Cerberus Capital Management, the US private equity group that has bought the government’s £13bn portfolio of Northern Rock mortgages, is no stranger to managing loan books ravaged by the financial crash.
In the past couple of years, it has purchased portfolios of loans from RBS, National Australia Bank, Ireland’s National Asset Management Agency (Nama) and Lloyds Bank, betting on a recovery in European property markets.
Typically, the loans are bought at a fraction of their face value. For example, the Irish loans that RBS sold it last December went for £1.1bn, despite having a face value of about £4.8bn.
Cerberus said it was committed to being a good steward of the assets it had acquired, but lawyers warned the sale could affect borrowers, who are only now being informed of the change in ownership.
“Changes must be expected as a result of the change in ownership,” said Stephen Rosen of Collyer Bristow. “In Scotland, for example, we have found that Cerberus is tougher in enforcing breaches in covenants.”
Taking its name from the mythical multi-headed dog that guarded Hades and prevented the dead from leaving, the New York-based group was founded by Stephen Feinberg and other former employees of Drexel Burnham Lambert, a junk bond specialist that collapsed into bankruptcy in 1990.
Cerberus is well connected to the Republican party in the US, with the former Treasury secretary John Snow and former vice-president Dan Quayle its co-chairmen.
It focuses on four key strategies: distressed securities and assets, private equity, lending, and real estate. It was the biggest buyer of distressed real estate debt in Europe in the first nine months of the year, closing eight deals with a face value of $8.6bn (£5.7bn).
Cerberus has been an enthusiastic investor in firearms and used to own the Remington Group, whose Bushmaster rifle was used by Adam Lanza in his attack on Sandy Hook elementary school that killed 26 children and adults in December 2012.
In the aftermath of the incident, Cerberus tried to sell Remington, but failed to find a buyer. This year, after pressure from public pension funds, it wrote to investors allowing them to sell their stakes in Remington while moving the company out of its funds and into a special vehicle.
The group’s deals in Ireland have also been the subject of controversy. Its executives were asked to appear before a group of Northern Irish MPs at Stormont earlier this year. The request came after Mick Wallace, an independent member of the Irish Republic parliament, alleged that a £7m payment earmarked for a Northern Ireland politician had been made as part of a deal that resulted in Cerberus buying a portfolio of property assets from Nama for €1.6bn (£1.1bn). Cerberus denies making any irregular payments.
During the hearings, an Irish property investor, Gareth Graham, who has had two companies put into administration by Cerberus, called the group “ruthless, unjust and unreasonable”.
Cerberus declined to attend the hearings, saying it had to act with care “to ensure we do not jeopardise the criminal or justice process”. It gave a written submission instead. “We are highly confident our conduct was entirely lawful and appropriate,” the group said.
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