October 3, 2011 / 1:41 PM / 6 years ago

Exclusive: RBS $2.2 billion property loan sale may fail

<p>A worker walks in the foyer of a Royal Bank of Scotland office in the City of London August 6, 2010.Luke MacGregor</p>

LONDON (Reuters) - A 1.4 billion pounds ($2.2 billion) deal between Royal Bank of Scotland (RBS.L) and Blackstone (BX.N) to rid the bank of some of its troubled property loans may fail, robbing the industry of a template for similar transactions, three sources said.

The deal, code named Project Isobel, required debt funding from third parties of about 60 percent and was part of a move by RBS to reduce its estimated 80 billion pounds property exposure, after its government bailout during the credit crisis.

"There are talks to try and save the deal with RBS providing the debt funding themselves. They should know in the next few days whether they can do that and are hopeful a deal can be done despite some entrenched and emotional positions," one source familiar with the matter told Reuters.

Blackstone was unable to arrange debt funding from banks including Goldman Sachs (GS.N), Citi (C.N) and HSBC (HSBA.L) for the deal on terms that would make it attractive, the source said.

"This deal has blown up because they (Blackstone) couldn't line up the debt given everything that is going on with the global economy at the moment," a second source told Reuters.

A third source at a bank that declined to provide debt for Project Isobel said: "We were not interested in financing this type of loan portfolio deal ... Right now the property industry needs to brace itself for more surprises."

RBS and Blackstone had agreed to put the loans into a jointly owned vehicle. RBS had planned to hold a 75 percent equity stake in the new structure, which it would sell down over time. U.S. private equity giant Blackstone was to buy a 25 percent share and manage the properties.

The underlying assets, which number about 30, were deemed riskier to the bank because they were outside so-called prime locations and have higher loan-to-value ratios, a calculation that measures debt held over a property against its value.

RBS and Blackstone declined to comment.

The collapse could be a major blow for other property lenders who have recently stepped up their efforts to offload property assets after sharp falls in value that followed the credit crisis.

Project Isobel was widely seen within the banking and property industries as a template for other banks to offload unwanted property assets.

Lloyds Banking Group (LLOY.L) appointed JPMorgan (JPM.N) to sell property loans with a face value of about 1 billion pounds this month. Bundesbank is eyeing the disposal of 4 billion euros ($5.4 billion) worth of Lehman Brothers derived property loans, UK trade magazine Property Week said.

Ireland's National Management Agency (NAMA) said it would appoint advisors to speed up the disposal of assets and loans on Thursday. State-run NAMA spent 30.5 billion euros acquiring loans with a nominal value of 72 billion euros and had only sold 3.3 billion euros worth of properties by June.

Meanwhile, Spanish bank Santander (SAN.MC) has put eight billion euros worth of property on the market, PropertyEU said on its website last week.

"The message for other banks is clear. It's a tough world out there," the first source said.

($1 = 0.639 British Pounds) ($1 = 0.745 Euros)

(Editing by Andrew Macdonald)

Reporting by Tom Bill

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