Dáil Éireann Debate, Thursday - 22 September 2011
75 Deputy Michael McGrath asked the Minister for Finance if he approves of the incentivisation arrangements the National Asset Management Agency is entering with developers whereby NAMA allows developers to share in any additional return or profit beyond the amount NAMA has paid for the developer’s loan plus an allowance for NAMA’s expenses; and if he will make a statement on the matter. [25505/11]
View answerThe National Asset Management Agency has been established as a body corporate and is independent in the performance of its functions under the National Asset Management Agency Act 2009. NAMA has a Board of Directors and a commercial remit under the legislation to manage its portfolio of over €70 billion and it has to consider, on a case-by-case basis, the overhead costs associated with leaving a debtor in place to manage his business at an agreed salary level versus the commercial alternative of appointing an insolvency expert.
The Chairman of NAMA recently explained that the agency is regularly faced with having to make difficult choices between working with a developer on his loans or foreclosing through the appointment of a receiver. The agency is charged with maximising the commercial return to the taxpayer — its job is to make the highest amount it can on the loans it is handling. In each case, the option selected by NAMA is that which is likely to generate the higher return for the taxpayer.
The following incentivisation example has been provided to me by NAMA. Where NAMA has paid €50m for a debtor's loans which aggregate to €100m nominal value, NAMA might set a minimum repayment target of €55m for the debtor. If, say, by year 7, the debtor reaches that minimum repayment target, an incentive arrangement will apply whereby thereafter, the debtor will be allowed to retain 10% of any excess sum realised. If a total of €60m is realized, therefore, this is an excess of €5m over the minimum target and the debtor retains €500,000. In such a case NAMA's profit will be €9.5m over the amount paid for the debtor's loans. This of course is an example and different repayment targets will apply to different borrowers depending on the particular circumstances of each case. It should be noted that the key factor in determining what NAMA pays for any debtor's aggregate debt is the current market value of the underlying property securing that debt. Therefore, if NAMA pays €50m for the loans, as in the example, it is likely that the value of the underlying property is of the same order.
Sometimes NAMA engaging with a borrower will seem unpalatable. The economic reality, however, demands that NAMA fulfils its mandate and recovers as much money as it possibly can for the taxpayer and, in this, I fully support the efforts of the Board.
