Intermediate Capital to Purchase 1.4 Billion-Euro Loan Portfolio From RBS

Royal Bank of Scotland Group Plc, the U.K.’s biggest government-owned bank, agreed to sell a 1.4 billion-euro ($1.8 billion) portfolio of loans to mezzanine investor Intermediate Capital Group Plc.

The portfolio comprises European loans used to fund leveraged buyouts across a range of industries, RBS and Intermediate said in separate statements. Intermediate, based in London, said it will fund the acquisition with equity and debt. The price paid for the portfolio wasn’t disclosed.

RBS is shrinking its balance sheet after requiring the world’s biggest bank bailout during the financial crisis. The bank’s assets ballooned 2,914 percent to more than 2.2 trillion pounds in the 10 years through 2008 as it made acquisitions, boosted trading and increased lending. The bank agreed this month to sell its credit-card payment processing unit to private equity firms Advent International Corp. and Bain Capital LLC for 1.7 billion pounds ($2.2 billion). It disposed of 318 branches to Banco Santander SA and must sell its insurance division.

“This sale is in line with the group’s strategy to reduce its funded balance sheet,” Edinburgh-based RBS said in the statement.

Pricing ‘Realistic’

Intermediate provides loans for private equity firms to fund takeovers, including so-called mezzanine financing, a type of debt that gets paid after senior creditors in case of default and yields twice as much as traditional buyout loans. The firm said in April it raised an 843 million-euro fund targeting over- indebted mid-sized companies seeking to reduce borrowings.

“Looking at the data from secondary market for these loans, a price of 90p on the pound looks realistic,” Nitin Arora, an analyst at Execution Noble in London, wrote in a note to client. “This implies that ICG is paying about 1.27 billion euros for the portfolio.”

Intermediate is packaging the debt into its first collateralized loan obligation since 2008, when the asset manager set up 300 million euro transaction known as Recovery Finance Funding 2008 SA, according to Bloomberg data.

CLOs package high-yield loans into securities of varying risk and return. High-yield, or junk, loans are rated below Baa3 by Moody’s Investors Service and BBB- by Standard & Poor’s.

The deal announced today is made of four portions, including 790.7 million euros of top rated bonds, according to Fitch Ratings. The transaction known as ICG EOS Loan Fund I Limited also includes 49.5 million euros of class B notes and total 571.8 million euros of junior notes.

To contact the reporters on this story: Anne-Sylvaine Chassany in Paris at achassany@bloomberg.net; Andrew MacAskill in London at amacaskill@bloomberg.net

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