Nama officials deny report that investors were discouraged from Project Eagle sale

Nama has denied that some potential investors were discouraged from participating in the controversial £1.3bn (€1.6bn) sale of its Northern Ireland loan book, known as Project Eagle, writes Daniel McConnell of the Irish Examiner.

Nama officials deny report that investors were discouraged from Project Eagle sale

Nama has denied that some potential investors were discouraged from participating in the controversial £1.3bn (€1.6bn) sale of its Northern Ireland loan book, known as Project Eagle, writes Daniel McConnell of the Irish Examiner.

Appearing before the Public Accounts Committee (PAC), Nama officials said that following a board decision to market Project Eagle, in February 2014, six potential bidders signed Non-Disclosure Agreements permitting them access to portfolio information.

Nama is under fire over the sale of the Northern loan book to US firm Cerberus and the agency had already decided to sell to Cerberus before it learned of a potential conflict of interest involving the successful bidder and two law firms, a report found last month.

The report by Comptroller and Auditor General (C&AG) Séamus McCarthy criticised Nama’s sale of the Project Eagle loans to Cerberus in April 2014 for £1.3 billion on the grounds it could have earned £190 million extra for the State and for failing to recognise the impact that a conflict of interest could have had on the sale.

Comptroller and Auditor General Séamus McCarthy.
Comptroller and Auditor General Séamus McCarthy.

Nama strongly disagreed with the C&AG report.

At the Committee today, Nama officials were pressed at length as to the logistics as to how the process took place.

As is normal in loan sales, documents were uploaded to a data room throughout the process.

The committee heard that the six potential bidders admitted to the data room were PIMCO, Oaktree, Cerberus, Lone Star, Goldman Sachs and Fortress.

The only distinction between PIMCO and the other five bidders in the data room was that PIMCO had already seen November 2009 redacted red book valuation reports for the top 55 properties in late 2013. “We don’t consider that to have been a material advantage,” Nama’s John Collison told committee members.

He added that on foot of the Nama Board’s decision to market the portfolio, Lazard was appointed in January 2014 as the loan sale broker to identify all other credible bidders and to manage the sales process.

He said from the start Nama was clear to PIMCO, who wanted a closed deal, that the agency’s preferred method was an open market deal. “We were upfront from the start but they were quite disappointed,” he added.

Based on detailed bidder engagement, Lazard confirmed to NAMA that all potentially credible bidders were given the opportunity to participate in the sales process, Collison told members.

Collison said: "Lazard worked with NAMA and our external legal advisers to design and populate the commercial and legal sections of the data room and decide on the detailed process."

He said final bids were received on 1 April 2014 and Lazard evaluated the bids received from Fortress and Cerberus and recommended the latter’s bid to the Board.

Lazard confirmed to the Board that there was sufficient competitive tension in the process until the receipt of the bids, and that the process was appropriate for a transaction of its nature.

“Based on Lazard’s advice we recommended to the NAMA Board that it accept the bid from Cerberus to achieve a combined £1.322 billon for Project Eagle,” Mr Collison told committee members.

NAMA’s engagement with Northern Ireland debtors had been difficult. Progress on sales had been poor – only £112m of NI asset sales and loan redemptions had been achieved between 2010 and 2013, Mr Collison told committee members.

Nama said the gross cash flows arising from the Eagle loans amounted to £1.675m. The C&AG’s report has discounted these cash flows at a discount rate of 5.5% and has produced a net value of £1.489m.

However, Mr Collison said that this is not in line with the fair value methodology that was used in preparing information required as part of the end-2012 and end-2013 NAMA Financial Statements, both of which were certified by the C&AG.

“The fair value methodology for the 2012 accounts agreed with the C&AG was based on a discount rate of 10% and, had this fair value discount rate been applied to the Eagle portfolio, the NPV would have been £1,365m. This was the prevailing fair value discount rate that applied at the time that the sale of the Eagle portfolio was being considered by NAMA in Q4 of 2013,” he said.

“The fair value methodology adopted in the 2013 accounts involved the application of a discount rate of 5.5% for cashflows arising in the period 2014-2016 and a rate of 10% for cash flows arising during the period from 2017 to 2020 (“the blended portfolio rate”),” he added.

“However, the blended portfolio ‘fair value’ rate would not, in our view, have been appropriate for the Eagle loans given the particular characteristics of that portfolio the Eagle portfolio carried higher risk and would therefore have warranted a discount rate higher than the blended portfolio rate, and indeed higher than the 10% fair value rate used in 2012, in order to derive its fair value,” Mr Collison continued.

The hearing continues.

This article first appeared in the Irish Examiner.

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