Thanks to Minister for Finance, Michael Noonan unilaterally agreeing to a new term in the Memorandum of Understanding with the bailout Troika in May 2012, it is now a condition of our bailout that NAMA redeem €7.5bn of its bonds by the end of 2013.
Remember NAMA acquired €74bn of loans from the banks and paid for those loans with IOUs, or NAMA bonds which were worth €32bn. About €2bn of the IOUs will only have to be honoured by NAMA if NAMA makes un ultimate profit by 2020, but the rest, the €30bn of NAMA bonds have to be redeemed or paid off by NAMA before 2020. NAMA has an informal schedule of when it expects to pay off these bonds, but in May 2012, Minister Noonan took the extraordinary step of putting the first step in that schedule, the repayment of €7.5bn of the bonds by the end of 2013, into the Troika’s Memorandum of Understanding. Unilaterally, that is, without anything obvious in return from the Troika.
Today, NAMA has announced that it has redeemed €1.5bn of these bonds which brings to a cumulative total of €4.75bn of bonds redeemed against a target of €7.5bn by the end of 2013. As NAMA has been selling off overseas property and loans in bucketloads, it shouldn’t come as a surprise that NAMA is able to pay off bonds now. But let’s have some seasonal spirit and at least be grateful that NAMA has the wherewithal to redeem €4.75bn of bonds. If NAMA had been a complete disaster, then not only might it not have the funds to redeem bonds, but it might have been coming with the begging bowl for a bailout – let’s be thankful for small mercies.
In addition to redeeming €4.75bn of NAMA bonds to date, the Agency also managed to pay back an early loan from the Government of €250m, plus €49m of seed capital which was subsequently reclassified as a loan.
The NAMA chairman, Frank Daly had this to say about today’s announcement “Following today’s redemption and the prospect of a strong cash performance being sustained during the coming year, we are confident that we will meet our target of repaying €7.5 billion of Senior Bonds by the end of 2013”
Again, let’s have some seasonal spirit, but also bear in mind that the NAMA bonds cost NAMA a little over 0.75% in interest per annum – in other words, they are an ultra-cheap source of finance. And you might wonder if the cash used to redeem the bonds today might have been more usefully, and profitably, deployed in the economy – as long as NAMA covered its financing cost and had its money back by 2020 as agreed with the European Commission, then everyone could be a winner. Instead, what has happened is that NAMA has paid €4.75bn to the banks to redeem their IOUs, and the banks have repaid loans they received from the ECB secured on the NAMA bonds.