O’Flynn back in business but fight not yet over

The brothers still face a battle to retain control of their building firm, writes Conor Ryan

JUST three months ago, Nama proudly announced the first of its Celtic Cubs had been nursed back to health and could be released into the wild.

For four years, €1.8bn worth of loans linked to the O’Flynn Group had convalesced in the care of the State’s bad bank.

By February 2013, the prospects were good enough to negotiate a restructuring agreement that gave Nama more security and the Ballincollig-based O’Flynn Group a path to recovery.

Then, in May, these loans got bundled up and sold for €1.1bn to one of the world’s leading private equity firms.

“We are very pleased to have completed this transaction,” Nama’s chief executive Brendan McDonagh said once the deal called Project Tower was closed.

It took less than 11 weeks for Nama to realise its cub looked to be encircled by predators.

This summer the buyer, Blackstone, pored over the same loan book, the same underlying assets, the same business plan, the same personalities and the same economic conditions.

It was the same O’Flynn Group, ultimately owned by a vehicle in the British Virgin Islands, as it was on May 10.

Yet while Nama viewed the O’Flynn group as a project worth nursing and funding back to its feet, Blackstone claimed the shareholders, Michael and John O’Flynn, had not been cooperative and the prospects for the group were better if it was divorced from the two Cork brothers.

Michael O’Flynn, the man who helped the Construction Industry Federation make its case to the government ahead of the creation of Nama, had built an empire that stretched from Ballincollig, west of Cork City, to Europe’s major cities.

The group had developed Cork’s tallest building, the Elysian, and while in Nama had secured €57m to complete a high-rise developments in London.

When his €1.8bn loan book was sold to Blackstone, the company managing the deal said 16% was performing but 56%, linked to properties in Ireland, was not performing.

Critically, Michael O’Flynn also had €23m worth of personal loans linked to his own investments including his racehorses.

The restructured terms of these loans were such that the lender could call them in at any time, whether they were being serviced properly or not.

When Blackstone bought the loans, it also acquired this power.

On July 29, Carbon Finance, an offshoot of Blackstone, requested payment of the personal loans.

It came after the O’Flynn Group and Blackstone had been disputing the validity of the management agreement which had been in place with Nama.

The personal loans, although they represented just 1.2% of the total debt on the table, were the weak link. They were taken on by Mr O’Flynn in early 2013 to seal the restructuring agreement.

Confronted by a default on personal loans, Carbon Finance said it could appoint receivers to Mr O’Flynn’s shareholding in the parent company on the British Virgin Islands, Colebridge.

It was not this act that mattered but its consequences.

Once a receiver was installed to that company, Carbon Finance said it broke the conditions of the larger loan book and put the entire O’Flynn Group, comprised of more than 80 companies, into default.

Within hours of making its claim Carbon Finance took the opportunity to appoint receivers and to then apply for the court to appoint an interim examiner on the grounds the group was insolvent.

Mr O’Flynn said he was shocked by the aggressive move. In any battle, it is always easier to fight to hold a vantage point then it is to retake it. He had just been ousted.

For the last two weeks, he reared up on the fringes for long enough to survive.

He applied for the examiner to be removed, because he believed Carbon Finance had not disclosed relevant details to the court, and he also looked for an order to declare the calling in of his loans was invalid.

Mr O’Flynn may have been shocked but he convinced the courts he deserved more time.

On Tuesday evening, he released a statement to say that he had secured €25m in finance to pay off €16m of personal loans which were demanded last month and the remainder of his non-business debt due to Carbon Finance Ltd.

This was a dramatic step and one which, for the moment, appeared not to have been necessary.

In court yesterday, Ms Justice Mary Irvine ousted the receivers and called off the examiner.

She said Carbon had not acted in the upmost good faith and had not brought all relevant information to the court in making its application.

There were a number of serious issues to be teased out at a full trial and she put Mr O’Flynn back at his post until at least October.

After yesterday’s judgment, Blackstone’s Carbon Finance was forced to pull back and consider its position.

But it was signalled that once it regrouped, and got the money Mr O’Flynn promised, it would be back to try again.

“Carbon continues to believe that all steps taken in the current proceedings were necessary and appropriate in the circumstances and is pleased to note Michael O’Flynn’s decision to make an immediate repayment of his personal loans, which it looks forward to receiving,” it said.

Mr O’Flynn said he just wanted to get back to business and try to work with Blackstone rather than have to fight it off.

“We didn’t expect the attack on us. It came out of the blue. We defended it. The court has upheld our situation. Obviously it is back to business and obviously that includes doing business with our main lender,” he said.