NAMA's big test will be to enforce personal guarantees
ANY day now NAMA will appoint a formidable line-up of what it calls enforcement professionals, or liquidators and receivers to you and me.
This panel, to be recruited in Ireland and the UK, will be on the front line in the expected confrontation between NAMA and Ireland's heavily indebted and usually insolvent developer class.
The planned appointment of these insolvency firms is already inducing mild panic in the companies and individuals they will be grappling with. This is not surprising; NAMA, through these insolvency experts, holds all the cards in the forthcoming tussle.
Most of the major developer firms are already breaching their loan agreements, or are about to. This alone gives the banks, now NAMA, the legal right to immediately call in the loans to these companies, effectively denying them precious working capital and bringing about their implosion.
NAMA also has the power to deny these firms future working capital, which again has the potential to tip them towards a painful end game. Of course NAMA has to consider whether such an unyielding approach will actually help the agency achieve its objective, to return some value to the taxpayer on the loans it is purchasing for about €40bn.
But equally, any lack of enforcement zeal by NAMA come this September and onwards will be seized on by its critics, who will parrot the usual lines about NAMA being a bailout for developers.
This leaves the agency in a difficult position. It is already in court with one developer/property owner (Paddy McKillen) and will no doubt face further legal challenge to the extraordinarily extensive powers it has been given.
These powers are so wide ranging and unprecedented that the EU has warned they have the potential to distort the entire Irish property market.
To which many people will respond: of course NAMA is going to distort the property market -- that is the whole point of the agency. But the vigour of NAMA's pursuit of individual developers, rightly or wrongly, will be watched closely.
The area of most sensitivity for NAMA and its newly acquired 'customers' will be personal guarantees. These were given nonchalantly by developers during the boom, mainly because these people could simply not conceive of a time when their own personal wealth might dwindle.
Virtually every major developer in the country is personally guaranteeing some level of debt. In some cases the guarantees are so large that enforcement of the amounts involved will effectively ruin the individual financially. But will NAMA take this step? Should NAMA take this step?
Its chief executive, Brendan McDonagh, has already said publicly that it would be enforcing personal guarantees "vigorously''. Time will tell.
While NAMA prefers to concentrate on the more aloof ratios like debt to equity, free cash flow and loan to value, the agency will be judged on just how far it is prepared to go with individual developers.
Getting the balance right won't be easy.