BoI had ‘€130m exposure’ to construction firm

IT emerged yesterday that Bank of Ireland (BoI) had a €130 million exposure to a British construction company whose assets have now been transferred to its lenders.

Seven banks have taken control of McCarthy Stone — a builder of retirement homes — including BoI.

The loan was set up in February 2007 and for a total amount of e870m, according to Reuters.

BoI’s portion of the loan accounted for e130m initially but that has been reduced substantially in the intervening period, a spokeswoman for the bank said last night.

Because of the construction slump the group hit severe difficulties necessitating the transfer of assets to the lenders. The deal will see ownership of McCarthy and Stone transferred to its lending banks in a debt-for-equity swap.

Reports in Britain said that in return for being handed control of the company and its equity, the senior lenders agreed to write-off hundreds of millions of pounds of the company’s debts, leaving it with just e500m of borrowings.

This type of arrangement is becoming more frequent as the property market in Britain deteriorates sharply.

HBOS, now part of Lloyds has reportedly lost over e100m on its exposure; it held equity in the business as well as providing e130m of the 2007 facility.

Reports suggest that BoI was involved in each of the seven loan tranches, leaving it with a total exposure of e130m.

However this has been denied by the bank.

The spokeswoman said since the loan was initiated BoI had taken the opportunity to lower its involvement. As a result, its exposure following the collapse of the construction group has declined to just e9m.

Davy’s Emer Lang said that in early 2008 BoI estimated its international leveraged acquisition loan book at around e4.5bn.

“The global downturn will undoubtedly lead to losses in this portfolio,” she said.

She assumed, she said, that the bank had provided for whatever hit it would take from the British investment in its recently raised loan impairment guidance of e4.5bn to e6bn for the next three years.

Fitch Ratings recently estimated that leveraged loan defaults could rise to 10%-15% in the next 12-18 months, Reuters said.

Fitch added that “cumulative defaults between the onset of the credit crisis in 2007 through 2010 could rise up to or even above 20%”.