Wednesday 18 September 2019

Ronald Quinlan: A relationship that started off sweet, but turned sour

Treasury Holdings claims it was lulled into a false sense of security over time by Nama, writes Ronald Quinlan

MS Justice Mary Finlay Geoghegan said she wouldn't take "umbrage" if people sat on the floor of Court 14 last Tuesday, such was the interest in the beginning of the hearing in which Treasury Holdings sought leave to bring a judicial review challenge to the decision by Nama to call in its loans last month.



Leaving aside the benches reserved for the powerful protagonists and the highly-paid legal teams representing them, the floor may have been the most appropriate place for members of the public to sit for all four days of the hearing.

For anyone who ventured into Ms Justice Finlay Geoghegan's court last week could well have found themselves floored by the details of the relationship between Treasury Holdings and Nama, and just how that relationship broke down in the period between June 12, 2009, and 4pm on January 25 last, the precise moment when the State's so-called 'bad bank' finally pulled the plug.

In setting out Treasury's case for the withdrawal of receivers over some 36 of the group's Irish assets, Senior Counsel Michael Cush told the High Court that Nama's actions would see the developer suffer losses which could not be compensated for in damages, and threaten its Chinese operation, TCT, which has assets in China valued at €1.5bn.

Responding to those claims, Nama insisted that with overall debts of €2.7bn, Treasury is "hopelessly insolvent" and "past the point of commercial rescue".

That some form of rescue had been attempted, however, became clear over the course of the four-day hearing. Unsurprisingly, the two sides presented fundamentally different versions of what had taken place in the weeks and months before Nama called time on Treasury's efforts to find buyers for its loans, and achieve in the process an amicable separation from the State agency, and by extension, the Irish taxpayer.

Treasury chief Richard Barrett, for his part, was scathing in his description of Nama's handling of prospective bids for certain of Treasury's loans by the Australian bank, Macquarie, and US real estate titan, Hines.

For where Nama in its defence was adamant that it had given both proposals thorough consideration, going so far as to set up a dedicated team in the case of the Hines bid, Mr Barrett claimed that the agency had yet to provide Treasury Holdings with a satisfactory explanation as to why both offers had been rejected.

Intriguingly, in referring to his own dealings with Macquarie and Hines, Mr Barrett raised the matter of a meeting he had with Nama's chairman Frank Daly and its chief executive Brendan McDonagh on November 8 last, during the course of which he insisted he was "actively dissuaded" from attempting to bring potential bids from either investor before Nama's credit committee on December 6 or its board on December 8.

In the event, Treasury's submission of its final creditor strategy came on December 7, a day after Nama's credit committee had made its decision to recommend the appointment of receivers to the agency's board.

Coupled with his recollection of the November 8 meeting with Messrs Daly and McDonagh, this sequence of events led Mr Barrett to suspect that Nama had already made its mind up to appoint receivers long before its credit committee and board had met to consider the matter last December.

Nama, for its part, strongly rejected that assertion.

In the course of her affidavit to the court, Mary Birmingham, a senior portfolio manager with Nama, insisted that the agency had been more than reasonable with Treasury Holdings and in its treatment of the bids from Hines and Macquarie, and of a previous proposal in 2010 from the US company CIM.

Ms Birmingham said many months of consideration had been given to the CIM bid, while in the case of the two other investors, "intensive engagement and evaluation" had been conducted during the two-week standstill period last month in which Nama had agreed with Treasury to hold off on its appointment of receivers.

Judging by Ms Birmingham's account of the conditions attaching to the bids from Hines and Macquarie, their requirement for vendor finance from Nama appears to have been a significant sticking point to an agreement being reached.

"Both proposals were predicated on significant vendor finance, ie each of the parties required Nama to provide finance for the loan purchase by way of deferred consideration..." she informed the court in her affidavit.

While those demands will doubtless seem extraordinary to the public, it shouldn't have fazed Nama unduly given that it offers vendor finance to prospective investors as a matter of course.

Referring to the initiative on its own website, Nama states: "In order to generate sales transactions and to attract new equity into the Irish market, Nama is willing to provide up to 70 per cent vendor debt finance to purchasers of Irish commercial property which is either under the control of its debtors or of receivers engaged by it."

Whatever about Hines and Macquarie's respective requirements for vendor finance, clearly unacceptable to Nama was the fact that both bids were for sums which Ms Birmingham said were significantly less than those owed to Nama.

Also of concern to Nama was the provision for the future involvement of Treasury in the management of the assets that Hines and Macquarie were seeking to acquire.

Referring to the support Nama had given Treasury Holdings since its loans had been transferred on to its books, Ms Birmingham said that the agency had provided €73m in working capital to fund the completion of the Montevetro building in Dublin as well as some €30m to meet a funding liability, actions which she described as "hardly the actions of a lender acting in bad faith".

Perhaps the most potentially damaging claims to emerge in Ms Birmingham's affidavit and in court last Wednesday were those relating to the Treasury Asian Investments Limited (TAIL) transaction, where the board of Treasury Holdings approved the transfer of €20.5m in shares to Mr Barrett and the group's co-founder Johnny Ronan just before loans relating to the developers were taken over by Nama.

The agency claimed that in return for this, Treasury received €100,000 and unsecured loan notes, with conditions attached.

Commenting on Nama's supposed unhappiness with the deal, Ms Birmingham said: "Nama has at all times since the start of its dealings with Treasury sought the reversal of this transaction as its clear effect was to diminish the assets available to creditors of Treasury Holdings including Nama, by far Treasury's biggest creditor.

"At no stage has Nama accepted the propriety of what was done in the TAIL transaction," Ms Birmingham added.

While Nama's version of events in relation to the TAIL transaction dominated the front page of The Irish Times last Thursday morning, things took something of a twist in the High Court later that day when the agency's Senior Counsel Paul Sreenan conceded, on foot of an interjection from Ms Justice Finlay Geoghegan, that Treasury had in fact agreed a specific pre-condition concerning the deal with Nama.

According to the Memorandum of Understanding (MOU) signed by Treasury Holdings with Nama on December 13, 2010, Nama, amongst other things, provided its consent for the transaction to proceed once it was granted specific security over the group's charge over the TAIL shares, allowing Nama to benefit from the net proceeds of their sale.

Interestingly, the pre-condition contained in Treasury's MOU with Nama also stipulated that 33.3 per cent of all future post-tax profits in excess of the €20m in TAIL shares would be remitted to the developer on the basis that the money would be used exclusively to repay its Nama debt.

That such an agreement could have been reached between the

parties in the first place will no doubt come as a surprise to the public.

Not that it should surprise anyone considering the account given by Mr Barrett of the positively cordial dealings Treasury enjoyed with Nama up to the point where their relations broke down.

Indeed, Mr Barrett outlined in detail in his affidavit how he and Treasury director John Bruder met with Brendan McDonagh on June 12, 2009, a full six months before the agency was formally established and Mr McDonagh appointed as its chief executive.

Mr Barrett said that following that meeting, Treasury continued to express in any way it could its "interest in working with Nama and assisting in any way we could."

Commenting on the reaction Treasury received, he added how: "Nama were quite profuse in their thanks to us for our ideas, our attitudes and our cooperation."

So much so, Mr Barrett says he went on to attend "a presentation to the evolving executive team in Nama on February 5, 2010" where the Treasury team presented a draft business plan to Brendan McDonagh and other senior Nama executives.

Further evidence of the apparently friendly relationship between Treasury's principals and between Mr Barrett and Mr McDonagh specifically were revealed in email correspondence between the two men during the period of December 5 to December 14 last.

In one email, the contents of which were reproduced in Mr Barrett's affidavit, the Nama chief executive wrote: "Support for Nama -- your support and promotion of Nama within Treasury Holdings and with the parties with which you negotiated prior to the CIM negotiations is appreciated, as is your engagement to date, particularly evident during the CIM negotiations."

While Mr Barrett may have been heartened by that particular note from the Nama chief executive when he first received it, he holds a very different view now.

Referring to the email in his affidavit, he said: "By this time, unknown to me or anyone else in Treasury, the board had already decided on Treasury's fate. In hindsight, I can only conclude that Mr McDonagh and others within Nama had decided to lull Treasury into a false sense of security concerning its willingness to proceed to final agreement on term sheets."

Not that Mr Barrett or Johnny Ronan will be losing too much sleep if they have fallen out with Mr McDonagh or Frank Daly. Far more serious for them, however, are the potential consequences of Nama getting its way on the matter of appointing receivers to Treasury's Irish assets.

Whether or not that will happen immediately, at some point in the near future, or possibly not at all depends in the first instance on whether Ms Justice Finlay Geoghegan grants Treasury leave to bring a judicial review challenge to Nama's decision.

The hearing resumes on Tuesday.

Sunday Independent

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