RBS to name preferred bidders for 'Project Isobel' loans

ROYAL Bank of Scotland will this week take a step closer to offloading a £1.6 billion portfolio of UK property loans when a shortlist of four private equity firms is narrowed down to one or two preferred bidders.

• Stephen Hester

Blackstone, Lone Star, Starwood Capital and Westbrook Partners have until Tuesday to submit final bids for the loan book, which RBS chief executive Stephen Hester has determined as "non-core". Property experts have been eagerly awaiting the outcome of the deal for almost a year, as the innovative structure could provide a template for other banks wanting to dispose of unwanted property loans.

RBS is expected to sell about 25 per cent of the loan package to a specially created vehicle, managed by the chosen private equity bidder.

The bank intends to sell more of the portfolio to the vehicle over time but it is understood that the deal - which has been codenamed Project Isobel by RBS - has been structured in a certain way so that it is more attractive to bidders, who won't immediately have to take all of the exposure.

Project Isobel was set up after the bank decided that it would take a massive hit on the loans if it tried to sell them at today's prices.

A private equity firm would also be able to more actively manage the assets, sources argue.

However, RBS is also understood to be nervous about the preferred bidder embarrassing the taxpayer-backed institution by making hefty returns or selling them off at a significant profit.

The bank has been working with its advisers Lazard and Berwin Leighton Paisner on the structure of the complex deal for close to a year.

The portfolio is understood to include property loans extended to companies in Scotland during the boom years. It is believed as many as ten private equity firms approached the bank about Project Isobel.