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Archive for March 22nd, 2012

[The judgment handed down this morning is now available here]

It was reported on the Courts Service website this morning that the judgment in the Treasury Holdings and NAMA case which was heard last month, was to be handed down. It is hoped that the judgment will be available here shortly, but meantime, Orla O’Donnell, RTE’s legal affairs correspondent has tweeted the following.

Looks like Treasury has won in its bid to have its dealings with NAMA subjected to a judicial review. That being the case, it will be bad news for NAMA and we may indeed see the constitutionality of some of NAMA’s actions tested.

(Much) more soon!

UPDATE (1): 22nd March 2012. NAMA has issued a statement in response to this morning’s judgment which says that it “notes the High Court decision to grant Treasury Holdings, at this first stage of the proceedings, leave on certain limited grounds to seek a judicial review of the Agency’s decision to appoint receivers to certain property assets owned by Treasury Holdings and a number of related companies” and a NAMA spokesman said: “The Agency appointed receivers to certain assets owned by Treasury Holdings and a number of related companies because we believe that this is the course of action that is most likely to deliver the best financial return for the taxpayer. The receivers will remain in place pending the outcome of the judicial review”.

UPDATE (2): 22nd March 2012. The judgment is now available, see top of this blogpost for link. Treasury Holdings has issued the following statement “We are pleased that the High Court has found that we have raised “substantial” legal issues concerning our treatment by NAMA and has granted our application for leave to seek a Judicial Review.

We note that the one of the grounds on which the Judge made her order is that NAMA failed to take into account the availability of investors/purchasers for the loans.

A deal with such investors or purchasers is not only in our best interests; it will help economic recovery by allowing us to provide the type and quality of commercial accommodation necessary to satisfy the needs of job-creating Foreign Direct Investment projects which continue to be attracted to Ireland.

We are willing to engage with any proposal to secure the future of our company and its 400 employees. Any deal must satisfy the Government, its agencies and the taxpayer whose support over the last two years has helped us continue to operate and for which we are very grateful.”

UPDATE (3): 22nd March, 2012. This is the analysis of the 83-page judgment.

This appears to be a far more serious judgment than acknowledged by NAMA this morning when it claimed the judicial review was going ahead on “limited grounds”. First off, it seems that NAMA has cost the taxpayers by objecting to a so-called “telescoped” hearing in February which would have conflated the application for judicial review, with the hearing of arguments for and against the matters that Treasury said gave rise to their application for a judicial review. The Paddy McKillen case in October 2010 was telescoped, and the aim of combining both stages into one hearing is to save costs and delay. And NAMA objecting to the telescoping – Treasury didn’t object – means that there will be both additional delay AND cost to the taxpayer now that the judge has green-lighted the judicial review. NAMA might say it hoped to win its case in February 2012 but given that Treasury won on four out of five grounds, that claim, if made by NAMA, doesn’t seem to demonstrate good judgment.

Treasury won its case on four of the five grounds in its application (1) that NAMA is a state company making decisions (2) that developers whose interests will be affected by a NAMA decision have a right to be heard before the decision is made (3) that NAMA had not treated Treasury in a fair manner (4) NAMA had not taken into account relevant considerations when making a decision affecting Treasury. NAMA will be pleased that the judge found that it had not acted in bad faith or for improper purposes. But because Treasury won on the other four points, there will now be a judicial review at Treasury’s behest.

One of the particularly interesting points in the judgment was the judge’s opinion on Treasury’s right to be consulted even though Treasury is insolvent and might have naturally expected foreclosure action. The judge said that even though Treasury’s loans are in default, because Treasury had a signed Memorandum of Understanding and was pursuing a process to sign term sheets and that it was expected that there would be some repayment of the loans when the assets were sold, the judge held that in these specific circumstances, Treasury had a right to be consulted on any NAMA action that might significantly interfere with Treasury’s property. Interesting.

The gossip: NAMA was criticised for failing to produce the minute of the board meeting on 8th December 2011 in which the NAMA board decided to foreclose Treasury’s loans, and also NAMA was criticised for not being open in how the recommendation to foreclose was presented to the NAMA board. Separately the judge found that there was confusion as to the precise terms of the so-called “stand-still” agreement in January 2012 with NAMA saying that it gave its approval to the agreement based on Treasury’s offer not to contest any subsequent foreclosure action. NAMA come across as eejits for not getting a proper stand-still agreement drafted. Lastly Treasury is still receiving rents and management fees today, despite NAMA chairman Frank Daly’s recent claim that NAMA had taken control of all rent rolls.  And lastly there was an unreported judgment in the David Daly case last September 2011 which was referred to in this judgment today, and efforts will be made to get hold of, and report that David Daly judgment.

Next steps: the case comes back to the High Court next Tuesday 27th March 2012, and NAMA may seek security for any costs going forward but Treasury might contest that application. Treasury also now needs to decide what it wants to do, and if it should proceed with the judicial review.

UPDATE (4): 22nd March, 2012. Treasury has this afternoon released a longer- and some might say more political –  statement in response to this morning’s judgment. “We are pleased that the High Court has found that we have raised “substantial” legal issues concerning our treatment by NAMA and has granted our application for leave to seek a Judicial Review.

However our case is much broader than a legal one.

A central part of Treasury’s position is that:

– there is ongoing demand from home and abroad for high quality office accommodation in Ireland;

– the availability of this accommodation will help secure job-creating foreign direct investment;

– a number of significant players are already seeking such high-spec commercial accommodation here and more will do so in the short and medium-term;

– the absence of suitable accommodation, developed to meet client needs, will send this FDI elsewhere and the potential jobs will be lost to Ireland;

– to provide this accommodation Ireland needs a properly functioning and highly skilled property development and management sector;

As Ireland’s leading property investment company, with extensive operations across two continents, we believe we can play a significant part in Ireland’s path to full recovery because:

– Treasury Holdings remains Ireland’s leading property asset management and world class development company and, kept intact, can provide the skills required;

– there are a number of international investors willing to buy our loans from NAMA at a higher price than NAMA paid for them, effectively financing Treasury Holdings and allowing the property investment and development that Ireland needs to happen;

– two of these, Hines and Macquarie, have already made bids and there is scope through negotiation to improve on these, or to secure bids from others.

We note that one of the grounds on which the Judge made her order is that NAMA failed to take into account, as a relevant consideration, the availability of investors/purchasers for our loans.

A deal with such an investor or purchaser is not only in our best interests; it will help economic recovery by keeping intact Ireland’s leading property management and development company, allowing us to provide the type and quality of accommodation necessary to satisfy the needs of job-creating FDI projects which continue to be attracted to Ireland.

The Irish property market has recently suffered the most fundamental shock it has experienced in the history of the State. At Treasury Holdings we accept that there is a new reality. We accept and are grateful for the fact that we have continued to operate over the past two years with the support of the Government, its agencies and the taxpayer. We know that any arrangement that allows the company to continue and play a role in rebuilding the Irish economy must reflect that, and that the terms of any agreement must be designed to satisfy the Government, its agencies and taxpayers.

The full hearing of our legal case is likely to take place some months hence. In the meantime we are willing to engage with any proposal to secure the future for our company and its 400 employees.

We would like to take this opportunity to thank our many staff and other stakeholders for their tremendous support and patience during this difficult period.”

UPDATE: 29th March, 2012. The Irish Independent reports that NAMA “is to”, that is “future tense”, seek security for costs from Treasury in advance of the judicial review. The newspaper reports  that NAMA “may also” write to Treasury seeking a so-called “fortified undertaking” for damages should Treasury lose the judicial review.

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The last 24 hours has thrown up considerable drama inIreland’s efforts to secure a deal with the ECB so as to lighten the burden of the €30bn of promissory notes that were given to Anglo and INBS, and which are scheduled for repayment over the next 14 years, with a €3.1bn payment due by the end of next week.

Late yesterday afternoon, Dow Jones, without citing sources claimed “Friday, March 23: New deadline for exchange offer of Greek bonds under foreign law and bonds issued by state-owned companies. ECB may issue announcement of its approval ofIreland’s deferral of EUR3.1B in scheduled payment by this date”

Around tea-time, it was reported that governor of the Central Bank of Ireland, Patrick Honohan “would probably” attempt to get a deal with the ECB at the twice monthly governing council meeting which takes place today, though there was a dinner in Frankfurt last night, and it’s likely they confined their discussions to a critique of Riesling.

Just before 9pm last night, Minister for Finance Michael Noonan strode into the Dail chamber, and in a breach of protocol interrupted Private Members Business with an announcement that although “the details of an arrangement have still to be worked out”, there were now detailed discussions with the ECB with the proposal that “the €3.06 billion cash installment due from the Minister to IBRC on 31 March 2012 under the terms of the IBRC promissory note could be settled by the delivery of a long term Irish Government Bond”

Sources indicate the deal has been done, though it should be said that reporting today, for example by Laura Noonan in the Irish Independent, citing “informed sources”, claims the deal has “absolutely not” yet been done.

This is all bizarre because just a week ago, when asked about the negotiations by Deputy Shane Ross, there was a response from An Taoiseach Enda Kenny which included  “He should always remember the old Gaelic tongue was one of the prime languages ofEurope in ancient times. It has an old saying which is important for everyone to remember when negotiations are under way: Is binn béal ina thost.” So what has changed in the past week?

Difficult to know, but here is the deal as I understand it today.

22nd March 2012 position
Govt has given IBRC €30bn of promissory notes and there is an agreed schedule to pay IBRC for these notes with an instalment of €3.1bn due next week. The Govt pays 6-8% in interest per annum on the PNs but pays it to IBRC which we 100% own so we’ll eventually get that money back.
IBRC has €30bn of lending from the Central Bank of Ireland secured on the promissory notes

The deal
The Government will redeem the €30bn of promissory notes NOW, not with cash but with to-be-issued sovereign bonds..
It will give IBRC €30bn of sovereign bonds with an annual interest rate of 4% which are repayable in 2025
The Central Bank will continue to loan IBRC money on the strength of the new sovereign bonds

Why is it good
(1) The Govt avoids repaying the sovereign bond until 2025, so there will be no immediate €3.1bn annual payment
(2) The Govt pays 4% per annum interest to IBRC which we 100% own instead of 6-8%. Doesn’t make any difference in long term as we’re paying ourselves, but does in the short term.
(3) The ECB is giftingIrelandassistance with deferring the repayment of ELA – “Emergency Liquidity Assistance”, the term for the lending of newly-printed euros from the Central Bank ofIrelandto IBRC – to 2025. It was due to be repaid in annual instalments between now and 2025.

Why is it bad
(1) The ECB is concerned about the enforceability of the Promissory Notes and is worriedIrelandwill tell IBRC to get lost and thatIrelandwill renege on the Priomissory Notes in their entirety, for political or economic or legal reasons. The Promissory Notes come about through the guarantee in Sept 2008 and have “letters of comfort” from the late Brian Lenihan to Patrick Honohan but the ECB doesn’t want to expose itself to – ultimately – political risk, ofIrelandnot honouring the Promissory Notes. In other words, there exists the possibility forIrelandto tell the ECB to get lost for €30bn. That being the case, thenIrelandis getting a “gift” from the ECB in deferring the repayment of IBRC’s debt for 14 years, which at annual inflation of say 2.5%, knocks 30% off the cost of rescuing IBRC in real terms. That’s a huge reduction but not as good as a 100% reduction.

We await details of what is being proposed, and crucially we await an announcement from the ECB.

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