Blackstone acquires stake in mortgage finance company

The publicly-listed asset manager is the latest private equity firm looking to take advantage of the ‘significant dislocation in the secondary mortgage market’ with the purchase of a minority stake in Bayview Asset Management.

The Blackstone Group has agreed to buy into the secondary mortgage business by acquiring a minority stake in Bayview Asset Management.

Blackstone will use no debt financing for the transaction, expected to close in the fourth quarter of 2008. Financial details were not disclosed.

The subsidiary of mortgage finance company Bayview Financial will utilise the investment to grow its business in the secondary mortgage acquisition and mortgage securities markets.

Bayview manages a $2 billion (€1.3 billion) fund that acquires whole mortgage loans and mortgage-backed securities. The fund is the fourth largest in the world with its particular sector focus, according to the firm.

The Miami-headquartered company also operates mortgage servicer Bayview Loan Servicing that exclusively services Bayview collateral.

“Bayview is well positioned to take advantage of the significant dislocation in the secondary mortgage market,” said Bayview chief executive David Ertel in a statement.

The firm asserts that its position as both secondary purchaser and a mortgage loan servicer leads to a higher rate of loan workouts and modifications.

“We believe that there will be tremendous opportunities for Bayview to purchase mortgage loans and securities as financial institutions of all kinds seek to raise capital and deleverage their balance sheets,” said Blackstone managing director Chinh Chu in a statement.

JPMorgan and Milestone Advisors are financial advisors to Bayview. Deutsche Bank is financial advisor to Blackstone.

Bayview's legal advisors are Clifford Chance; Schulte Roth & Zabel; and Stearns Weaver Miller Weissler Alhadeff & Sitterson. Blackstone's legal counsel is Simpson Thacher & Bartlett.

Blackstone is the latest in a string of private equity firms to invest in mortgage-related companies. This summer, Texas-based Lone Star Funds agreed to acquire commercial lender CIT Group’s subprime mortgage unit for $5.9 billion and purchased unspecified assets from Bear Stearns’ residential mortgage unit.

In May, distressed specialist MatlinPatterson Global Advisors agreed a rescue financing package worth more than $510 million with Standard Pacific, a 42-year-old US homebuilder that reported a $216.4 million first quarter loss and is in trouble with its lenders.