Royal Bank of Scotland has upsized its Irish non-performing real estate loan portfolio, Project Aran, by €4.3bn to approximately €6.0bn, with the same three-strong finalists now to bid across the enlarged NPL.

RBS took the decision almost two weeks ago to capitalise on the scale of appetite among the larger private equity funds, aligned with the broader recovery in Ireland’s economy and commercial property asset values which is enabling shallower discounts and a faster resolution of Ulster Bank’s non-core assets.

Project Aran, derived from RBS’ subsidiary Ulster Bank’s loan book, launched at the turn of September initially with a nominal balance of €1.6bn, secured by 411 borrower connections and 315 properties, which was quickly increased by around €100m to €1.7bn. 

The increase to approximately €6.0bn was taken prior to selection of the three finalists, which CoStar News revealed on Tuesday.

They are: Lone Star, Cerberus and a consortium comprised of CarVal Investors, Goldman Sachs’ special situations fund and Apollo Global Management.

Final, binding bids are expected by early December.

Project Aran’s skinnier €1.7bn-sized NPL priced between €500m and €600m in the first round, reflecting a circa 65% to 70% discount.

A blended discount at the same range on the enlarged €6.0bn Project Aran would imply a purchase price of between €1.8bn and €2.1bn, although there is no certainly at this stage the pricing would be consistent.

The sale of Project Aran to Lone Star, Cerberus or CarVal’s consortium would dispose of the bulk of Ulster Bank’s remaining commercial real estate exposure.

According to RBS’ half year interim results, the bank’s bad bank internal subsidiary, RBS Capital Management, has £11bn (€13.9bn) in commercial real estate, split £4.5bn in investment loans and £6.5bn in development loans.  Against this RBS had provisions of £2.7bn and £5.8bn, respectively.  

This combined £8.5bn (€10.8bn) in marked down Ulster Bank exposure, of predominantly Irish CRE secured loans, does not include the sale of Project Achill, which has a nominal balance of €1.2bn.

When, and if, the sales of the €6bn Project Aran (£4.7bn) and the €1.2bn Project Achill (£0.95bn) complete, this would reduce RBS’ non-core Ulster Bank CRE loan book by an additional €7.2bn (£5.7bn), which would  decrease Ulster Bank’s remaining CRE loan book to €3.6bn (£2.8bn).

Additionally, this reduction could fall further if the €844m Project Button portfolio trades were finalised in the third quarter and as yet not reflected in RBS’ segment reporting for the half year period.


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