Lloyds sells Australia loan portfolio to Bain credit affiliate

It was previously reported that KKR, Macquarie and Oaktree Capital were among the shortlisted bidders for the portfolio.

The sale comes as Lloyds prepares to exit the Australian financial sector, part of wider plans to reduce its international exposure. The UK bank requires capital to strengthen its balance sheet. Other assets put on the block in Australia include its asset finance and commercial lending units.

Sankaty has approximately $20 billion under management and invests in a wide variety of assets, including leveraged loans, high-yield bonds, distressed debt, mezzanine debt, structured products and equities. The group opened its first Asian office earlier this year in Melbourne, headed by Mitchell Stack, formerly of Australia's Future Fund.

The hollowing out of Australia's leveraged financing market has drawn interest from a number of alternative investors. Foreign banks that once accounted for a significant of debt-backed M&A have retreated, with BOS International one of several European lenders to withdraw or scale back operations.

"As banks are deleveraging around the world, we continue to see opportunities to acquire some of their non-core portfolios," said Jamie Weinstein, global co-head of special situations at KKR, said in response to his firm's acquisition of a BOC portfolio in November 2012. "Our goal is to provide a solution that represents an opportunity to deliver risk-adjusted returns for our investors."

The phenomenon has also created an appetite for dedicated senior debt funds. Average leveraged margins have more than doubled since 2001 and the 5-7% returns available on first lien debt in a stable market like Australia compare favorably to other fixed income assets, even allowing for the reduced liquidity.

Mezzanine specialists Babson Capital and ICG are now active in the senior debt space, as is listed investment manager Challenger, which last year won a A$300 million mandate from GIC Private to invest in senior and mezzanine debt. HarbourVest Partners and Partners Group are also raising senior debt funds as part of their increasingly diversified product offerings.

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• Topics
• Financing
• Financials
• Australasia
• Bain Capital Asia
• Australia
• Leveraged finance