Private equity firm Kohlberg Kravis Roberts is believed to be out of the race for Westpac’s auto loan business, leaving private equity firm Cerberus and non-bank lender Liberty Financial as the most likely acquirers.
Bain Capital and Allied Credit had been bidding earlier, but were not considered strong contenders.
TPG Capital had been partnering with Liberty Financial, but is understood to be on the bench for now.
The understanding had been that KKR would have purchased the auto loan business and its recently listed lender Pepper Money would have been its manager. However, sources say that one of the problems has been that KKR was not keen to take across any of the management in the auto loans business when it was the new owner.
KKR, in the weeks before launching float plans for Pepper, was also said to have been looking at assets owned by Humm (previously known as FlexiGroup), including its commercial and leasing divisions.
However, Humm’s board was said to have opted to retain the assets, thought to be worth at least $300m, and KKR pressed on with its initial public offering of Pepper, now listed on the Australian Securities Exchange.
Final bids for the auto loans auction are due on Friday.
After initially trying to sell all of its auto loans operation, Westpac has opted to retain almost all of the existing loans, so that the opportunity for buyers is largely the right to generate new business.
The size of the portfolio of loans on offer through adviser Morgan Stanley has decreased from $11bn to about $2bn, with only the floor plan financing available to a new owner.
Market sources believe that the valuation of the goodwill for the auto loans operation is between $450m and $700m.
The operation writes about $5bn of loans annually.
Westpac has been selling its non-core assets as part of a move to simplify its business.
The sale comes after tougher rules on interest rates charged on auto loans and other strict measures were introduced by the regulator.
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