Tokyo Star goes back to Lone Star
LONE STAR FUNDS IS ONCE AGAIN TAKING ownership of Tokyo Star Bank, less than four years after selling the struggling commercial lender to private equity firm Advantage Partners (AP). Having failed to repay its debts, AP has reportedly agreed to give away its 100% holding Tokyo Star, as well as its board seats, to a consortium of Tokyo Star’s lenders. In return, it will be exonerated of all payment responsibilities.
Distressed private equity specialist Lone Star is set to become Tokyo Star's largest shareholder, with a 33% stake; the remainder will be divided up between fellow lenders Shinsei Bank, Aozora Bank and Credit Agricole.
AP first agreed to buy a majority stake in Tokyo Star Bank from Lone Star in 2007, taking full ownership a year later. To complete the acquisition it borrowed JPY170 billion ($2.04 billion) from more than 20 lenders as a combination of senior and mezzanine debt on the understanding that it would use future dividends to repay the group. The final repayment deadline was slated for 2013.
The onset of the global financial crisis derailed AP's plans. A combination of deflation, a crowded market and citizens' inability to repay their own loans, Tokyo Star's performance slid significantly. The bank posted a net loss of JPY695 million ($8.5 million) for the last three quarters of 2010, with year-on-year losses rising to JPT4.7 billion ($57.8 million) as of March 31, from JPY2.8 billion ($34.4 million). Early last year AP announced that it was considering exit options either through a relisting or a trade sale, but by October it had yet to find a secondary investor to help cover its loans. Consequently, the company missed its January loan repayment deadline.
While AP is set to cut its losses, Lone Star has gained. It sold Tokyo Star at the height of the pre-global financial crisis buyout boom, and will now receive a majority stake in the bank at a time when Western entities have difficulty breaking into Japan's financial sector.
Lone Star purchased Tokyo Star - then called Tokyo Sowa - in 2001 from the Japanese government for a reported $339 million. According to the Financial Times, the firm offloaded a 30% stake in 2005 as part of the bank's IPO process, seeing 7x return on its initial investment.
Tokyo Star, which launched in June 2001, claims to manage more than JPY1.9 billion ($23.3 million) in deposits and JPY1.5 billion ($18.4 million) in loans. As of March, it had 1,138 full-time staff at 31 branches, and 2,221 ATM locations.
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