Thursday 27 July 2017

The man who believes Ireland is a sure bet

Investment banker fell in love with his ancestral homeland on a visit 17 years ago and has been doing business here ever since. His faith in the country remains unshaken. By Donal O'Donovan

IT'S 17 years to the week since Wall Street banker Mickey Brennan made his first trip to Ireland -- a honeymoon tour of his and his wife's ancestral homeland.

The holiday included a still-memorable diversion to the Listowel Races and it seems Brennan has been taking punts in, and on, Ireland ever since.

Today Brennan is his own boss -- running North Sea Partners, a boutique investment bank with offices in New York and London after previously scaling the corporate heights at Citigroup's global corporate lending business.

It was a stint running Citigroup's European-leveraged finance business that saw personal and family ties with Ireland exchanged for a deep professional involvement with this country, and despite a subsequent return to New York, Brennan has an abiding and lively interest in the country's businesses.

Brennan has executed large- scale money-raising deals for the likes of Ardagh Glass and Digicel and advised businesses, including INM -- the owner of this newspaper.

Since the start of the financial crisis in particular, he's become a frequent flyer to Dublin, keen to build up his client roster at a time when lending from the Irish banks slowed to a trickle and in many cases bankers were more in need of advice than their clients.

The same trend prompted Brennan's exit from Citigroup to set up North Sea Partners, seeing the shutdown in the global banking sector as an opportunity to create a business offering independent advice to corporate borrowers.

Today the firm, named after his summer home in the Hamptons, makes around half its money in the US and half in Europe, and Brennan spends much of his time in the air, between a far-flung roster of corporate clients.

Ireland has been a focus for North Sea Partners from the beginning -- at one point he spent every second week here working on financing deals for Irish firms.

Brennan says the focus on Ireland is a natural fit, he was delighted to attend the 'Ireland Day' events at the New York Stock Exchange earlier this year and can rattle through the names and qualities of Irish business and political leaders as fluently as any member of IBEC, but unlike Ireland's battle- scarred financiers, he comes to town in the hunt for opportunities rather than tracking down problems.

"Things are bad, sure, but look at Tullow. Tullow is the darling of the markets today and there are a few more Tullows in Ireland," he says.

Brennan says for companies that think they fit that bill, the capital is out there -- and he knows how to access it.

Cliche

Far from the cliche of the sentimental returned Yank, he's all business when it comes to money. The money is there, he says, but managers have to be prepared to pay up to tap the cash.

"Financing is out there for good Irish companies but prices will be high. I'm not going to sugarcoat that, when the banks aren't open you have to raise capital somewhere."

The alternative, he says, is accessing funds from a small pool of specialist US hedge-fund investors at historically prohibitive rates.

Corporate treasurers that could borrow at rates of 4pc or 6pc in 2006 are looking at a cost of capital of 8pc, 12pc, maybe even 15pc today, he says.

Expensive, but still worth it, he insists, especially if the alternative is being sidelined in the market place or worse.

"My advice to clients is take money now, even if that money is expensive. Take it with the hope of refinancing when the banking market returns to normal. Don't lose the company, live to see another day."

Financing costs are high because the hedge funds providing the funds have tough targets of their own to meet.

Hedge funds need to make returns of 20pc on money they put to work in Ireland, he says, and once Irish businesses understand that they can be creative about how they can meet the investors' targets.

Hedge funds might want outsized returns but they are flexible about how they get them, he points out.

That means companies needing funds can sell equity stakes, bonds with rolled-up interest charges, or warrants -- a type of contract that gives lenders a share of future growth, which can all be used to reduce the monthly interest bill, even if the real costs are racking up in the background.

It's all fairly exotic stuff and none of it's for the faint-hearted, but for managers it can mean access to funds without having to meet high day-to-day interest charges.

Brennan is clear that products like that only make sense if both lender and borrower have a fundamental agreement that ultimately things are going to get better -- a play on future recovery.

"I always see the glass as half full. I think the next two years will be a challenge. You can't look at an investment as short term."

Positive

The other positive, he says, is that hedge funds are less concerned about what they're investing in than who they invest in, and the focus is less on assets and much more on operational expertise.

"Irish cloud-computing companies, retailers, energy businesses, investors are sector agnostic -- what they are looking for is a good management team, a good business plan and the prospect of improvement."

In terms of management, Brennan says he's been impressed by Taoiseach Enda Kenny and Patrick Honohan of the Central Bank, but in true dealmaker style his pick of those on the Irish scene today is pure business and focused on the future.

Fexco's Brian McCarthy is somebody to watch he says, someone who's investing even as he "takes care of the pennies".

He also namechecks Joe Barrett and Bob Etchingham, the men behind the Applegreen service stations as a team to watch.

Brennan, who clearly knows the business well, is impressed by the new style services with hot and cold meals as well as old-fashioned retail units.

A business that has continued to thrive after the decline of "breakfast roll man" could successfully expand into the US if it put its mind to it, he reckons.

In a wide-ranging conversation, Mickey Brennan hardly mentions the real-estate market. An experienced structurer of lending to cash-flow businesses it's clearly not his bag, but he's been surprised by the lack of deal flow given the appetite he's seen among New York-based investors.

"Aer Lingus flights last year were carrying the whole cast of distressed investors ready to buy NAMA assets, because there was a view in the US that NAMA was going to capitulate on in terms of the prices. But it didn't happen."

Loan portfolios

Despite obvious admiration for the bloody-mindedness of the Irish bad bank in turning down offers for its assets, he's not convinced it was the right tack.

Brennan reckons the next step for NAMA should be a financing deal, offering to part-fund sales of its loan portfolio to international investors.

It's what Citigroup and others did in 2008 and 2009 to clear out their troubled loan portfolios, but could prove controversial if NAMA is perceived to be leaving itself exposed to losses while outside investors are positioning themselves to cream off future profits.

If Brennan is convinced that Ireland will ultimately come good, he is concerned that getting back on track depends to a huge extent on recovery in the bigger, global economy.

"Until you have stable jobs numbers and a property market that's no longer falling you don't have a recovery and we don't have either of those things in the US," he points out.

The euro crisis is the other big risk, but having lived in Europe when the euro was launched Brennan is convinced it will survive the current crisis, even if it takes something as big as the almost €400bn US Troubled Asset Relief Programme (TARP) regime to turn the European story around.

"The brightest minds in American business today -- Apple, Intel, Facebook -- all have operations in Ireland. Ireland has made and continues to make the tough decisions. Ireland is not going to go out of business."

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