Lone Star Funds has agreed to buy $1 billion in commercial loans from CIT Group Inc., the small business lender run by John Thain after emerging from bankruptcy in December 2009, according to a person with knowledge of the sale.
Lone Star, a Dallas-based private equity firm, is purchasing mostly senior secured loans, as well as some junior secured debt, in about 72 companies, according to the person, who asked not to be named because the transactions haven’t been announced.
Investment bank Houlihan Lokey is acting as intermediary. Jed Repko, a spokesman for Lone Star at Joele Frank, Wilkinson Brimmer Katcher, and Curt Ritter, a spokesman for CIT, both declined to comment.
Private equity investors are looking to purchase troubled loans as banks work to tidy up their balance sheets. Apollo Global Management LLC, the New York-based private equity firm run by Leon Black, has been marketing a fund to acquire nonperforming debt in Europe.
CIT sold more than $3.5 billion of lower-yielding assets last year, according to a presentation from JPMorgan Chase & Co.’s Global High Yield & Leveraged Finance conference in February.
“The economic profitability of the company has improved quite nicely over the course of the year,” said Glenn Votek, CIT’s treasurer, according to a transcript of the event. “We were able to get rid of noncore and nonperforming assets.”
Since taking the helm of CIT in February 2010, Thain, the former Merrill Lynch & Co. chief executive officer, has sought to cut funding costs and win over regulators. Last April, the Federal Deposit Insurance Corp. and the Utah Department of Financial Institutions lifted cease-and-desist orders on CIT, allowing it to increase brokered deposits.
In the past, CIT relied on high-interest-rate bonds and commercial paper to raise funds. The 2008 financial crisis made such funding more expensive. Unable to restructure its debt, CIT filed for bankruptcy protection in November 2009.
The majority of the commercial loans have been sold and the others are being completed, according to the person.
Lone Star Funds acquires distressed debt and equity assets including corporate, commercial real estate, single family residential and consumer debt, according to its website.