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Archive for July 23rd, 2010

Whilst some developers appear to be welcoming the prospect of being NAMA-ized with open arms – take a look at the introduction to Treasury Holding’s Real Estate Opportunities PLC annual report where involvement with NAMA is positively trumpeted – there is some curiosity as to why Paddy McKillen is doing everything to avoid the NAMA fate. Today’s Irish Times article by Simon Carswell may go some way to explaining the mystery. The source for the article is not clear – has Paddy’s spokeswoman been briefing, has documentation supporting Paddy’s application been published – the detail doesn’t seem appropriate to the two preliminary hearings that have so far taken place at the High Court.

Regardless of the source, the Irish Times is asserting that if Paddy’s loans are transferred to NAMA then Paddy’s risk of losing control of his assets would increase for two reasons.

1. NAMA is apparently valuing Paddy’s assets below Paddy’s own valuations. This has two consequences – in the following let’s take the example of an asset  valued by Paddy at 100, NAMA values it at 60 and the asset is presently subject to a loan of 75.

(a) When Paddy comes to refinance the 75 loan, if banks apply say a 75% Loan to Value then they might only be prepared to advance Paddy a loan of 45 (75% of NAMA’s valuation of 60). This risk is exacerbated by Paddy’s use of short-term financing for his assets.

(b) If Paddy’s loan agreement contains a covenant that the loan can’t exceed a certain % of the value of his assets, Paddy may have to find financing to pay down part of the loan because of NAMA’s low valuation.

2. NAMA is a different kind of bank. A traditional bank might take a longer term view of its relationship with a key client and work with the client on refinancing for example. NAMA is a work out vehicle with a lifespan of 7-10 years and NAMA is on the record about taking hard lines with developers. NAMA also has, according to its Business Plan, ambitious targets for reducing developer debt. So Paddy may come under pressure to sell assets at inopportune times which conflict with his longer term objectives.

So whilst Messrs Ronan and Barrett might be wearing the “I’m with NAMA” tee-shirts with pride, Paddy is certainly digging in and might soon be sporting a “First stop Commercial Court, next stop (if needs be) Supreme Court, possible final destination European Court of Human Rights” tee-shirt – his loans will not be transferred without a fight.

For the background to the Paddy McKillen v NAMA case together with the latest news, visit the Paddy McKillen v NAMA tab.

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