Last week NAMA published a draft business plan. It contained a detailed description of how NAMA was supposed to operate. It told us, for instance, that the loans of the largest 100 to 150 borrowers “will be managed directly by NAMA.” (page 28) and explained a timeline for how NAMA intended to recover funds from the loans it was acquiring.
NAMA’s draft business plan did not mention a Special Purpose Vehicle.
Yesterday, a document from the CSO was released, which informed us that
We are advised by the interim management of NAMA that, once established, it will create a Special Purpose Vehicle (“the Master SPV”), which will be responsible:
a) for the purchase, management and disposal of loan assets identified and valued by NAMA, and
b) for financing the asset purchases by issuing debt securities: these will consist of securities guaranteed by the Irish Government (95%) and subordinated debt securities (5%) – the latter may only be redeemed if the SPV makes a profit.
The Master SPV will be a separate legal entity and will be jointly owned by private investors, who will own 51% of its equity, and by NAMA, which will hold the remaining 49%. The subscribed capital of the Master SPV will be €100m.
The SPV and any subsidiaries will enter into primary service agreements with the financial institutions to service the portfolio of loans.
And that this SPV fits ESA guidelines as being a separate institutional unit—“is regarded as constituting an institutional unit if it has decisionmaking autonomy in respect of its principal function”
Now let’s recap. Last week, we were told that NAMA had a business plan that involved it directly managing the largest 100 to 150 borrowers and which set out its timeline for the management and disposal of assets.
This week, we are told that
The purchase, management and disposal of these loans will be the responsibility of a Special Purpose Vehicle, which is a separate institutional unit from NAMA.
This SPV will be, to quote Eurostat, “majority private owned”
The SPV will have decision-making autonomy.
The independent decision-making autonomy is subject to the proviso that
The Master SPV will have its own Board, with members appointed by NAMA and the Private Sector equity investors. However, since the State is guaranteeing the securities issued by the Master SPV, the NAMA representatives on the Board will maintain a veto over all decisions of the Board that could affect the interests of NAMA or of the Irish Government.
That said, it is hard to view this veto as anything other than a high-level executive power that would only be used occasionally. It appears unlikely that the NAMA-appointed SPV board members would be intervening in the day-to-day management of the loans, so these would be left to the privately-owned SPV.
This raises a number of questions:
What accounts for the inconsistencies between last week’s business plan and this week’s SPV announcement?
Did the people who wrote the business plan know about the Master SPV?
If so, why was it not mentioned prominently as a key element in the business plan? If you were starting a business and planned to raise some private capital to use an SPV to acquire assets, wouldn’t you be expected to mention this in a business plan that you present to potential lenders?
One could also ask what connection there was, if any, between the figures in the NAMA draft business plan and the September 15th estimates of the long-term economic value of the underlying assets.
For a plan that involves spending €54 billion of our money, the continued dripfeed of incomplete and sometimes contradictory information is very worrying.