UKAR sale of Northern Rock mortgages to Cerebus for £13bn – What does this mean?

by Matthew Harvey

11:33 AM, 11th May 2016
About 2 years ago

UKAR sale of Northern Rock mortgages to Cerebus for £13bn – What does this mean?

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UKAR sale of Northern Rock mortgages to Cerebus for £13bn – What does this mean?

northern rockUKAR has now completed a sale of mortgages originated by Northern Rock to US private equity giant Cerebus. This reflects a ground breaking deal for UKAR and provides clear evidence that they do not intend to be medium or long term holders of the lending institutions they are now responsible for (e.g. Northern Rock, Bradford & Bingley and Mortgage Express).

We offer our thoughts on this development and some of the potential implications on borrowers whose loans have been sold as part of this transaction. This article is not intended as formal advice and should not be relied upon to this effect.

What does this mean for borrowers with Northern Rock / NRAM mortgages?

Whilst the terms of the contract governing the relationship between lender and borrower – i.e the loan facility letter – will remain unchanged, there will now be a new point of contact with the lender.

Cerebus typically engages the likes of Capita or Engage/Pepper in these situations to manage the loan accounts on their behalf. We also note that UKAR recently announced a separate agreement whereby Compushare would manage loan accounts on behalf of UKAR so it may be the case that Compushare will manage the loans going forward for Cerebus.

However, whilst the contractual position between borrower and lender will remain unchanged, the point of contact will change and this may also present new opportunities to the borrower in circumstances where the loan could be redeemed significantly ahead of the contractual repayment date.

For borrowers in substantial arrears / default, Cerebus may seek to act quicker than would have been the case with UKAR. This could mean that Cerebus may request the borrower to consensually sell any property security or in the absence of same, consider the appointment of a LPA Receiver as a mechanism to for the loan balance(s) to be repaid. In these situations it is important that borrowers understand their contractual rights and the strategic objectives of the lender (Cerebus) in order to strive for the best possible outcome.

Again, this position can create opportunities for the borrower in relation to any shortfall or residual debt.

What are the next steps and timeframes?

Having announced the sale, we would now expect UKAR to write to affected borrowers within the next few weeks to advise that their loan accounts are in scope as part of the transfer.

There is typically then an ‘onboarding’ period of up to 2 months where the files will be transferred to Cerebus / the loan management agent.

Once this is completed, the transfer becomes effective and the borrower’s point of contact is Cerebus / their managing agent.
Cerebus / their managing agent will then contact the borrower and provide new contact details. In situations where the loans are substantially in arrears / default, Cerebus / their managing agent will typically request a repayment proposal from the borrower.

What if a borrower is currently in negotiations with UKAR regarding their loan facilities, or is due to complete a sale of property pledged as security in the short term?

There are a number of ‘business as usual’ events which may now be impacted by the sale to Cerebus and it is possible that until completed, the sale may delay the response rate to such issues.

Borrowers will need to bear this in mind should they envisage any requirement of UKAR / Cerebus ahead of the transfer completing.

Summary

Borrowers can continue to rely on the terms and conditions provided by the existing loan facility letters and security documentation as agreed with Northern Rock as the originator of the loan(s).

However, a change in loan ownership can cause uncertainty and the strategic objectives of Cerebus’ management of the Northern Rock portfolio may be different to those of UKAR.

We have considerable experience of advising clients whose loan facilities have been sold to Cerebus and indeed the other major private equity operators in this space. As part of this work we have delivered a number of very attractive restructure and debt settlement outcomes.

Please contact me through the details provided on my members profile above for further information.

Matthew

To see reference article on sale click here



Comments

terry sullivan

13:35 PM, 11th May 2016
About 2 years ago

another £13 billion that will just be wasted--what is the discount rate?

Matthew Harvey

13:54 PM, 11th May 2016
About 2 years ago

Hi Terry,

Note sure - these things are usually agreed behind a confidentiality agreement.

I understand there to be only a small amount of loans which are are 'non-performing' (i.e. where there are arrears/default) and it is this class of loans which would usually attract the highest discount.

However if I would have thought that UKAR was a very keen seller (for strategic reasons) and given that a lot of the pricing on the loans is at / lower than the pricing on loans originated today, then you would have to assume there was a sufficient discount to make the purchase attractive to Cerebus - otherwise would they not just originate mortgages now at a higher rate of interest?

Matthew

Kate Mellor

15:20 PM, 11th May 2016
About 2 years ago

We've just been on the receiving end of this when Yorkshire Bank sold off it's loans to property businesses to Cerebus. The UK Agent they use is absolutely useless and the point of contact has changed three times in the past 12 months.

They don't take the monthly payments, you have to manually transfer them, only they never get your statement out on time telling you how much is due! When I raised this, I was told to just make a payment in excess of what was due then and I'd be fine...yes, very professional approach I must say.

Our loans are due to be recalled this year, so this involves selling or remortgaging individual properties which were previously on one bulk mortgage and trying to negotiate with the agent to release properties has been a joke. Also, they have no on-staff legal representatives and so insist on hiring solicitors to represent them for each transaction, the charges for which are passed on to the borrower.

This has been anything but a pleasure and I really feel for the next batch of people who are also set to deal with this company! I should be finished dealing with them by next week, as I have my second from last remortgage completing today with the final one to complete next Wednesday and I am DONE!

I shall then be lodging a complaint with them which if not satisfactorily resolved shall be forwarded to the financial ombudsman.

The Agent told us that Cerebus 'plays hard-ball' so good luck all - you may well need it.

Jon Pipllman

11:37 AM, 12th May 2016
About 2 years ago

Cerberus is already putting the loans it bought to work. It has "launched what is set to be Europe’s biggest mortgage-backed deal since the financial crisis, attracting strong investor demand for an asset class that has struggled over recent years. The £6.2bn of securitisation bonds are backed by more than 80,000 pre-crisis loans made by Northern Rock, the failed UK bank. The loans were bought by Cerberus from the UK Treasury late last year in what was the largest financial asset sale by a government in Europe."

according to the FT http://www.ft.com/cms/s/0/1db3f4ae-fb21-11e5-8f41-df5bda8beb40.html#axzz48R6d14Jv

Some more info here from bloomberg

http://www.bloomberg.com/news/articles/2016-04-04/cerberus-said-to-hire-morgan-stanley-for-8-8-billion-rmbs-sale

Tom Fielding

13:45 PM, 14th May 2016
About 2 years ago

I was under the impression that if someone buys your dept ,they have paid your loan off ,so in theory you owe nothing.


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