NAMA defends Project Eagle sale process at PAC hearing

NAMA chairman Frank Daly defended claims this morning by Sinn Féin’s Mary Lou McDonald at the Irish Parliament’s Public Accounts Committee (PAC) that the sale process of the Project Eagle Northern Ireland loan portfolio was corrupted and lacked competitive tension.

NAMA logoIn a heated exchange between McDonald and Daly this lunchtime , McDonald explored the role of Frank Cushnahan, a former NAMA Northern Ireland advisor, in relation to his advice to PIMCO in the investment firm’s bid for Project Eagle.

PIMCO’s bid collapsed after NAMA was told about a £5m arrangement for Mr Cushnahan was due in the event of the purchase of the Northern Irish loans. Cushnahan has denied any wrongdoing.

Daly said this lunchtime: “It needs to be put on the record that NAMA had absolutely no knowledge whatsoever of Mr Cushnahan’s involvement with PIMCO until PIMCO came to us on, I think, the 10th of March 2014 and told us about it.. and the Board met.. and within two days, a day and a half, PIMCO had exited the process.”

McDonald responded: “I have to say, for the record, I don’t accept your account, your ‘I know nothing approach’ in respect of Mr Cushnahan and the clear conflict of interest that represents. And I think you have failed, you have failed NAMA, and you have failed the Northern Committee of NAMA of which you are in charge.”

Daly replied: “Just for the record, I do not accept that.”

Earlier, in his opening statement to the PAC, Daly said: “Let me make it very clear that no pressure from any source, North or South, political or otherwise, influenced NAMA in regard to the commercial decision to sell the loans of NAMA’s Northern Ireland debtors or influenced the decision to accept the winning bid from Cerberus.

“All decisions were made, as is correct and proper, by the NAMA Board.

Daly insisted that the loan sales process for Project Eagle was conducted “in line with best international practice” and was independently overseen by Lazard.

Furthermore, that the said the sale to Cerberus for £1.3bn provided “was well-managed and competitive” providing “the best financial outcome for Irish taxpayers, taking into account the quality of assets.. [and] the lack of liquidity in the [Northern Ireland] property market”.

McDonald challenged Daly’s positon, stating: “The ‘well-managed, competitive process’ involved, first preferred bidder, PIMCO, with Mr Cushnahan in tow, being excluded from the process because they came forward – and let’s give them credit for it – to blow the whistle and tell you that there was ‘funny business’ going on, in other words requests for payloa. They say that and they are excluded from the process.”

Thereafter there were two players left on the field, Cerberus and Fortress.  Brendan McDonagh, chief executive of NAMA confirmed to the PAC that the reserve price for Project Eagle – set in January 2014 – was £1.3bn.

McDonagh stated that Fortress bid “just less than £1.1bn” and Cerberus “justly slightly ahead” of £1.3bn, on a sales-adjusted basis.

McDonald said to Daly: “Your rationale was that a ‘competitive tension still existed that would allow in the final analysis the best return for the taxpayer’. Looking at those figures, I do not see the evidence for that.”

McDonald characterised the sales process as having become “corrupted”.

Daly replied: “I believe there was competitive tension here. It is not just I believe it, and the Board of NAMA believes it, but Lazards, who were our corporate finance advisers on this and they are a very well respected London merchant bank and made a recommendation on the basis that there was – right to the end – competitive tension in this bid.

“And I do not accept, Deputy, in your labelling of this whole process as corrupt. On the sales side of this I absolutely stand over the integrity of the process.”

The UK’s National Crime Agency (NCA) investigation into the sale of Project Eagle loan book to Cerberus centres on alleged misappropriation of funds paid by Cerberus’ law firm Brown Rudnick to a local firm in Northern Ireland, Tughans.

Daly also confirmed to the PAC that the UK’s National Crime Agency “is not in any way concerned” with NAMA’s role in the sale of Project Eagle.

In his opening statement, Daly said: “The chief executive and I met the UK’s National Crime Agency some weeks ago and provided them with an overview of NAMA and the chronology around the sale of Eagle.

“It is our clear understanding, based on that engagement, that their investigation is not in any way concerned with the NAMA sale side of the transaction.”

Last month, the Financial Times reported that the inquiry took on a transatlantic dimension with the Department of Justice (DoJ) in the US having sent a subpoena for information to Cerberus.

Cerberus has also denied any wrongdoing and has stated that the firm “has not been accused of any wrongdoing and has welcomed any inquiry associated with the acquisition of the Project Eagle portfolio”.

Daly also highlighted certain media reports that were “without foundation” and criticised commentators who have remained silent on “implausible” claims.

He took aim at Deputy Mick Wallace’s allegations and comments about the Project Eagle loan sale, made under Dail privilege.

Deputy Mick Wallace claimed that Cerberus or some ‘fixers’ went to some of the major Northern Ireland debtors prior to the sale of the portfolio and offered to sell them back their loans for 50 pence in the pound.

He went on to imply that, having bought the loans from NAMA at 27 pence in the pound, Cerberus were then able to sell the loans at twice what they paid for them.

Daly responded in his opening statement at the PAC hearing: “This is a serious misrepresentation of the facts. Cerberus bought the Eagle portfolio at a price which corresponded to an average of 27% of its par value.

“The price that we achieved was based on the aggregate value of the properties securing the portfolio. Neither Cerberus nor any other bidder would ever pay the par value for the loans unless the underlying assets were worth at least as much as the loan par value.

“It stretches credulity to suggest that Northern Irish (or indeed any other debtors) and their new investors or bankers would have paid 50 pence to buy back assets which were worth only 27 pence. Some of the commentary over the past week has been written by commentators who have been silent on this point but know very well how implausible it is or, at the very least, ought to know.”

Deputy Wallace then goes on to ask why NAMA could not have negotiated with debtors to secure 50% of the loans’ par value as, he claims, was achieved by Cerberus.

Daly replied: “Aside from the implausibility of the claim that Cerberus was in a position to sell its whole Eagle portfolio at 50% of par value, there was nothing to prevent Cerberus or any other buyer once they had bought the portfolio from negotiating deals with debtors which would have involved the debtors buying the loans at a discount to par.

“Some loans may have been worth 50% of par value but many others were worth much less. The Deputy asks why NAMA could not negotiate such deals. The answer is straightforward: Section 172 of the NAMA Act prohibits us from so doing.”

“It is difficult for NAMA or indeed any organisation to properly address allegations where such allegations are vague or implausible and where no evidence is produced to support them,” Daly added.

Separately, NAMA confirmed today it expects to generate a surplus of €1.75bn in the lifespan of the bad bank, which would reflect in the upper range of previous guidance.

Furthermore, NAMA reported that it was “well on its way” towards achieving its primary objective of redeeming close to €32bn of senior and subordinated debt.

“I believe that repayment of senior and sub debt and generating a surplus will be recognised in time as a significant achievement in very difficult circumstances,” Daly’s opening statement concluded.

About CoStar News

Finance Editor, CoStar News
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