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Cerberus in €100m deal for stricken sub-prime mortgage lender Stepstone

Cerberus, the US distressed debt and private equity giant, has swooped on the stricken sub-prime lender Stepstone Mortgages in a near-€100m deal, according to sources.

Dublin-based Stepstone, once a joint venture between the collapsed Wall Street Bank, Lehman Brothers, and IIB – an earlier manifestation of KBC bank – stopped issuing new loans in 2008 and since then has continued to manage its heavily impaired mortgage book.

It is understood Cerberus, one of the most prolific dealmakers in Ireland’s distressed debt space with a multibillion euro portfolio, approached Stepstone early last year.

Cerberus did not comment on the transaction, which will leave homeowners dealing with Cerberus’s asset managing partner in Ireland, Link Group, which acquired the asset servicing arm of Capita last year.

While the deal is relatively small, Stepstone’s sale closes the chapter on the State’s ill-fated sub-prime lending boom.

Stepstone, which could not be reached at the time of going to press, is the last of the main players to fall into the hands of private equity.

In 2014 Lone Star, which has spent over €5bn acquiring Irish assets, scooped up Stepstone’s chief rival Start Mortgages from South African bank Investec in a deal that landed it with 3,700 mortgages.

As part of the same transaction, Lone Star also took over the €100m Nua Mortgages portfolio, a sub-prime brand that Investec acquired from Billy Kane’s Finance Ireland in 2007.

According to Stepstone’s latest accounts, filed for the financial year ending in November 2016, the company has set aside €50m for unrecoverable mortgages on a €126.9m portfolio, leaving the net balance at €76.96m.

The accounts show the company has been kept afloat by funds from the shell of Lehman Brothers, which spectacularly imploded in 2008.

Lehman Brothers Holdings Inc (LBHI), which manages the assets of the defunct New York-based bank, is listed as Stepstone’s intracompany creditor and sole shareholder.

Stepstone’s directors emphasised in the accounts that a sale was in the offing, stating that the “housing market improvements in Ireland over the past few years arguably improve the value of the underlying collateral to the loan book.

The company’s UK-based directors said that “this backdrop” led to an “approach from a third party”, adding that due diligence on the mortgage book was underway.

The accounts show that Stepstone paid over €4.7m to LBHI in September 2017 to settle an inter-company loan.

LBHI had pledged to “continue to support the workout of the Stepstone portfolio” and said it had “no intention to demand repayment of intercompany loans within the next 12 months”. But the US firm added “it may still request payment on demand if circumstances change”.

Since 2015 Stepstone has also faced regulatory demands to resolve a number of tracker mortgage overcharging claims.

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