Cerberus bought UK specialist mortgage lender Lendco last week as it was in the middle of marketing an residential-mortgage backed securitization. The new ownership didn’t seem to put investors off, as the trade was announced on Monday, priced on Thursday, and finished more than twice covered on the seniors.
This was impressive as it wasn’t a given that the change of ownership wouldn’t have an effect. In 2023, a Tesco Bank deal ended up widening after a story that the lender was up for sale emerged midway through marketing.
Cerberus is certainly a known quantity for RMBS buyers. The asset manager has sponsored deals from its Towd Point RMBS shelf backed by various legacy mortgage portfolios.
According to GlobalCapital’s Asset Backed Monitor, the most recent was Towd Point Mortgage Funding 2024–Granite 7, backed by Northern Rock mortgages and priced in December 2024.
Cerberus has also securitized a series of mortgage portfolios originated by Capital Home Loans (CHL), a platform it bought in 2015 along with a multi-billion dollar mortgage book.
CHL began lending again in 2021 before Cerberus carved off the origination platform and sold it to Chetwood Bank in 2024. The post-2021 originations were securitised in a 2024 trade called Edenbrook Mortgage Funding.
In 2022, Cerberus missed the first optional redemption dates on its Towd Point deals Auburn 12, 13 and 14, in the wake of Liz Truss’ mini budget. The deals were eventually called in 2024 with a trade called Auburn 15 sponsored by Bank of America.
As Edenbrook was marketing, GlobalCapital reported there had been some discussion of elevated call risk, but in the end, it was priced in a similar area to other buy-to-let issuance of the time.
Call risk is unlikely to be such a concern for Lendco, as regular RMBS issuers have a stronger reputational incentive to call, and the most recently originated deals also tend to be structured with stronger call incentives than legacy deals.
Loan book
There are about £1.9bn of outstanding Lendco buy-to-let loans and about £90m of bridging.
Lendco funds most origination through its long running public Atlas RMBS programme. The first two Atlas deals, 2021-1 and 2022-1, have been called, but five, including last week’s deal, are still outstanding: 2023-1, 2024-1, 2025-1, 2025-2 and 2026-1.
Behind the scenes, there are three warehouses. Buy-to-let loans are warehoused in Talworth with senior lenders BNP Paribas and HSBC, and Talworth 3 with Santander. Lendco uses Talworth 2 to fund the bridging book with NatWest senior and M&G in the mezz.
In recent weeks, the entities Talworth 4 and 5 have been registered with Companies House.
Under previous owner Cabot Square Capital, Lendco also set up a £20m medium term note programme to get an extra bit of debt out of its junior positions.
Proprietary access
Cerberus is also getting the operational capabilities. How it will seek to maximise value remains to be seen.
Lendco has a prominent lending platform, having originated over £2bn of buy-to-let loans since it was founded in 2018. Its loan book is serviced by an experienced in-house team.
It also has a well-recognised brand in the capital markets and, at the end of last year, it joined the exclusive ranks of UK lenders to have issued an STS buy-to-let RMBS.
GlobalCapital wrote about an almost paradoxical situation last year. Appetite for assets is sky high, but the bid for the lending platforms themselves is weaker.
But if you buy a lender only for its asset flow and neglect the platform, then you run the risk of losing ground. Competition among lending platforms is hot, and investment is most often needed to stay ahead.
Still, a deal getting done ought to be heartening for those looking to sell to lenders. Cerberus’ deal for Lendco comes after a couple of other recent transactions, most notably KKR’s swoop for NewDay last year.
Want a challenger bank?
In a different sector of the market, two challenger banks are up for sale, according to recent reports.
In March, Aldermore Bank bought bridging lender Octane Capital’s loan book and “associated capabilities”, only for FirstRand, its owner, to announce the bank was on the market a few weeks later.
Aldermore’s car finance subsidiary, MotoNovo, is set to take a hit due to the FCA’s motor finance compensation scheme.
FirstRand said that “the business case for FirstRand to own and operate a UK consumer finance entity, particularly given its disciplined financial resource allocation principles, coupled with the legal and regulatory look-back risk, is not within the group’s risk appetite”.
Elsewhere, Sky News reported last week that Atom Bank has turned its attention to pursuing a private sale over an IPO.
Perhaps it is a sign that IPOs remain challenging for UK lending businesses. Shawbrook has had a bumpy up-and-down ride since its IPO last October, but it is now back where it started, more or less.
