ANALYSIS:Developer says low thresholds on unpaid loans revealed banks' desire to attain business, writes COLM KEENA

IN AUGUST 2006, at the height of the Irish property bubble, Bank of Ireland and AIB agreed to a €277.6 million refinancing loan to Landmark Enterprises, the company behind the Beacon South Quarter development in Sandyford, Co Dublin.

Earlier this week, Mr Justice Peter Kelly in the Commercial Court expressed his surprise that the associated personal guarantees secured from the company’s principals were so constrained.

Paddy Shovlin gave a personal guarantee limited to €18.2 million. Brothers Patrick and Anthony Fitzpatrick gave guarantees for up to €9.1 million each. The guarantees were for approximately 13.5 per cent of the loan.

The three men later gave further guarantees in relation to another loan of approximately €13 million. In this instance the guarantees were limited to €6.8 million for Shovlin and €3.4 million each for the Fitzpatrick brothers.

Given the size of the loans, there can be little doubt they were signed off on by the board credit committees of the two banks involved. Apart from the guarantees, the banks’ recourse was otherwise limited to the development they were financing. In other words, they had faith in the market.

Yesterday, Shovlin agreed that the low thresholds on the loans was indicative of the banks’ desire at the time to get their hands on the business. “The banks were chasing loans at the time. With hindsight, we could have got the loans with no guarantees.”

In very rough terms the development, which involved retail, hotel and residential buildings, all designed to high quality, is about 80 per cent complete in physical terms, and about half finished in sales terms.

“They are still quality assets in a good location. Incomes can be generated.”

In May this year, Bank of Ireland, acting for both lenders, decided it should appoint a receiver to Landmark’s assets and to certain assets of the principals. Because it knew the loans would be going to the National Asset Management Agency (Nama), it sought that body’s approval.

Approval was sought on May 27th, and given on June 10th, the Commercial Court was told earlier this week. On July 2nd, a receiver, Simon Coyle of Mazars, was appointed. A week later the bank wrote to the three men seeking return of the money owed “but no proposals were forthcoming”, the court heard. On July 12th the loans were moved to Nama and, on August 3rd, Nama instructed that judgments should be sought.

The case against the three men by Nama is a first and a further 10 to 12 are expected over the coming months.

Shovlin said he and his partners had submitted a business plan for the project. He feels he and his team are the best placed people to maximise the possible return on the project.

“We are Irish people and we have worked here in property and business all our lives. I feel we have a real role to play in assisting in the recovery of Ireland.”

He does not believe it serves anyone to decide not to make use of “willing and experienced and able” people who had knowledge of the project concerned.

He said he had no criticism of Coyle, but the simple fact of appointing a receiver “destroyed value”.

Nama and Bank of Ireland have moved particularly quickly against Shovlin and the Fitzpatricks, but Shovlin said he did not know why this was the case. Asked whether it was because they wanted to get in before Ulster Bank, another creditor, he said he didn’t know.

Shovlin, who at one stage ran Blakes restaurant in Stillorgan, Co Dublin, said he started in business when aged 18. He started in trade but soon moved into property. Ten years ago, his operations employed 1,000 people. Just before the property crash, he and financier Derek Quinlan led a group of investors which bought the Bank of Ireland headquarters on Baggot Street, Dublin, for €200 million.

Asked how it felt to be involved in projects worth hundreds of millions of euro and then see it all fall apart, he said money was important but that it was also just a measure of success.

His father was a policeman. He had not grown up in a position of privilege. “We earned our way, built our businesses, and we will do so again.” He said a project can be worth €1 million or €100 million – the issue was whether you were doing something that you enjoyed and that had quality.

“I want to develop businesses again but I want to do so in Ireland. I want my children to grow up to be proud entrepreneurs in Ireland.”