Friday 28 November 2014

O'Flynn: How my case against Blackstone will hurt Nama

Battle is a 'game changer' for agency, says developer

Published 17/08/2014 | 02:30

Developer Michael O'Flynn. Photo:  Michael MacSweeney/Provision
Developer Michael O'Flynn. Photo: Michael MacSweeney/Provision
Minister for Finance Michael Noonan. Photo: Collins

"You want to wait until there's really blood in the streets."

That's the sort of timing Blackstone CEO Steve Schwarzman said the private equity giant would employ in its hunt for assets around the world, as the global financial crisis intensified in December 2010.

Last Wednesday, the blood was pumping on the streets of Dublin. In a rare turn of events however, this time it was flowing freely from the nose of one of Blackstone's own subsidiaries - Carbon Finance - as Ms Justice Mary Irvine delivered a 74-page judgment overturning the appointment of examiners to four key companies within developer Michael O'Flynn's empire.

In her judgment, Judge Irvine was frequently scathing of Carbon's conduct, saying the company had not acted in utmost good faith and had not fully disclosed all relevant information to Judge Brian McMahon, when he had granted its application for the appointment of the examiner on July 29.

But while Michael O'Flynn welcomed the ruling, he is all too aware he has won just one round of a fight which will be decided when the matter comes to a full trial in October.

Speaking to the Sunday Independent in the aftermath of last week's judgment, Mr O'Flynn highlighted the importance of the upcoming case for his business and its wider implications for Nama and the taxpayer.

"I can tell you for certain as I have contacted a number of the borrowers [whose loans are still in Nama] that this is a game changer in relation to people's attitude, and why wouldn't it be, given how events have unfolded for us, and given that it is clear how despite having spent four years navigating out of Nama, the purchasers [Blackstone] had different plans [for us] once we exited," Mr O'Flynn said.

He added: "I can tell you firsthand what has happened to us has very serious consequences for Nama and for any future planned loan sales. I think it has sent a very serious message and from the contacts I have had with a number of people, this is a real problem, not just for Michael O'Flynn, but for everybody in Nama and connected to Nama who's trying to do the right thing and recover what's best for the State."

With a number of developers now understood to be reconsidering the wisdom of having their loans sold out of Nama to private equity investors, the impact on the agency's target to bring property portfolios of €250m to the market every three months, as part of an accelerated loan disposal process, could be significant. Asked for his view on the matter, Mr O'Flynn said: "If borrowers won't engage with Nama and intending loan sale purchasers, that's going to make the loan sale process much more difficult and it's also going to make it a lot less rewarding from the State's point of view."

Referring to his own cooperation with the Nama process, he said: "You must understand that while I made no secret of the fact that I was keen to exit Nama, I also participated and fully cooperated with the loan sale process to enable Nama and the Irish taxpayer recover the absolute maximum for my loans. I'm not looking for any credit for this, but I think it's important for people to understand that I and my colleagues dealt with the situation and spoke and met with several intending bidders and we engaged fully with the shortlist of bidders in round two in Nama's presence. In doing that we definitely helped Nama to maximise the result."

A number of the funds and investors within Nama's target market have unsurprisingly taken a special interest in Mr O'Flynn's case against Blackstone, mindful of the potential implications its outcome could have for their own dealings with developers whose loans they might acquire from the agency.

On this, Mr O'Flynn said: "I have had some interesting exchanges with capital providers in the last few days and I think at this stage because of the whole public interest in our situation that the view being expressed is that future purchasers of loans would be better off working in conjunction with borrowers rather than in opposition with them."

Asked if he believed the Government fully appreciated that the interests of the private equity giants who acquire loans from Nama might not necessarily sit with the best interests of the Irish taxpayer, he said: "I think there's a total lack of understanding, and not just on the part of politicians but on the part of most people in this country, when it comes to loan sales. In any loan sale, Nama should have a national interest clause. Otherwise a sale will be counterproductive for the very economy you are trying to help recover from the situation [it has faced]."

But while the Cork-based developer has identified what he sees as a major deficiency in the Nama Act, he was less inclined to criticise the agency when asked if Finance Minister Michael Noonan's faith in Nama was misplaced.

"I don't really want to get into an assessment of Nama in the current circumstances, given my situation, but I don't see any review of Nama which involves truly independent assessment, which I just don't understand," he said.

Mr O'Flynn was more forthcoming on the worsening housing crisis now spreading from Dublin and the greater Dublin area to other cities, including his native Cork.

"I have said this in Nama, I have said it everywhere I could over the past number of years. This [crisis] was predictable. We weren't planning, we weren't looking ahead and we weren't aware that while far too many houses were built where they weren't going to be needed, there was never any serious oversupply of where they are needed. This shortage is going to get a lot worse. It was predicted and nobody was interested, and I'm amazed by it."

Sunday Independent

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