NAMA stands to lose €85m in REO loan, says rating agency
Fitch downgrades bonds, blames weak property market and changes to rent
NAMA looks set to be the main loser when some loans given to Real Estate Opportunities (REO) to fund a group of 16 Irish properties fail to be fully repaid, the ratings agency Fitch claimed last night.
It has downgraded a series of bonds behind the properties, citing the weakening property market and plans by the Government to scrap upward-only rent reviews.
NAMA owns a junior loan behind the properties and Fitch said it expected a loss of €85m on this loan.
"Full losses are expected on the €85m junior loan, which was transferred to NAMA in 2010,'' said a note seen by the Irish Independent.
The note said the plan to scrap upward-only rent reviews was a key concern. It commented: "While this may be a positive for many of the country's beleaguered businesses, it may put further pressure on the Irish commercial real-estate sector''.
REO, which is controlled by Richard Barrett and Johnny Ronan's Treasury Holdings, reacted by agreeing with Fitch's views on the upward-only rent review issue but pointed to the strength of the portfolio in a difficult climate.
"We would be concerned about any move to allow for the breaking of existing rental agreements entered into in good faith," said a spokesman.
"This would undoubtedly drive down commercial property values and have a very negative impact on the commercial property sector."
The portfolio, which includes the FAS head office and the Stillorgan shopping centre, is virtually fully rented out and rental income is covering all bond dividends owed to investors.
The loans behind the portfolio were pooled into a bond product in 2006, known as Opera Finance CMH. At the outset the portfolio was worth €570m, but it is currently worth €283m, Fitch claims.
Property sources pointed out that the value of the properties, as opposed to the rental income, was not an issue until 2015, when the loans mature.
There are different types of loans behind the portfolio and the Fitch note makes clear that some bondholders will get paid. The final outcome is linked to what happens on the issue of upward-only rent reviews, it adds.
"We have an exceptionally high occupancy rate within our commercial-property portfolio. The market remains very challenging but we are continuing to achieve good rental yields from high-profile tenants in high-quality properties,'' said the REO spokesman.
Fitch said it was watching the portfolio closely and the reaction of tenants to any changes in future.
Its analyst said: "Although details of the proposal are yet to be finalised, it may have a further negative impact on the value of the portfolio, with a possible rating implication for the class A notes."