Boost for banks as NAMA to make payments on junior debt
NAMA plans to start making payments on its so-called "junior debt" owed to banks as early as next month. The move will provide a boost to AIB and Bank of Ireland.
The National Asset Management Agency (NAMA) plans to make an interest payment on the so-called subordinated or junior bonds for the first time since the debt was issued in 2010, according to sources close to the situation.
It is understood that banks were told to expect the payment in recent days.
The decision to make the payment "represents a major development in the history of the Irish property agency, illustrating its improved financial position and the confidence management has in its outlook", said Ciaran Callaghan, an analyst with Dublin-based Merrion Capital.
NAMA has repaid €7.5bn of its bigger senior bond debt to date in line with a deal struck with the troika, but payments on the €1.6bn of riskier bonds are at the discretion of the agency.
The junior debt carries a 5.264pc coupon or interest rate, according to NAMA's own data, suggesting a coupon payment of €84m.
NAMA declined to comment on the plan.
The agency used €32bn of bonds or IOUs to finance its purchase of loans transferred out of the banks at a discount of 58pc in 2010.
About 95pc of the payment was in senior NAMA bonds, with the rest in the subordinated bonds.
The senior bonds must be repaid, but the junior securities only have to be redeemed if the agency beats a target of repaying all of the senior debt by 2020.
The decision to start making payments on the junior bonds is an indication that NAMA does not expect to make a loss over its life.
That is why the move is significant, Mr Callaghan says.
AIB will be the big winner from the move. That is not only because it will receive a share of any payment but it may be able to revalue its entire stock of subordinated NAMA bonds once the cash starts flowing.
They were valued at just 10 cents in the euro in June, according to sources.
Bank of Ireland has valued its junior NAMA bonds at 44pc of face value. (Bloomberg)