Lone Star back as top shareholder of Tokyo Star: sources

TOKYO Mon May 23, 2011 4:24am EDT

TOKYO (Reuters) - U.S. investment fund Lone Star will become the top shareholder in Tokyo Star Bank when Japanese private equity firm Advantage Partners relinquishes ownership due to trouble repaying debt, two people with direct knowledge of the matter said.

The transaction will bring Tokyo Star back under the umbrella of Lone Star, which had taken the mid-sized lender public in 2005 and sold its remaining stake to Advantage Partners in 2008 near the height of a leveraged buyout boom.

Tokyo Star, which provides loans to individuals and small businesses in Tokyo, has struggled to carve out a profitable niche for itself in Japan's overcrowded banking sector. It posted a net loss of 2.8 billion yen ($34.3 million) in the past business year.

Advantage Partners has agreed to hand over all its shares in Tokyo Star, which it owns through a special purpose company, to lenders in return for not having to repay loans extended for its 280 billion yen purchase of the bank, the people said.

Lone Star will own about one-third of Tokyo Star through its stake in two new special purpose entities that will hold 98 percent of the bank, the people said.

Other lenders that will own a stake in Tokyo Star include Japan's Shinsei Bank (8303.T) and Aozora Bank (8304.T) as well as Credit Agricole (CAGR.PA), they added.

The people spoke on condition of anonymity because the information is not public yet. Officials at Advantage Partners and Lone Star declined to comment.

Lone Star bought the then bankrupt Tokyo Sowa Bank from the Japanese government for 40 billion yen ($490 million) in February 2001, renamed it and then helped it to a successful IPO in 2005 where it sold one third of its holding.

Advantage Partners had planned to use Tokyo Star's dividends to repay the debt, but this proved difficult due to the bank's sluggish earnings. Last year, Advantage Partners came up short in an attempt to secure investors to inject cash into the entity that owns Tokyo Star.

The botched investment is one of many deals made during the leveraged buyout boom that have gone sour.

Last month, a Morgan Stanley property fund failed to make $3.3 billion in debt payments and handed over the keys to a central Tokyo office building to Blackstone (BX.N) and other investors, sources told Reuters.

Lone Star originally lent only a small portion of funds for Advantage Partners' leveraged buyout in 2008 but later bought a mezzanine portion from Credit Suisse (CSGN.VX) in the secondary market.

Tokyo Star Bank will be managed by new board members selected by the lenders. All the current board members sent from Advantage Partners will resign, the people said.

Lone Star recently made an unsuccessful bid for failed Japanese consumer lender Takefuji. It is also the largest shareholder in Japanese golf course operator PGM Holdings (2466.T) and owns hotels and office buildings in Japan.

(Reporting by Junko Fujita and Wakako Sato; Editing by Edwina Gibbs and Nathan Layne)

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