I am advised by NAMA that the decision as to whether to work with a debtor or to appoint a receiver is primarily determined by NAMA's assessment, in line with its commercial mandate, of how it can best optimise debt recovery for any particular debtor. If it decides that debt recovery is best achieved by working with the debtor, it is NAMA's practice to allow debtor companies to retain certain overhead costs from rental or other income produced by their assets where this is necessary for the company's operations. In a minority of cases, where assets are under development and not yet producing income, funds are advanced to debtors to cover essential overheads pending the completion of the projects involved. Overhead costs typically fall into two categories: Costs associated with the repair and maintenance of properties, insurance premia, local authority rates and professional fees. These are essential costs which would be incurred regardless of whether the assets were being managed by debtors or receivers. Overhead costs also include an allowance for the debtor's remuneration package and the salaries of staff employed by the debtor to manage the assets. The alternative in these cases is to appoint receivers and I am informed by NAMA that receiver costs tend to be substantially higher than debtor and associated staff salary costs.
These overhead payments are a necessary and cost-effective means of preserving and enhancing asset values. In the cases involved, NAMA concluded that working with debtors was a less costly option than enforcement and the employment of external asset managers.
The level of overhead is only agreed following a thorough and rigorous evaluation of the debtor's business plan by NAMA. Each cost element is reduced to the minimum. The level of overhead sanctioned by NAMA typically represents a very significant reduction on the level which prevailed prior to NAMA acquisition of the loans: typically, reductions of 50% to 75% in overhead costs have been imposed by NAMA.
NAMA has collated data on approved overhead costs where agreement had been reached by 31 December 2010 relating to 41 debtors who managed a total PAR debt of €18.6 billion or 25% of the total NAMA portfolio. Approved overheads for the 41 debtors was €55 million. This represents less than 0.3% of the PAR debt involved. Of the €55m in overhead costs, I am informed by NAMA that the bulk of the costs related to essential costs associated with maintaining and preserving the assets.
NAMA is currently collating data on all debtor overhead costs that it has approved and intends to publish this analysis at a later stage.
