Credit Suisse sells EUR 2.1b loan portfolio to Apollo at 60% discount

Credit Suisse has completed the sale of a EUR 2.1 bn portfolio of distressed property loans to Apollo Management for less than EUR 900 mln, two well-informed sources confirmed to PropertyEU.

The transaction, which was first reported by the Wall Street Journal, involve loans backed by second-tier and third-tier European properties including apartment buildings in Germany and a small portfolio of hotels in Denmark, Sweden and France.

Credit Suisse is providing 'significant' vendor financing for the deal, sources familiar with the sale said. The bank is also taking a small equity stake in the joint venture Apollo Management is forming to buy the loans. Credit Suisse declined to comment.

The assets backing the debt facilities comprise prefabricated, low-quality apartment buildings in Eastern Germany and parts of the Level One residential portfolio which went into administration two years ago in Germany's largest real estate insolvency case ever.

Credit Suisse bought heavily into commercial real estate loans from 2004 to 2007, building up about $30.5 bn in commercial mortgages worldwide in its investment-banking division. The transaction with Apollo is the latest of a string of real estate loan disposals as the group seeks to reduce its exposure to the debt market in the wake of the financial crisis. By the end of the third quarter of 2010, the financial group had just $2.5 bn of commercial loans on its books, down 92% on 2007 levels.

In Europe, the transaction is the second large portfolio loan sale following Credit Suisse's disposal in 2009 of EUR 2.3 bn worth of loans to Lone Star. The operation may prompt other European banks to find a short-term solution for their soured property loans, sources say. 'Other lenders in the same situation such as RBS are going to face more pressure to find a solution more effective than just dragging their heels and pretending everything is okay,' one insider said.