lone Star

Lone Star is a private equity firm based in Dallas in the US. Apart from credit and equity, it invests in real estate and financially distressed assets. It capitalizes on markets that are suffering from economic crisis, especially where liquidity is no longer flowing, and balance sheets are already in the red zone. Lone Star has 17 private equity funds around the planet.

Non-performing Irish loans

Out of the Irish loans retained by Lone Star, approximately 63% are claimed to be non-performing. Non-performing loans are where debtors have not fulfilled their scheduled payments for over 3 months. On a parallel note, the situation is similar in the Irish territory as well where Ireland’s banks are crumbling under non-performing loans that amounted to €50 billion at the end of 2015. The situation remains critical despite the fact that massive sums have been constantly transferred to the National Asset Management Agency to ease the situation.

Lone Star downgraded by Moody’s report

Moody’s Corporation, an American business specializing in corporate finance, managed funds and risk management, published a report in which it foresees losses regarding Irish loans held by Lone Star. A negative rating was attributed to the latter as it expects deterioration in its credit metrics. According to Moody’s, Lone Star is no longer able to weather the decline after it acquired mortgages from liquidators in Ireland.

Vulture funds

Selling of non-performing loans by banks to Vulture funds is on the rise in Northern Ireland. Two of the well-known banks having resorted to this maneuver are the Ulster Bank and the Bank of Ireland itself. It is expected that other banks will soon be heading in the same direction. Despite the wave of frustration and disarray of clients, banks affirm that this is an inevitable way for them to deal with non-performing loans. In the same breath, it avoids their reputation to be stained to some extent, sparing them the hassle of repossession procedures.

It is known that Vulture funds are less patient – and in many cases more aggressive – with cash-stricken customers. Over 90,000 loans in Ireland have been acquired by foreign Vulture funds which are constantly on the lookout for distressed loans to be exploited. Generally, the latter do not really express interest in initiating talks with borrowers. Instead, the fastest way to initiate legal proceedings for the sale of the assets are used at the least emergence of difficulties.


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