Sankaty to buy JPMorgan debt portfolio for more than $1.3bn

Sankaty Advisors, the credit arm of Bain Capital, is paying more than $1bn for the debt portfolio of JPMorgan's principal investment group.

The sale underscores the extent to which shadow banks are taking over lucrative parts of the operations of big commercial banks, which are under pressure to raise capital and play down certain activities to meet new Basel requirements and regulatory constraints.

Sankaty won a heated auction for JPMorgan's Global Special Opportunities Group portfolio, which contains junior loans in North America and Europe as well as securities in Asia and Australia. The transaction is set to be announced on Monday.

The unit, which is based in Hong Kong but has staff in all regions, attracted widespread interest on the part of investment firms that do not have a big presence in Asia but find the region increasingly attractive as many companies there have stretched balance sheets and are expected to find it harder to secure bank loans.

The credit arms of big US private equity firms and alternative investment funds such as Blackstone's GSO arm, Carlyle and KKR also considered buying the portfolio.

Sankaty, which has been snapping up portfolios from European institutions including Lloyds Banking Group of the UK and the Irish Bank Resolution Corp, still sees a lot of opportunities in that region. But it is also looking at distressed corporate debt in Asia and Australia, given the build-up in leverage there.

"Opportunity comes when debt levels increase more rapidly than the pace of economic growth," Jonathan Lavine, managing partner of Sankaty, told the Financial Times. "Many things are priced to an overly optimistic outlook."

JPMorgan "isn't getting rid of the operation because it violates the Volcker rule restricting proprietary investments", said one person familiar with the transaction. "But you never know. It is part of JPMorgan's simplification drive."

The JPMorgan portfolio has an aggregate value of $1.3bn. But that may be imprecise because it includes a small amount of equities as well as local currency debt, and some of the debt trades at less than 100 cents on the dollar.

Sankaty, which has $24bn under management, is likely to hire many of the JPMorgan staff who built the portfolio, making it a particularly attractive buyer.

The transaction is not expected to have a material affect on JPMorgan, which is in the process of selling its OneEquity Partners private equity business and recently sold its physical commodities business.

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