C&AG report: Bulk sale was a major shift in usual strategy

Nama’s decision to sell its Northern Ireland portfolio in bulk represented “a significant shift” in its usual strategy.

According to the Comptroller & Auditor General (C&AG), there was “no indication” that Nama had considered a bulk sale of its Northern Ireland assets until US law firm Brown Rudnick wrote on behalf of US investment fund Pimco in June 2013 proposing a short and exclusive sales process.

It found that, despite such a sale being a “significant shift in Nama’s strategy” and one which gave rise to a number of project risks, Nama “did not seek any external expert advice in relation to the strategy”.

The C&AG said the decision to sell the loans at a minimum price of €1.3bn “involved a significant probably loss to the State” of up to €190m.

Nama has said it “strongly rejects” this view.

However, the report stresses that it “draws no conclusion” on Nama’s decision to sell the portfolio in bulk.

The C&AG examined Nama’s three bases for valuing the Project Eagle loans and found that two of the valuations underestimated the value of the loans, while, in the third case, no valuation was made.

It also queried the process used by Nama during the sale process — stating it differed from its other large loan sale competitions.

“The restrictions Nama implemented, relative to its standard process, reduced both the level of competition and the opportunity for potential bidders to assess the value of the portfolio. They acted as a deterrent for a number of bidders and had the potential to affect the price achievable,” said the report.

On March 12, 2014, Pimco withdrew from the sales process having informed Nama of a proposed success fee arrangement involving Brown Rudnick, a Belfast law firm called Tughans, and a former member of Nama’s Northern Ireland advisory committee (NIAC), Frank Cushnahan.

This left just two firms — Cerberus and Fortress — in the competition, and both subsequently submitted bids.

Cerberus bid £1.241bn — £11m higher than the revised minimum price — and Fortress bid £1.075bn — £155m below the revised minimum. The Cerberus bid was accepted.

The report also pointed out that Mr Cusnahan had declared his involvement as an adviser to six Nama debtors and to a third party engaged in a joint venture with a seventh debtor. The loans of the six debtors represented about half the value of the Northern Ireland loan book.

“The Nama board should have formally considered whether Mr Cushnahan’s engagement in discussion of the strategy — including the PIMCO/Brown Rudnick approach — was consistent with his ongoing involvement as financial advisor to a significant proportion of Nama’s Northern Ireland debtor connections,” said the report.

Nama “categorically rejected” the key conclusions.

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