JPMorgan announced Monday that it had agreed to sell $1.3 billion worth of loans and other securities to Sankaty Advisors, the $24 billion Bain unit focused on lending money as an investment strategy. The portfolio represents the bank's entire Global Special Opportunities Group, which is led by Chris Nicholas and has about 35 employees.
The sale of the unit and its assets culminates a long dating process. JPMorgan will be receiving interest for some or all of the loans from "dozens" of parties, including KKR, Carlyle and Blackstone's GSO unit, according to people familiar with the situation.
The portfolio contains mezzanine loans, typically between $30 million and $100 million in North America and Europe. It also includes loans and related special situations investments in Australia and various Asian countries. Special situations loans typically mean credit lines extended to companies in distress who cannot get traditional financing.
Some Special Opportunities employees are likely to join Sankaty, according to people with knowledge of the deal, but nothing has been finalized.
The sale reflects JPMorgan's desire to simplify its business lines.
In February, the bank noted that the Special Opportunities Group was "not a core offering," in a presentation to investors about "exiting businesses that are either non-core or no longer fit risk profile." Others on the list included commodities, pre-paid credit cards and some foreign banks. According to a person familiar with JPMorgan's thinking, the sale is not specifically because of the Volcker Rule-part of new financial reform laws that limit how much banks are able to make speculative investments with client capital.
While exiting those businesses has "no significant" impact on JPMorgan earnings, according to the presentation, it does note that the Special Opportunities unit had a "strong track record of investments." In other words, this was not a fire sale.
The JPMorgan purchase is the latest for expanding Sankaty. The Bain unit has also recently purchased loan portfolios from Irish Bank Resolution Capital, Lloyds Banking Group and CapitalSource.
"This is another attractive addition to our platform as we continue to identify portfolios around the world where we can be a provider of patient capital and a helpful, value-added lender to and investor in high-quality companies," Jonathan Lavine, chief investment officer of Sankaty, said in a statement. "We are continuing to see significant opportunities to invest by leveraging the skills of our global credit team to diligence portfolios by geography, by industry and by borrower resulting in a diverse array of investment opportunities."
The transaction is expected to close by the end of 2014.