In a transaction valued at GBP270 million Barclays Private Equity has backed the MBO of non-conforming mortgage lender, Preferred Mortgages. The company was purchased from Rotch Property Group, which retains a minority stake of 17 per cent. Other investments made by Barclays Private Equity in the financial services sector include Admiral Insurance, Aon and Clydesdale.
The deal was composed of GBP20 million in equity, GBP16 million provided by Barclays Private Equity and the remaining GBP4 million coming from management and Rotch Property Group. Barclays Bank has also supplied GBP220 million in securitised bonds and a GBP100 million warehouse facility, GBP30 million of which is currently being used.
With historic growth of circa 20 per cent per annum the non-conforming mortgage market is rapidly expanding in the UK and attracting the interest of mainstream lenders. Also this month GE Capital acquired an alternative mortgage provider, igroup, from Royal Bank Private Equity in a secondary buyout transaction. The availability of these mortgages has led to increased levels of home-ownership among non-conforming borrowers. Other factors contributing to this include rising numbers of self-employed and the success of council house right to buy schemes.
Preferred Mortgages was established in 1996 as a joint venture between the Rotch Property Group (90 per cent) and Financial Security Assurance, a US insurer with offices in London (10 per cent). By December 2000, Preferred Mortgages had received GBP1.605 billion of applications, completing GBP284 million of loans. Rotch still hold a stake but FSA is no longer an owner.
Preferred Mortgages lends to people who are not offered mortgages by traditional lenders. This group includes those who are self-employed and have a varied income and those with a poor credit history. Customers are not assessed by way of the usual credit-rating system but according to individual circumstances, ability and willingness to re-pay.
Owen Clarke who led the deal for Barclays Private Equity said Preferred Mortgages is in a strong position to capitalise on new business in the future and is looking to expand its network of brokers giving greater access to its loans. “We believe that Preferred is a highly attractive and stable player in the market due to its underwriting capabilities, in house loan servicing and strong reputation for high quality service.”
Dennis Pitocco, CEO of Preferred Mortgages, led the MBO. Following the deal John Webster (business development director) and George Patellis (operations director) will join him, and finance director Phil Hopes.
PricewaterhouseCoopers and Pinsent Curtis Biddle advised Barclays Private Equity.