UKAR sale of Northern Rock mortgages to Cerebus for £13bn – What does this mean?

UKAR has now completed a sale of mortgages originated by Northern Rock to US private equity giant Cerebus. This reflects a ground breaking deal for UKAR and provides clear evidence that they do not intend to be medium or long term holders of the lending institutions they are now responsible for (e.g. Northern Rock, Bradford & Bingley and Mortgage Express).

We offer our thoughts on this development and some of the potential implications on borrowers whose loans have been sold as part of this transaction. This article is not intended as formal advice and should not be relied upon to this effect.

What does this mean for borrowers with Northern Rock / NRAM mortgages?

Whilst the terms of the contract governing the relationship between lender and borrower – i.e the loan facility letter – will remain unchanged, there will now be a new point of contact with the lender.

Cerebus typically engages the likes of Capita or Engage/Pepper in these situations to manage the loan accounts on their behalf. We also note that UKAR recently announced a separate agreement whereby Compushare would manage loan accounts on behalf of UKAR so it may be the case that Compushare will manage the loans going forward for Cerebus.

However, whilst the contractual position between borrower and lender will remain unchanged, the point of contact will change and this may also present new opportunities to the borrower in circumstances where the loan could be redeemed significantly ahead of the contractual repayment date.

For borrowers in substantial arrears / default, Cerebus may seek to act quicker than would have been the case with UKAR. This could mean that Cerebus may request the borrower to consensually sell any property security or in the absence of same, consider the appointment of a LPA Receiver as a mechanism to for the loan balance(s) to be repaid. In these situations it is important that borrowers understand their contractual rights and the strategic objectives of the lender (Cerebus) in order to strive for the best possible outcome.

Again, this position can create opportunities for the borrower in relation to any shortfall or residual debt.

What are the next steps and timeframes?

Having announced the sale, we would now expect UKAR to write to affected borrowers within the next few weeks to advise that their loan accounts are in scope as part of the transfer.

There is typically then an ‘onboarding’ period of up to 2 months where the files will be transferred to Cerebus / the loan management agent.

Once this is completed, the transfer becomes effective and the borrower’s point of contact is Cerebus / their managing agent.
Cerebus / their managing agent will then contact the borrower and provide new contact details. In situations where the loans are substantially in arrears / default, Cerebus / their managing agent will typically request a repayment proposal from the borrower.

What if a borrower is currently in negotiations with UKAR regarding their loan facilities, or is due to complete a sale of property pledged as security in the short term?

There are a number of ‘business as usual’ events which may now be impacted by the sale to Cerebus and it is possible that until completed, the sale may delay the response rate to such issues.

Borrowers will need to bear this in mind should they envisage any requirement of UKAR / Cerebus ahead of the transfer completing.

Summary

Borrowers can continue to rely on the terms and conditions provided by the existing loan facility letters and security documentation as agreed with Northern Rock as the originator of the loan(s).

However, a change in loan ownership can cause uncertainty and the strategic objectives of Cerebus’ management of the Northern Rock portfolio may be different to those of UKAR.

We have considerable experience of advising clients whose loan facilities have been sold to Cerebus and indeed the other major private equity operators in this space. As part of this work we have delivered a number of very attractive restructure and debt settlement outcomes.

Please contact me through the details provided on my members profile above for further information.

Matthew

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