The Chairman and Chief Executive of the National Asset Management Agency (NAMA) have this morning separately addressed breakfast meetings of the Cork Chamber of Commerce (addressed by Chairman Frank Daly) and the Association of Chartered Certified Accountants in Dublin (addressed by CEO Brendan McDonagh).

At the presentations, the two made the following key points:

Provision of finance for Residential and Commercial property transactions

The agency has identified a “key impediment” to residential sales in the current market as “a concern on the part of many debtors that prices could fall further and that, after purchasing, they could therefore find themselves in a position of negative equity for a long time to come.”

With this in mind, NAMA has had “preliminary” discussions with AIB and Bank of Ireland as to how they and the agency may be able to provide financial support to purchasers of residential properties linked to the Agency or its debtors. The agency expects to have “a more detailed engagement” with them on this issue over the coming weeks.
 
The agency hopes to be able to unveil a product for purchasers of residential properties with the two banks in the autumn which meets the following key criteria; [1] generates sales of property controlled either by NAMA debtors or by receivers, [2] provides an incentive to purchasers to invest at current prices in the knowledge that there will be a mechanism in place which will offer them protection against the risk of negative equity in the future.

Commercial Property

In terms of Commercial Property, the agency was specifically looking at ways to provide “debt finance to purchasers of commercial property which is either under the control of NAMA debtors or of receivers engaged [either directly or indirectly] by the agency”.

This type of financing is known as “vendor\staple financing”. It is widely used internationally and it requires the purchaser to inject “equity capital” of 25% or 30% of the purchase price of the asset upfront while entering into a loan agreement with NAMA to repay the outstanding percentage of the purchase price over a five or seven year period. The agency expects that it would typically engage with such financing arrangements with sovereign wealth funds, pension funds, insurance companies and private equity firms.

Advantages include the fact that the mechanism encourages purchasers to buy in a distressed market thereby setting a floor for the market with both parties sharing the risk on the purchase over the lifetime of the loan. The mechanism is typically used to finance commercial investment type assets which are income producing [offices, shopping centres etc] rather than land or unfinished buildings.

In respect of Commercial Property again, the speeches made clear that the agency is seeing “tentative evidence to suggest that we may be close to the bottom of the cycle in Ireland”. Specific reference to this was made as follows; “Taking account of the long-term relationship between commercial property prices and economic growth, we know that for much of the past decade, prices had accelerated well ahead of GDP growth and that they have now corrected to levels where we would have expended them to be had the price bubble not taken place. There are a number of other indicators which suggest a stabilisation of prices including the reversion of office and retail yields back to pre-bubble levels.”

In this area the agency continues to see “a lot of interest from international professional investors who have a more long-term performance horizon in mind and who are interested in acquiring strong income-producing assets which will provide a steady return over time.”

The issue of NAMA openness and transparency

Both speeches made the point that NAMA’s attitude to debtor confidentiality is defined by the legislation which set up the agency – rather than any policy decision of the agency. Specifically the two speeches pointed out that NAMA is prohibited under Section 202 of the Act from disclosing confidential information which is defined as including information relating to debtors. Furthermore, Section 99 of the Act provides that, on acquisition of a loan, NAMA takes over the legal obligations of the participating institution under the loan, one of which is the contractual duty of confidentiality which the debtor enjoyed while still a customer of the participating institution.

For these reasons, NAMA considers that the agency is bound not to disclose details about debtors as to do so would leave it open to litigation. Information about individual debtors or guarantors is also protected against disclosure by the Data Protection Acts with which NAMA must comply as a data controller.

The two presentations made the point that a change in the law would be required to enable NAMA to disclose information about a debtor. The Chairman and Chief Executive made the point however that “even if the law were to be changed, there is still no certainty that the amended legislation would survive constitutional challenge if a debtor initiated proceedings to protect what he /she perceived to be his right to confidentiality and to privacy.” However, this is a matter which will be determined by others and not NAMA. 4

Approved Sales to date

In the two presentations, it was confirmed that NAMA has to date approved the sale of an estimated €3.3 billion in property assets [since 1 March 2010] held by debtors with the majority of it in the UK. Some of the proceeds of these sales were used to pay down debts to participating institutions or to non-NAMA banks where they had co-lent on developments.

It was also confirmed that the agency has now approved close to €800m in new money advances to enable projects which are commercially viable to be completed or otherwise to protect and enhance its value.

NAMA has currently €1.2 billion in cash balances after redeeming €250m of NAMA Senior debt and repaying the Minister for Finance €299m of working capital he provided to NAMA in mid 2010.

Consultation

Speaking in Dublin, Brendan McDonagh, announced that the agency will shortly be writing to the CCABI (umbrella group of accounting bodies in Ireland) with a view to forming a small NAMA liaison group which will include representatives of all the accounting bodies which will engage with NAMA on general rather than individual issues of mutual interest. It is important that it is not a lobby group as that is prohibited and is an offence under section 221 of the NAMA Act. Mr. McDonagh said that the CCABI NAMA liaison group “should generate better understanding amongst the wider accounting profession” of NAMA. McDonagh said; “I stress that it is of utmost importance to NAMA and to the CCABI that those suggested by the CCABI to be part of the NAMA liaison group are in no way compromised by virtue of their position as a NAMA debtor or otherwise.”

Appointment of Receivers

Finally, in respect of debtors, Mr. Daly and Mr. McDonagh made the following point; “NAMA is very much focused on our engagement with debtors; and [we] are pleased to say that that engagement to date has, for the most part, been constructive. Most debtors have faced up to the scale of their losses, realise that there is a bumpy road ahead and are willing to make the necessary sacrifices and work their way out of difficulty and we want to help them to survive.”

“Regrettably, in a total of 57 cases to date, we have been left with no choice but to enforce against debtors or to approve enforcement action by the participating institutions. In these cases, debtors have been unable to demonstrate long-term viability because of the unmanageable scale of their liabilities by reference to their financial or managerial resources.”

“In a minority of cases, business difficulties have been compounded by a failure to engage fully with the process. A number of debtors appear to be trapped in the old mindset whereby it is they and not the lender who sets the terms on which business is done.” Speaking to those debtors directly the two speeches said; “NAMA has and will enforce against such debtors”

Finally, both Mr. Daly and Mr. McDonagh urged debtors to be realistic and meet NAMA half way as that was the optimal outcome for all parties and for the citizens of the State.

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