Colony Capital is putting investors’ capital to work by buying its first non-performing loan book in Europe since the credit crunch. The acquisition of loans, with a face value of $90 million from Bankaktiengesellschaft (BAG) bank, also marks another first – never before has BAG done a deal with a third party.
BAG in Germany can be understood as a holding company of the German co-operative banking system.
It collects poorly performing loans from the co-operative banks in Germany, which do not have their own workout capacity, and as such, is effectively a central workout bank owned by its members.
BAG acquires loans from the co-operative banks almost at par value so the co-op banks do not suffer impairments. In return, all the co-op banks make an annual contribution to BAG.
However, German co-op banks have generated so many poor loans – and transferred them to BAG – the bank needed to sell a package so it could focus on new loans coming in.
The deal was led by German national, Dilip Awtani, who joined Colony from GE Capital last June.
Awtani said his focus was to invest in single loans and distressed debt, as well as loan portfolios including performing and non-performing loan books. In addition, he is hunting opportunities to buy a financial institution. Colony’s purchase of First Republic Bank in the US last year has signalled the firm’s intention to snap up such investments.
The equity for the BAG loan deal comes from several funds: Colyzeo, its European fund platform, Colony’s latest vehicle, Fund VIII, the Distressed Credit Fund and the US mortgage REIT, Colony Financial.
Awtani said there was a “massive opportunity” in Europe. “Even though January is usually a quiet time, I am working on 14 potential deals at the moment,” he said. “We are focusing right now on distress, and more particularly distress in the UK, Germany, Italy and Scandinavia.”