Archive for January 27th, 2013

Although there is divided opinion amongst this blog’s audience on the performance of NAMA’s most senior property man, John Mulcahy, the view on here, for what it is worth, of John’s performance is positive. John may be approaching normal retirement age, but in a country where the Minister for Finance is touching 70 and one of the Public Interest Directors at Permanent TSB is touching 75, NAMA’s Head of Asset Management and Board member might be considered a mere spring chicken. He has a whole lifetime of property experience under his belt, and his performance in a London court last year in the Paddy McKillen case was nothing short of sublime – he knows his job.

On the other hand, he may well be criticized for failing to anticipate the continuing decline in Irish property prices from 2009 onwards. Remember then-finance minister, the late Brian Lenihan’s assertion we were close to the bottom? That was widely believed to be based on conversations with, and input from, our friend John. And although it wouldn’t have helped the overall cost of the bank bailout to the State, if NAMA had changed its valuation date from 30th November 2009 when it became clear prices were still declining, then NAMA wouldn’t be starting its asset management life with a massive handicap in having overpaid for its loans.

There is one other specific position adopted by John which is baffling on here. John says that the maximum you can recover on any loan is the par value of the loan. The position on here is that is rubbish.

Take the Maybourne loans which NAMA sold to the Barclay brothers’ Maybourne Finance Limited in September 2011. It is believed that NAMA received the par value of the loans, about €800m and that NAMA made a small profit on the transaction because NAMA had bought the loans at a small discount from the banks. NAMA was happy and claimed that €800m was the maximum it could have achieved – that may be correct given the publicized alternative offers but the principle that no-one would pay more than the par-value of the loans is not sound. A special purchaser like the Barclay brothers who are using the loans as a plank in their not-so-secret plans to take control of the Maybourne hotels, might have paid a premium for the loans on top of their par-value. NAMA has never convincingly addressed that argument.

And today, we pose a related question to NAMA. Derek Quinlan is a NAMA Top 10 developer who is understood to owe the Agency more than his assets are worth, and in the McKillen court case last year, it emerged the Barclay brothers were providing substantial sums to fund Derek. We don’t know Derek Quinlan’s precise financial position, so the proposition that he is insolvent is based on sources such as this issue of the British satirical magazine, Private Eye – not available online without subscription – which the Sunday Independent reviews today.

Why not bankrupt Derek Quinlan who nominally owns 36% of Maybourne?

If that were to happen, it would trigger the disposal of Derek’s shares and the most likely buyers would be Paddy McKillen or the Barclay brothers – both special purchasers. Paddy says he stands ready to buy any Maybourne shares that become available and given Paddy already owns 36% of the group, if he obtained his pro-rata share of Derek’s 36% then Paddy would end up with 56% of the group with the Barclays owning the remaining 44%, on the likely assumption that they too, would take up any shares that became available. Paddy would have de facto control, or would at least be in the driving seat.

So how much would the Barclays pay NAMA not to bankrupt Derek today? Given the enterprise value of the Maybourne group of well over €1bn, would Derek’s non-bankruptcy be worth €50m? €100m? The question might be flipped and posed in a different way, how much would it be worth to Paddy McKillen for NAMA to bankrupt Derek.

This is all very cut-throat stuff, and it is questionable if NAMA has the steel in its soul to pursue such a  plan. NAMA itself has come under intense pressure from the Barclays in the past, and the revelation last year by a Barclays’ man of the message from a NAMA employee to the Barclays about another offer certainly embarrassed the Agency. But NAMA has also clashed with Paddy McKillen in Ireland’s courts and came off with a draw that was really a win for the Belfast developer and businessman. But NAMA should remember that bankrupting Derek Quinlan might only have time-limited benefits and the Barclays may dream up other machinations which might render moot, Derek’s bankruptcy.

[The next round in the marathon legal battle between Paddy McKillen and the Barclay brothers kicks off in London’s appeal court on Monday week, 4th February 2013. Paddy comprehensively lost his case at the London High Court last year when he tried to get a declaration that NAMA’s sale of loans to the Barclays was unlawful, as were the actions of the Barclay brothers. Paddy faces a €25m legal bill from that failed action, but is understood to have paid some of that bill. If Paddy were to win at the appeal court, then some of those costs could disappear. Paddy has recently met his full allocation of a rights issue forced on the Maybourne group by the Barclays, and just on Friday last, the scrappy Paddy launched legal action against Maybourne Finance Limited in Dublin’s High Court – it is believed to be a libel action]


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