Archive for February 22nd, 2012

Forgive the sexism – and remembering the always-entertaining Rumble in Ranelagh – but you would have to wonder how Treasury came up with a codeword – TAIL – for what looks like a controversial financial transaction in 2010 in which €20m of shares in a company called China Real Estates Opportunities (CREO) were transferred out of the Treasury group to the apparent benefit of Johnny Ronan and Richard Barrett in return for €100,000. NAMA has been trying to reverse this transaction for some time.

As it happens TAIL is an acronym, derived from Treasury Asia Investments Limited, and what happened was that Treasury sold €20m of shares in CREO to a company called Daylasin Limited. Now hang in here, it sounds more convoluted than it is! Daylasin Limited changed its name to Treasury Asia Investments Limited (TAIL) and TAIL sold the €20m of shares to Messrs Barrett and Ronan for a consideration that appears to be worth just €100,000. It’s not quite the sale of a €160m Moscow office block for the price of a laptop, but it seems to be in the same league, even if there hasn’t been any formal allegation of shenanigans by NAMA yet.

The transaction caused NAMA “grave concern” according to Mary Birmingham’s affidavit  (paragraph 54) because, to state the bleedin’ obvious, it diminished the value of Treasury’s assets. And that further, the “making good of the financial damage caused to Treasury by the TAIL transaction has been a central requirement of NAMA at all material times” and “at no stage has NAMA accepted the propriety of what was done in the TAIL transaction”

It seems that the Treasury position is that the TAIL transaction was “legitimate” and conducted at open market values, though how to square that with NAMA’s claims isn’t immediately obvious.

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“Other than to seek clarifications on certain matters, NAMA has not engaged in negotiations with the two potential investors.. We understand NAMA has said only that the offers made by the two potential investors did not meet commercial requirements but did not outline what those commercial requirements were. We find this course of action impossible to understand” Treasury spokesperson speaking on 26th January, 2012

It was reported by the Sunday Independent in January that Treasury was “understood” to have formally warned NAMA via a solicitor’s letter to stop putting out inaccurate information about Treasury. Looking at the NAMA affidavits in the ongoing court battle in Dublin’s High Court, it looks though as if it was NAMA that wasn’t being portrayed in the most accurate of terms. There are four NAMA affidavits available, two from Mary Birmingham, dated 3rd February and dated 13th February and two more from John Moriarty, also dated 3rd February and 13th February. The affidavits would seem to belie claims that NAMA had not engaged with two third party investors – more correctly termed “buyers” in this instance, Hines and Macquarie – who were interested in buying Treasury’s loans from NAMA.

The affidavits also provide NAMA with its first real opportunity to have a swing at Treasury and there is some biting stuff in the affidavits though these two quotations might sum up the NAMA position – “the Applicant’s affidavits are replete with mischaracterisations and incomplete accounts of what has occurred since NAMA’s acquisitions of their bank loans”  and “in seeking to lay the blame at NAMA’s door for such detriment the Applicants overlook the commercial reality that the loan facilities which have been demanded are in default and have been, in many cases for some time”

The Offers
The affidavits from the two NAMA staff show that the Agency formed specific teams to work with the two proposals, and that furthermore PwC Corporate Finance was engaged to provide a third party view of proposals. In the case of the Hines proposal, NAMA says it formed a team comprising four NAMA employees, John Moriarty, a senior NAMA portfolio manager, John Collison and Graham O’Hanlon from the NAMA credit department and Simon Lynch from the NAMA legal department. In the case of both offers, NAMA engaged PwC Corporate Finance as an independent third party to assist in its evaluation of the offers. NAMA seems not to be a stranger to weekend work, and the Hines offer was reviewed by the NAMA team on the weekend of 21st and 22nd January, 2012. The proposals seem to have been delivered late in the day and were heavily qualified, lacked detail and in the case of Hines wanted NAMA to put up 80% of the purchase price PLUS agree to provide development finance. The affidavits show that NAMA was seemingly seriously engaged with the offers, working weekends, and in the case of PwC into the night, to examine the proposals. And it seems that Hines criticised Treasury for not responding to queries in a wholehearted manner and demanding unreasonably high fees for engaging with the loans if purchased from NAMA. The Hines offer was also non-recourse to the portfolio of assets, and Hines wanted the purchase price to be apportioned to specific assets, with the loan and asset ringfenced without recourse to other assets.

The NAMA team which dealt with the Macquarie proposal was Mary Birmingham, Darren Cullen, Stephen Coffey (all from the NAMA portfolio management department) and Alan Stewart (NAMA legal department) but it seems that others including NAMA credit, Ronnie Hanna included as well as John Mulcahy himself and the PwC Corporate Finance team all participated in examining the proposal. TheMacquarie proposal does indeed carry a headline €622m but that includes €52m consideration for KBC’s loans.Macquarie was to put up €73m of “equity” with the implication that NAMA would staple finance the remainder (€549m or 88%). There would be no cross-collateralisation, as with the Hines proposal, so if one loan failed, then NAMA couldn’t seek recourse against another asset.  Macquarie wanted a margin of 12% on any additional funding required, presumably to finish off developments.Macquarie would be paying management fees of €6m per annum to Treasury PLUS €80m!

The CIM – “CIM” being the US property investment and management group – offer in September 2010 was even more hairy for NAMA as it was for a total of €805m, but of this NAMA was to provide 90% staple financing totalling €724m and CIM would put up €81m itself. That said, it seems the offer was acceptable to the NAMA board in March 2010 BUT subject to certain conditions which included a reversal of an asset transfer by Messrs Barrett and Ronan. However it was the fact, say NAMA, that a further revised offer, which was less than €625m – €180m less than the original offer – was submitted by CIM in May 2011 which took account of matters uncovered with due diligence and also the uncertainty introduced with the new Government’s commitment on Upward Only Rent Reviews and NAMA rejected the revised and lower offer.

Treasury’s financial health
For the first time, we get NAMA’s assessment of Treasury’s financial health, or rather ill-health. NAMA says it acquired €1.7bn of Group loans at par value. It says that the Group also owes €1bn to non-NAMA banks. So that’s €2.7bn of debt, it seems. The Group’s financial statements at 28th February 2010 show it to be “balance sheet” insolvent to the tune of €859m.  NAMA has provided €103m of new advances to the Group. In July 2011 Treasury said that it was going to run out of cash by September 2011.

NAMA advanced an additional €103m to Treasury including €30m to fund the Montevetro office building which was eventually sold to Google. It is intimated –para 47 of Birmingham affidavit 3rd February – that NAMA provided €75m of staple financing to Google on the Montevetro building which was sold for €99.9m in February 2011.

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