Lloyds Banking Group Lightens Leveraged Portfolio

LONDON(Reuters) – Lloyds Banking Group (LLOY.L) is taking advantage of strong secondary loan prices to sell some of its portfolio of European leveraged loans, bankers and investors said on Wednesday.

Lloyds, which merged with Bank of Scotland in September 2008, is exploring the loan sale as demand sustains Europe’s top 40 leveraged loans at an average of 92.2 percent of face value, according to Thomson Reuters LPC.

“We will on occasion access the secondary markets as part of our portfolio management activity. This is sensible and prudent activity,” a Lloyds spokesperson said.

Lloyds Bank had a big portfolio of acquisition loans prior to its merger with Bank of Scotland, which was a leading arranger of leveraged loans.

The bank is now selling some of its doubled up loan exposure but is under no pressure to sell and no targets have been set in the open-ended process of individual sales, bankers and traders said.

“We are in a position where we can sell some names if the price is right. We are open-minded, we have got a very big portfolio and are happy to lighten up in some names,” a banker close to the deal said.

Two investors estimated that as much as 500 million euros of paper could be up for sale.

TIDYING UP

The sales will allow Lloyds to tidy up its portfolio of loans that were struck at the peak of the market at a modest profit or loss. Stronger companies’ loans are now valued at around 95 percent of face value on a two to three-year refinancing view, bankers said.

“Pricing is now at acceptable levels, so you can sell in the 90s and not take a loss from where the loans are provisioned,” one senior investor said.

Lloyds — which is 41 percent owned by the UK taxpayer — is bypassing loan trading desks and showing a range of flow and mid market names directly to bank and fund investors, sources said.

Bank trading desks are being shown term loan A and revolving credit facilities, while longer-term term loan B and C tranches are being shown to institutional investors. Some junior debt is also being shown.

The loans for sale include companies such as Abbot, Amadeus, Biffa, Casema, Cognis, ista, Kwik Fit, Numericable, PagesJaunes, Parques Reunidos, Phadia, TDC, TDF, UB, Vivarte, Formula One, Nycomed, Ineos, ProSiebenSat.1 and Pizza Express.

“If we get an attractive price and it makes sense from a credit point of view, the sensible thing to do is to lighten up,” the banker close to the deal said.

Several loans have already traded and the bank has also been able to conduct price discovery to refine valuations on other assets, loan traders said.

Lloyds Banking Group returned to profit in the first quarter this year after bearing bad-loan related losses of 24 billion pounds ($35.85 billion) in 2009.

By Zaida Espana and Tessa Walsh
(Editing by David Cowell)