Mortgages that are being moved by Permanent TSB to a special purpose vehicle should provide more certainty for the borrower than if they were shifted to a vulture fund.

Owen Callan, financials analyst with Investec Bank Ireland, said the SPV would have an expectation of a longer lifespan than a typical vulture fund.

"Vulture funds are generally looking to flip, or refinance the loans or foreclose or do something to get them off their books fairly quickly. The expectation would be that this structure will be around for a longer period of time so people shouldn't expect this to be a short-term solution where a vulture fund would have been looking for a quick exit," he said. 

Earlier this year, Permanent TSB sold a €2.2 billion portfolio of loans to an affiliate of the so-called vulture fund, Lone Star.


This latest transaction will see it transfer €1.3 billion of loans to a special purpose vehicle, which will be financed through the bond markets.

The legal ownership and management of the loans within will transfer to Pepper Finance after six months.

There had been an expectation that the mortgages would remain under the management of Permanent TSB.

"From a regulatory perspective, it looks like the regulator was looking for a clean break. Rather than have the risk brought into the SPV where the bank would still be the servicer and the point of contact for the borrower, I think they felt that would mean there was a holdover from the way these loans had been treated," Owen Callan explained.

Although the loans are technically classified as "non-performing", they have been restructured and the mortgage holders are meeting the terms of the restructure. The majority of the loans are "split mortgages" where a portion of the loan is warehoused to be paid off in the future.

"Split mortgages are not guaranteed, nor were they before. There was always a review clause. If someone's situation improved, the lender could look for an increased level of repayment. Pepper will now be the review body for that," he explained.

The transaction was executed by Permanent TSB in order to get its level of non-performing loans down further. The bank started this year with 26% of its loans classified as non-performing.

"These latest transactions will see that reduce to around 9.5%. They would still need to get it down to 4-5% over the medium term," Mr Callan said.