(Bloomberg) — BackWest Bancorp sold a $3.5 billion portfolio of asset-backed loans to Ares Management, the latest example of a bank seeking to improve liquidity by selling assets to private investment firms.
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The fund manager said in a statement on Monday that Ares Alternative Credit Funds has purchased the specialist financing portfolio backed by assets including consumer loans, mortgages and timeshare receivables. PacWest said in a statement that the first tranche of the transaction closed last week and generated $2 billion in cash proceeds before transaction costs.
Private equity and private credit stores are among the few companies that have the capital and appetite to buy large quantities of consumer assets created by the big banks. Other lenders are dealing with their own liquidity issues, and some are also already consolidating recent purchases.
“This suite of opportunities is really for some of the largest asset managers,” Joel Holsinger, co-head of alternative credit at Ares, said in an interview. “You need to be able to speak for billions.”
However, alternative asset managers have been frustrated in some of their attempts to take advantage of the turmoil in the industry to buy parts of banks or groups of assets. Instead, US regulators chose other banks to deal with the failing lenders. While efforts by private investment firms to participate in sales led by regulators to Silicon Valley Bank and Signature Bank faltered, bids for assets from still-operating lenders proved more successful.
“This is the first half of the activity,” said Hulsinger. “What we bought in this first phase – what the banks are selling at the moment – are their higher-quality, short-term, floating-rate assets.”
Read more: FDIC Bank Controlled Sales Leave Private Equity Firms Empty Hands
BackWest, a regional bank based in Beverly Hills, is boosting its finances after deposit withdrawals hit several regional lenders earlier this year, leading to the collapse of three California-based banks and one in New York.
Earlier this month, it completed the first part of the sale of a $5.7 billion separate loan portfolio to real estate investment firm Kennedy Wilson Holdings. Investment owned by Atlas SB Partners.
Bloomberg reported in April that PacWest was considering selling its financial arm to the lender and loans associated with the platform.
Read more: The PacWest chiefs were trying to start over. Then SVB fails
PacWest wasn’t the only company that turned to asset managers for help shrinking the balance sheet amid deposit outflows. In May, Atlas SP, Angelo Gordon and Varde Partners – in partnership with Pagaya Technologies – bought a batch of consumer loans from a US credit union to boost liquidity amid banking sector turmoil.
Shares of PacWest were up 4.2% at 10:36 a.m. in New York, paring this year’s decline to 67%.
The portfolio purchased by Ares has total liabilities of $3.54 billion, including an outstanding principal balance of $2.21 billion, Baquist said in the filing.
“Every bank we talk to is looking at their assets,” said Hulsinger. “They don’t want to get burned by mismatching assets with liability. The second wave, which will be for years, will be getting rid of non-core businesses and doing capital relief deals.”
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