Take Paddy McKillen, pictured below right.
In 2010 and 2011, he fought tooth-and-nail in Dublin’s High Court and Supreme Court to stop NAMA acquiring his loans. In the end, the Supreme Court judges decided that NAMA could acquire Paddy’s loans but would have to consult with him beforehand. Despite swearing blind at the High Court that Paddy’s loans were “systemic”, NAMA abandoned the fight and decided not to acquire Paddy’s loans which remained at IBRC and Bank of Ireland.
Lucky for Paddy.
Because right now, Paddy has been given a window to refinance his IBRC loans – estimated to be €300m of personal loans and €550m of corporate loans. To refinance his loans, Paddy must repay them 100% and Paddy has been having a whinge through the press recently that IBRC is not accepting his most generous offers which are almost equal to what Paddy owes. Paddy’s window to refinance at 100% expires soon; originally, the liquidator at IBRC was going to have the loans valued by the end of May 2013 and they would then be offered to the market, unless they had been refinanced at 100%. That valuation of the IBRC loans by USB and PwC due at the end of May, seems to have slipped but regardless, it will be a matter of weeks when the un-refinanced loans are offered to the market.
Why is Paddy lucky? Because, even after his refinancing window closes, he will be able to bid for his own loans, and if his bid is the highest and if the bid is in excess of the independent valuation, then Paddy will be able to acquire his loans at a discount. So IBRC into which we have shoveled €34bn will be selling its loans to the market, and if the borrower is the highest bidder for those loans then the loans will be sold to the buyer at a discount, or in other words, the borrowers will receive debt forgiveness or a debt writedown.
To illustrate, if Paddy has personal loans of €300m today, he can refinance these today at 100%, that is pay IBRC €300m and any outstanding interest and fees. After the refinancing window closes, then IBRC will offer Paddy’s loans to the market and say the highest bid is €200m and this is in excess of the market value of the loans, then they will be sold to that bidder regardless of who that bidder is. If it’s Paddy, then he gets €100m of debt forgiveness, no questions asked.
Contrast that with NAMA which is prevented by the NAMA Act from selling assets back to debtors below their par values. So, if a NAMA debtor owes NAMA €300m and offers NAMA €200m for them, and if NAMA markets the loans and €200m remains the highest bid, then NAMA can NOT sell the loans to the NAMA debtor. Which brings us to Sean Reilly (pictured top above, left) who happens to owe NAMA about €300m according to press reporting. Sean is prevented by the NAMA Act from having an interest in buying these loans. The best Sean can do is show some leg to potential investors and try to get them interested in bidding for the loans, and the best Sean can hope for is to act as a consultant after the loans have been sold to someone else.
Minister for Finance Michael Noonan is clueless about all of this, he doesn’t know how much the NAMA proscription is costing NAMA and by extension the State. He also doesn’t know why there is one rule for IBRC disposals and another entirely for NAMA’s.
What an eejit, and given he is being advised by the Department of Finance on these policies, what a bunch of eejits are employed there.
The Minister was responding to a parliamentary question from the Sinn Fein finance spokesperson Pearse Doherty. The response must count amongst the most nonsensical you’re ever likely to see.
Deputy Pearse Doherty: To ask the Minister for Finance the reason the Irish Bank Resolution Corporation borrowers will be eligible to buy their own loans at less than par value when such loans over €10m are offered to the market imminently, but that borrowers at the National Asset Management Agency are precluded by the NAMA Act from buying their own loans at below par value..
Minister for Finance, Michael Noonan: As previously advised, independent third parties are being engaged to independently value the loan assets of IBRC (in Special Liquidation). There is an obligation on the Special Liquidators to ensure that assets of IBRC are sold at a price that is equal to or in excess of the independent valuations that are being obtained. A process is currently being finalised that ensures that maximum value is extracted from the loan sales. The Special Liquidators are responsible for putting in place a liquidation process which fulfils their obligation under the IBRC Act and where applicable the Companies Acts. It is a matter for the Special Liquidators to determine what bidders constitute qualifying bidders for the purposes of the sales process.
The protocol which is in place for the disposal of the IBRC assets is guided in a specified manner as the Special Liquidator will only be holding the assets for a limited period of time. Any assets that are not sold to third parties for a value higher than the independent valuations will be sold to NAMA at that price. Assets that are transferred to NAMA will then be subject to the protocol according to the NAMA Act 2009.
It is the objective of NAMA in any loan sale to achieve its commercial mandate of obtaining the best financial return on behalf of the State. In accordance with the NAMA Act procedures have been put in place by the Agency to achieve these objectives.