Starwood Property Trust Inc (STWD.N) said on Wednesday it would buy the debt business and loan portfolio of GE Capital’s energy finance unit for $2.56 billion, as it diversifies from commercial real estate.
The company said the acquisition will add heft to its energy unit, which focus on investments in power generation, transmission, storage and related projects, and includes $400 million of unfunded loan commitments.
Starwood Property, led by Barry Sternlicht, has been building its investing and servicing segment, which includes businesses that focus on commercial mortgage-backed securities (CMBS) and a commercial mortgage conduit platform.
The company said the portfolio consists of 97 percent floating-rate loans – making it attractive in a rising interest rate environment – and has an initial portfolio duration of over four years.
“When this came up for sale, the fact that it was floating rate, paper, solid as a rock … we thought it would be a great move to diversify,” Sternlicht said on a post-earnings call with analysts.
Credit Suisse analyst Douglas Harter said the deal remains attractive in the longer-term with comparable returns to commercial real estate.
For General Electric Co (GE.N), the deal marks the latest divestment at its GE Capital unit that took a severe hit during the 2008 financial crisis. The conglomerate is now focusing on jet engines, power plants and renewable energy.
The sale moves GE part of the way toward its target of halving the size of the energy financial service portfolio and the company will “pursue opportunities to further reduce the size of its asset base,” spokeswoman Jaclyn Cochrane said.
GE said in January that it would reduce the assets of the business to less than $5 billion by the end of 2019.
Starwood, which also reported a 27.4 percent jump in second-quarter revenue, said it expected the deal to close in the third quarter and add to core earnings.
Starwood’s shares fell 3.6 percent to $21.63, while GE’s shares were marginally down in morning trading.