Loans not at risk despite lapses, investor insists
PROPERTY investor Paddy McKillen, who owes €2.1bn to Irish banks, has revealed that he is in breach of some of his loan agreements.
But the Belfast-born tycoon has insisted, in a landmark legal action against the National Assets Management Agency, that he is not an impaired borrower and that his loans are fully performing and meeting all interest payments.
Yesterday a specially convened Divisional Court, led by High Court president Mr Justice Nicholas Kearns, was told that there is no basis for NAMA's view that the total exposure of Mr McKillen and his companies through loans from the five participating institutions in NAMA represents a "systemic risk" to the banking system, justifying their acquisition.
The three-judge court heard that Mr McKillen's income generated by 62 properties, valued at between €1.7bn and €2.28bn, was some 1.7 times the interest payable on the borrowings, which his legal team claimed was an "excellent performance" in the current climate.
Senior Counsel Michael Cush, for Mr McKillen, said that while there may be some breaches of bank covenants and some loans had expired, this did not mean that repayments were under threat.
NAMA disputes Mr McKillen's claim that none of his loans is impaired.
Mr McKillen, on the first day of his action, has claimed that NAMA's decision to acquire €211m loaned by Bank of Ireland to him involved a "total" invalidation of his rights.
With 15 of his companies, Mr McKillen has brought judicial review proceedings claiming the BOI loans' acquisition is unjustified, unfair, breaches his constitutional rights to property and fair procedures and breaches the February 2010 European Commission Decision approving the establishment of NAMA on grounds that that decision relates to acquisition of loans from "impaired" borrowers.
He also argues the link with NAMA, which he describes as a "bad bank", means serious adverse effects for him personally and for his business interests.
His lawyer argued NAMA's only record of its decision to acquire €2.1 billion in Mr McKillen's loans was contained in one word -- "disagree"-- on an Excel spreadsheet which word, NAMA contended, recorded NAMA's disagreement with bank objections to the eligibility of the loans for acquisition on the basis they involved no land and development exposure.
NAMA, which plans to acquire some € 73 billion in loans by February 2011 from 800 borrowers with the five institutions (Anglo Irish Bank, Allied Irish Bank, Bank of Ireland, Irish Nationwide Building Society and Educational Building Society), denies the claims, argues it is entitled to acquire both performing and non-performing loans and also disputes Mr McKillen's claims that none of his loans is impaired.
The importance attached to the case by the State was underlined by Attorney General Paul Gallagher, heading the NAMA legal team.
Opening the case, senior counsel Michael Cush, with John Gleeson and Shane Murphy, for Mr McKillen, said the proceedings were not about whether NAMA was a good or bad idea or an effective model to deal with the State's economic difficulties.
Nor had the court to rule on the merits of NAMA's decision to acquire Mr McKillen's unimpaired loans or unimpaired loans generally, whether his loans represented a "systemic risk" or the precise valuations of his properties. While there was "a real debate" on some of those issues, the court was being asked to determine public, not private, law matters.
Mr Cush said Mr McKillen is principally a property investor with a portfolio of 62 properties valued somewhere between €1.7bn and €2.8 billion depending on valuation dates.
Most of the properties are in the UK, France and the US with some 26pc in Ireland and loans secured on them totalled some €2.1 billion, with all repayments being met. The assets were generating €150 million per annum and some 96 pc were let, mainly to blue chip tenants on 25-year leases.
A very small proportion of the loans, about 2.5pc, were Land and Development loans within the meaning of the NAMA Act 2009 but once some fell into that category, NAMA could acquire all of them, counsel added.