On the bank of the Grand Canal adjoining Dublin’s Baggot Street Bridge, a cheery, modern office block with wide windows overlooking the water sits over a bustling cafe and terrace. Victoria Building could easily be mistaken for the home of one of the tech companies scattered in the area. Instead, it is the Dublin office of Intertrust, formerly known as Structured Finance Management. 

At locations across Europe and Asia as well as offshore centres as far-flung as the Cayman Islands and Singapore, Intertrust’s advisors provide establishment and “regulatory reporting and compliance services” to fund managers, its website advertises.

Intertrust has become a partner of choice for the so-called vulture funds competing for tranche after tranche of loans off-loaded by Irish banks since the financial crisis. And companies it manages on behalf of Goldman Sachs have taken part in most of around €8 billion worth of loan transactions conducted here by the Wall Street investment bank in the past eight years, and in perfecting the re-packaging and securitisation of Irish debt to global investors.

So, just how has Goldman Sachs managed to build its Irish empire? What structures has it used? And how much money has flowed through its Irish operations?

An investigation by The Currency reveals the answers.


Goldman Sachs
The registered address of Goldman Sachs on Dublin’s St Stephen’s Green. Photo: Thomas Hubert

When London-based Fabrizio Grena, then executive director of Goldman Sachs’s European Special Situations Group, first came to Dublin to hunt for debt portfolios shed by Irish banks, he did not initially set up camp at Victoria Building. Instead, he enrolled the services of another corporate facilitator, the TMF group.

Their first special-purpose vehicle (SPV), Windmill Funding, was registered on June 7, 2012. The following week, GE Capital sold 3,500 Irish residential mortgages from its ailing Woodchester Home Loans business before exiting the country. Australian firm Pepper Finance took over the servicing of the loans, also marking its entry into the Irish market. Pepper would go on to become the only boots on the ground in many of Goldman Sachs’s subsequent transactions here, while also collecting debt for a number of other vulture funds.

On September 28, 2012, Windmill Funding issued €171 million of residential mortgage-backed profit-participating notes listed on the Channel Islands Stock Exchange. At the end of its first half-year in operation, the company had only €177 million in financial assets, illustrating the discount applied to the €600 million in receivables acquired in GE’s non-performing portfolio.

Windmill ended up with negligible formal profit over the first 19 months of its existence and paid just €600 in corporate tax.

The following year, as its ultimate ownership was held by a charitable trust, Windmill benefited from the infamous Section 110 tax break. Although it received €34.8 million in income from loan interests, the profit-participating notes it had issued, as their name suggests, charged the company a €22 million interest to match its profit. Windmill ended up with negligible formal profit over the first 19 months of its existence and paid just €600 in corporate tax.

It was only the following February, when Pepper revealed that Goldman Sachs had “provided funding and acted as exclusive financial advisor” on two successive deals including the Windmill transaction, that the appetite of the Wall Street bank for the spoils of Ireland’s credit crash became clearer. 

The other debt acquisition was from Celeris, a Spanish car and personal loans provider whose portfolio was securitised through another Irish Section 110 SPV, Pegaso Consumer Loans. The features of these transactions were set to become familiar.

Intertrust hosts the most active Goldman Sachs SPVs. Photo: Thomas Hubert

In early 2014, Goldman Sachs bankers knocked on the door of Intertrust to take this business to the next level. They had their eye on something big: emergency legislation in February had ordered the liquidation of IBRC, the bad bank assembled from the ashes of Anglo Irish Bank and Irish Nationwide. 

On March 27, Intertrust registered three companies ultimately controlled by Goldman Sachs: Beltany Property Finance, Liffey Acquisitions and its subsidiary Kenmare Property Finance. The next day, Beltany paid IBRC €312.9 million for a debt portfolio, while Kenmare spent €205.8 million on a similar transaction. The Irish commercial loans were secured on properties in Ireland, with a few exceptions in the UK. 

One example that travelled all the way to the Supreme Court has been the high-profile case of loans made by Irish Nationwide to two related companies, Elektron Holdings Ltd and Crossplan Investments Ltd, and secured on Aberdeen Lodge, a hotel in Sandymount, Dublin 4. When IBRC called the €26 million debt in 2012, company directors Anne Keane and Patrick Halpin opposed the repossession of Aberdeen Lodge in a court battle centred on their use of part of the building as their residence. The couple have lost a series of appeals in the intervening years.

Notes repayable “to the extent of funds available”

While the acquisition of IBRC loans was initially funded through a loan from ELQ Investors II Ltd, a British unit of Goldman Sachs, Beltany and Kenmare were refinanced two months later with 20-year notes issued to the same amount they had paid for their respective portfolios. 

Accounts for Kenmare shed some light on the workings of the securitisation process. The company repays noteholders “on a quarterly basis to the extent of funds available from collection of the financial assets,” effectively providing it with non-recourse finance and shielding it from the risk posed by defaults.

“Interest on profit participating notes is calculated by reference to the results as determined in accordance with the principles used for corporation tax purposes and incorporates gains and losses as and when they are recognised within the tax computation,” Kenmare’s directors continue. 

Under Section 110 at the time, aligning borrowing costs with profits ensured no taxable profit was generated. Until the end of 2016, Kenmare and its parent Liffey paid no corporation tax, despite generating €54 million in interest income.

The reform of Section 110 in September 2016 restricted the tax deduction to exclude excessive interest on Irish property-backed securities. In 2017, consolidated accounts for Liffey and Kenmare showed they paid €2.8 million in tax. The following year, they were formally back in the red and non-taxable. Since new legislation came in, Goldman Sachs prospectuses have continued to advertise its notes as benefiting from Section 110 taxation – though only on regular commercial interests.

These portfolios had billions, rather than hundreds of millions, in receivables. 

From the wholesale liquidation of Irish portfolios like GE Capital’s and IBRC’s, Goldman Sachs moved on to targeted sales made by Irish-based banks forced to clean up their balance sheet under stricter regulatory scrutiny. Beltany was used again in October 2014 to snap up €187.1 million of debt off-loaded by Ulster Bank. Much like the IBRC loans, these were made for commercial ventures, but secured on property assets.

In March 2015, the vehicle also paid €171.5 million for commercial debt sold by Danske Bank and €45.2 million for another Ulster Bank portfolio. True to form, Beltany issued a fresh €243.75 million of profit-participating notes maturing in March 2035, this time through a US unit of Goldman Sachs.

Meanwhile, London banking group Lloyd’s was going through the debt portfolio of the former Bank of Scotland after rescuing it at the height of the financial crisis. Although the Scottish lender had left Ireland in 2010, it took nearly five years before the first portfolio sale took place.

To compete for the Bank of Scotland loan books, bidders needed to shift up one gear. These portfolios had billions, rather than hundreds of millions, in receivables. Goldman Sachs made an alliance with CarVal to match the power of the most active US vulture funds in Ireland, Cerberus and Lone Star. Formerly owned by the US agribusiness giant Cargill, CarVal was recently sold in a management buy-out completed in October.

Projects Parasol and Poseidon

On December 3, 2014, Intertrust registered Ennis Property Finance. The company bought Goldman Sachs’s share of Project Parasol, a €2 billion commercial and buy-to-let debt portfolio acquired with CarVal. The next day, Riverglyde Property Finance was formed to act as a holding company for Ennis and securitise its loans. 

The following July, Lloyds flogged the next tranche of old Bank of Scotland loans, Project Poseidon. The €2.9 billion portfolio of Irish commercial debt was split three ways between Ennis, CarVal and Bank of Ireland. 

Goldman Sach’s share of the Parasol and Poseidon was never disclosed, and the Wall Street bank declined to answer The Currency’s questions. However, Ennis reported loan acquisitions worth €840 million during the same period. It also issued a total of €866 million in profit-participating notes. 

After a lull in 2016, Goldman Sachs’s SPV Beltany Property Finance moved back into action in April 2017 to acquire AIB’s project Cypress, a portfolio of buy-to-let loans spanning 1,200 borrowers and 1,500 properties. Beltany paid €179 million for the reported €400 million debt pile and promptly securitised it away.

The Cypress deal was just a warm-up round to re-start the machine after a period of inactivity. Billion-euro opportunities were in the offing again. The next one was Danske’s €1.7 billion Projet Proteus, a majority tracker mortgage portfolio sold to a consortium formed by Goldman Sachs and US investment manager Pimco. Their SPVs, Proteus Funding and Proteus RMBS (residential mortgage-backed securities), bought the loans on October 23, 2017.

Crucially for Goldman Sachs, who had until then avoided owner-occupier mortgages, these were performing loans.

They refinanced it through a note issue on the Irish Stock Exchange in March 2018, which led to the publication of a prospectus offering a rare glimpse into the transaction. The mortgage portfolio partly dated back to Northern Irish Bank days, before its take-over by the short-lived Irish division of Danske Bank. It contained 12,892 Irish residential mortgages – 75 per cent principal residence, 25 per cent buy-to-let – except a handful of UK or non-residential properties. Eight out of ten were trackers and nearly 15 per cent interest-only.

Crucially for Goldman Sachs, who had until then avoided owner-occupier mortgages, these were performing loans up for grabs because of Danske’s decision to leave Ireland, not a fire sale of distressed debt. Only 0.3 per cent were in arrears of more than one year.

The notes on the Dublin market were initially purchased by a Goldman/Pimco consortium. As arranger of the transaction, Goldman Sachs would keep 5 per cent of all notes under retention regulations. It was also holding 100 per cent of special notes carrying the right to a bonus payment upon completion of the transaction with Danske Bank. 

The prospectus also indicates that a major investor in the notes may put an end to the scheme early: once receivables fall below 20 per cent of their value at the time of the deal, the owner of at least half of another class of special notes are entitled to purchase the loan portfolio outright.

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Since then, Goldman Sachs has sealed two more major deals. In August 2018, Beltany and two more of its SPVs, Tramore Funding and Banna Funding, acquired €1.9 billion worth of commercial and buy-to-let loans from KBC. Although the amount paid for the portfolio was undisclosed, Beltany appears to have grown significant financial power of its own as it needed only a €44.5 million bridging loan from a US-based Goldman Sachs unit on the day of the transaction. The SPV has even loaned money to other units of the US bank.

In turn, Beltany has also begun to dispose of loans. The company recently disclosed that it had entered a transaction to sell loans in September, which would be complete in December. Securitisation SPVs Tramore RMBS and Banna RMBS were merged at the same time, suggesting more securitisation activity.

The latest deal was announced by Rabobank on April 12 this year. The Dutch lender said that it had sold the last loans from its old ACC Irish operation for €800 million, with secured debt going to a consortium of Goldman Sachs and CarVal investors and unsecured loans to debt collector Cabot. Although notes in Ennis and Kenmare’s accounts suggest that they were the SPVs used for this transaction, details have yet to emerge. A new SPV was also registered around the same time, Newgrange Loan Acquisitions. 

Goldman Sachs SPVs have now taken part in at least €8 billion worth of debt acquisition in Ireland, most of it without outside partners. They have securitised another €2 billion of US and UK debt through Ireland. In its most exotic transaction reported to date, its SPV Swancastle went to the Cayman Stock Exchange on May 25, 2016 to issue £1.2 billion in notes backed by assorted performing and non-performing residential loans in the UK. 

Beltany and Kenmare have also launched more than 500 High Court actions against borrowers. Judgements show that loans initiated by the full array of lenders from which the US bank has purchased debt so far have ended up in court. The SPV’s litigation activity suddenly picked up in 2017 and is on track to reach 200 new cases this year.

On Dublin’s deal-making scene, Goldman Sachs remains seen as active in the loan portfolio market, with more sales expected. Its vulture fund operation is not as developed as that of Cerberus or Lone Star, but its alliance with CarVal has placed it among the most successful bidders.

Cerberus is known to hold on to loans. Lone Star goes through portfolios to package the better-performing debt into securitisation vehicles. Goldman Sachs, meanwhile, has been more interested in loans that can readily be passed on to other investors – at a profit.  If you are a bank selling so-called re-performing loans, where borrowers misbehaved in the past but are now back on track, Goldman Sachs will likely come knocking on your door. A small number of non-performing loans will not scare the Wall Street bankers, as they now have a partner who can deal with them under the form of CarVal – but the prospect of large-scale enforcement and messy homeowner evictions will put them off. 

Goldman Sachs’s in-house expertise and bottomless pockets mean it can finance these acquisitions cheaply and pass them on quickly to outside investors, with industry sources reporting that many of its noteholders are now institutions such as insurers who have come to see restructured mortgage-backed securities as a safe long-term bet.

This is despite the fact that the Proteus securitisation prospectus warned in its risk section: “The secondary market for mortgage-backed securities has in the past experienced significant disruptions resulting from reduced investor demand for such securities… It is not known whether such market conditions will recur.” 

After all, the sub-prime meltdown was only what triggered the global financial crisis in the first place.

Read more from Ian Kehoe: The state’s relationship with vulture funds is schizophrenic, amounting to little more than damage limitation