(3 July 2023 – United States) Regional and midsized US banks have stepped up efforts to sell off their loan portfolios to private credit, looking to raise cash and cut their capital requirements after the failures of Silicon Valley Bank and First Republic this spring.
The FT is reporting private credit investors including Ares and KKR said they were being offered more portfolios in areas such as car and consumer loans, commercial real estate and specialty finance. Loan prices had also become more attractive to buyers, with sellers offering larger discounts to face value in the past couple of months, some of the investors said.
Ares this week agreed to buy $3.5bn in lender finance loans from PacWest, a California bank that came under pressure after SVB’s March collapse. Ares paid $2.01bn in cash for the first tranche, less than its principal balance of $2.07bn. PacWest had previously raised $2.36bn by selling construction loans to real estate investors Kennedy Wilson.
Other banks were also looking to offload portfolios, investors said, adding that they expected to see sales in areas such as so-called net asset value lending, which involves financing investment funds.
“There are currently a lot of portfolios changing hands. It’s not just PacWest,” said Joel Holsinger, co-head of alternative credit at Ares.“This is the first inning. They [banks] are selling the assets that are their highest-quality assets and that are short-duration and floating rate.”
He added: “The next wave will likely involve the bid-ask spread coming down and will likely include non-core bank assets. Banks are asking themselves: what do I have that I am not going to be in, longer term, when I streamline my business?”
The vast majority of sellers and potential sellers were regional banks, according to investors and lawyers. Many of the banks want to boost stocks of liquid assets after experiencing deposit outflows and share price falls in the spring. US regulators have said they plan to propose tougher capital requirements and re-examine liquidity rules in light of the crisis.
“The bank failures earlier this year have served as catalysts for regional banks to more seriously consider selling assets that are no longer core to them or selling assets to generate liquidity,” said Daniel Pietrzak, KKR’s global head of private credit.