PTSB poised to refinance up to €1.5bn of problem mortgages

Permanent TSB is understood to be set to press the button in the coming days on plans to refinance as much as €1.5 billion of problem mortgages in the bond market, as it seeks to remove the loans from its balance sheet while maintaining day-to-day contact with the borrowers.

The Irish Times had previously reported that PTSB was planning to sell bonds backed by the income from the loans, which have been restructured by the bank in recent years. The mortgages, however, continue to be classified as non-performing loans (NPLs) under the bank's interpretation of European regulatory guidelines.

Some €900 million of the loans comprise split mortgages, where repayments on a portion of the loans have been frozen until a future date. These loans were pulled from a portfolio – called Project Glas – that was put on the market earlier this year.

A spokesman for the bank declined to comment on the planned bond market transaction – known as a residential mortgage-backed securitisation (RMBS) – on Wednesday evening.

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Project Glas

The 75 per cent State-owned bank, which is grappling with the highest level of NPLs among bailed-out Irish banks, agreed to sell the €2.1 billion Project Glas book to Start Mortgages, an affiliate of US private equity giant Lone Star, in July in a deal to lower its NPLs ratio from 25 per cent to 16 per cent.

That is still well above the 3.5 per cent European Union average that regulators are pressing banks with high levels of soured loans to move towards. PTSB chief executive Jeremy Masding told the Oireachtas Finance Committee on October 11th that the bank was planning to shift €1.5 billion off its balance sheet within three to six months to cut its NPLs ratio to a single-digital percentage.

US banking giant Citigroup has been advising PTSB on the plan.

In order for the loans packaged in an RMBS deal to be moved off a bank’s balance sheet, more than 50 per cent of the equity in a special-purpose vehicle housing the assets would have to be bought by third parties, such as pension funds.

However, sources had previously said PTSB was framing the deal in such a way that it would continue to service the loans, meaning it would maintain day-to-day contact with the underlying borrowers.