Lloyds HBOS sets up toxic fund for housebuilding assets

The newly merged Lloyds HBOS bank will set up a toxic vehicle for its housebuilding and commercial property investments, Building can reveal.

According to sources close to the situation, the dedicated vehicle for its housebuilding and property assets will be run by Graeme Shankland, who was formerly managing director of integrated, structured and acquisition finance at Bank of Scotland.

Shankland was appointed head of special assets at the newly formed company last week.

An announcement is expected early next week following the formal tie-up between the two banks tomorrow.

The source said: “This is just like what banks have done elsewhere in isolating their toxic debt. The idea will be to get maximum value from the portfolio either through a sale or more dedicated management of the assets.”

The portfolio includes investments in housebuilders Crest Nicholson, Miller, Gladedale and Tulloch Homes. It also has stakes in retirement housing specialist McCarthy & Stone and social housing specialists Keepmoat and Apollo.

The vehicle will also include HBOS’ commercial property investments.

It is understood that the carrying value of the vehicle on the new bank’s book will be nil.

Lloyds Development Capital assets such as social housing group Bullock will not form part of the vehicle, it is understood.

It is thought Keepmoat and Apollo may be among the first to be sold due to interest from buyers as a result of their relatively healthy balance sheets. Last week Building revealed the two groups may be merged before being sold to private equity buyers.

Despite the reports, David Blunt, chief executive of Keepmoat, played down talk of a tie-up with Apollo. He said: “The Keepmoat board denies that there are any talks regarding a merger between Keepmoat and Apollo. The directors of Keepmoat own 80% of shares of the company and any potential merger of this nature can clearly only happen with their full knowledge and approval. We have no idea where this rumour has emanated from.”

Another source said the new bank may struggle to sell its other investments. They said: “The first problem is lack of interest in the housebuilding sector. The other issue is a lack sway over the companies themselves. For example HBOS only has 20% of Miller so it may not be able to force a sale.”

They said the only way a sale could be forced in such cases was if banking covenants were in danger of being breached, which would give the new bank more leverage.

It is understood the Lloyds HBOS team is looking for an external investor to put money into the new vehicle.