TPG Capital loses appetite for Westpac’s $2bn auto loans sale

TPG’s interest in Westpac’s auto loans business is said to be cooling.

Private equity firm TPG Capital is believed to be rethinking its position in the competition to buy Westpac’s auto loans business, which is now likely to have Liberty Financial as a solo bidder.

Liberty Financial and TPG had formed a consortium to buy the loans, taking on shortlisted rivals including Kohlberg Kravis Roberts with its Pepper Money business, Cerberus and Angle Finance.

Allied Credit is also preparing for the final stages of the contest, but some also question whether its private equity bidding partner Bain Capital remains a motivated buyer.

The thinking from most around the market is that TPG and possibly Bain are now unlikely starters after the sales process took a different path, with Westpac opting to retain almost all of the existing loans so that the opportunity for buyers is largely to gain the right to generate new business.

The size of the portfolio of loans on offer has decreased to about $2bn from $11bn, with the floor plan financing only available to a new owner.

Market sources believe that the valuation of the goodwill for the auto loans operation is somewhere between $450m to $700m.

Operators like Allied Credit and Liberty may not need to rely on major private equity powerhouses for funding any longer.

TPG would have earlier provided fire power, no doubt, for a larger Liberty Financial bid.

However, both groups have a 20-year long relationship and some say it remains on standby if there is any need for capital by Liberty.

Bids are due in the middle of next month in a Morgan Stanley-run competition now thought to be led by loan operators rather than private equity powerhouses.

With respect to Pepper Money, which is earmarked for an initial public offering, the understanding is that it would service the loans should they be acquired by its private equity owner KKR but would not put any funding into the business.

The understanding is that prospective suitors will have to find a new management team to run the auto loans division and install a new IT system for the operation, which writes about $5bn worth of loans a year.

Westpac has been prepared to offer synthetic loans to interested buyers, sources have said.

The Australian bank has been looking to stage an exit from the auto loans business after tougher rules surrounding interest rates charged on auto loans and other strict measures were introduced by the regulator.

Westpac has been selling its non-core assets as part of a move to simplify its business.

Last year, more than $4 billion worth of non-core wealth assets were placed into a has spun off the operations into a Specialist Businesses unit overseen by Jason Yetton.

Morgan Stanley is also working on the sale of Westpac’s wealth management arm.

There have been suggestions that technology players in the industry such as Avalon and FNZ are taking a look, although questions remain how such parties would fund what would be a major acquisition.

That sales process for what includes Westpac’s BT Panorama wealth management operation is not expected to launch for a number of months.

So far, valuation estimates are somewhere between $700m and $1bn for a business that is understood to have a market share of about 19 per cent.

Westpac has already sold its Pacific Bank to Kina Securities for $420m, and its general insurance division was offloaded late last year to Allianz for $725m.

It also offloaded its vendor finance business last year to Cerberus Capital Management.