ANALYSIS: DAY ONE of the High Court case between Paddy McKillen and the National Asset Management Agency has given a rare glimpse into the workings of this secretive and powerful State body.
In a fascinating disclosure, McKillen’s side said the only record of Nama’s decision to take in €2.1 billion of his loans was a spreadsheet with the agency adding the word “disagree” to the banks’ view that he was not eligible for the agency.
This was “truly extraordinary” and “poor administration”, his counsel said, showing there had been “no qualitative assessment” of whether he was eligible.
The banks said he had no land and development loans – the worst loans across the banks which led the Government to set up Nama last year – but mostly performing prime investment properties.
The Belfast-born businessman – who prefers to be described as a property investor rather than as a developer – is trying to prevent the transfer of his loans to Nama.
In this case – which the State says represents a very real threat to Nama – McKillen is claiming that the Nama legislation damages his constitutional right to fair procedures and his business. He claims that he cannot refinance his loans – a regular part of his business – due to his guilt-by-association with a “bad bank” buying €73 billion in mostly toxic loans.
A scan of the cast of characters and vast paperwork in Court Four says everything about just how seriously this case is being taken.
The action is being heard by the president of the High Court, Mr Justice Nicholas Kearns, sitting in a three-judge division of the court with two of the most senior commercial judges, Mr Justice Peter Kelly and Mr Justice Frank Clarke.
In front of them are three senior counsel on each side. For the defence is Attorney General Paul Gallagher SC, the main author of the Nama legislation. It is highly unusual for the Attorney General to lead the State’s defence in a case.
McKillen’s team claim his position is “either unique or virtually unique” as he’s repaying his loans. While he has loans of €2.1 billion, the 62 properties supporting them in Ireland, the UK, France and the US are worth between €1.7 billion (based on valuations secured by Nama) and €2.8 billion (based on valuations obtained by McKillen). The properties are 96 per cent let mostly to “blue chip” tenants on 25-year leases and rental income covers 1.7 times the interest due. While McKillen may be in breach of some loan agreements and some loans have expired, this doesn’t threaten his loan repayments, his counsel said.
The agency claims he is also in breach of some loan deals based on the value of the loans to the properties, and on the level of income covering the loan interest.
This is the difficulty in a property market where there are few buyers – assets vary in value and can trigger loan defaults, depending on the value assigned.
Nama argues that McKillen has a heavy exposure to the property market – in the order of about €899 million. He argues that in those properties are solid businesses paying rent that allows him to meet his repayments fully.
The agency claims that Mr McKillen has drawn loans of €251 million on his 50 per cent interest in the Jervis shopping centre in Dublin, which was valued at €118 million in November 2009, leaving Anglo Irish Bank “under-secured” on its loans.
The agency argues that McKillen is an impaired borrower – a claim he disputes. It claims that loans at Bank of Ireland and Anglo expired between August 2009 and March 2010 and have yet to be repaid.
Once again the financial health of a heavily indebted borrower with vast property interests will be assessed in court, but this time a key part of the Government’s bank rescue plan is also under scrutiny.