Seán Haughey (Dublin North Central, Fianna Fail)

NAMA has made significant progress in the ten months since its establishment last December. In its second quarterly report, released earlier today, NAMA recorded a profit of €6 million in the three months to the end of June 2010. The report also illustrates that loans are continuing to transfer on schedule to NAMA, which in turn has begun to directly manage those loans for the first time.

NAMA advises that it is currently engaging directly with some 30 debtors. As their loans are acquired by NAMA, debtors are being asked to produce business plans which will set out detailed and credible targets for reducing their debt. It is not an option for debtors to survive on taxpayer-funded life support until the market improves; a debtor must set out how he plans to reduce his debt significantly over a three to five year horizon. For most debtors this means identifying assets which can be sold to raise cash which will be used to repay debt. NAMA will endeavour to work with debtors where this is a commercially feasible option. It will work with debtors who are co-operative, in asset funding and in the lifestyle implications for them. The agency will also work with debtors who can prove they possess the will and the managerial capacity to deliver on targets. In cases where they cannot do so, the only option will be foreclosure.

NAMA expects the property underlying the loans it acquires will be worth about half of the amount advanced by banks. That is the most that NAMA could notionally recover today if it foreclosed on all debtors. The market, however, is in no condition to absorb a large volume of property sales currently. NAMA's best interest, therefore, is served by working with debtors, where possible, to enable them to improve their capacity to repay their debts.

The coming months will be pivotal for NAMA in its key decisions on the viability of individual debtors. The agency will seek to optimise the income it can extract from loan portfolios. Part of that involves ensuring debtors pay to NAMA all of their available cash flows in circumstances where they are unable to fully meet their current interest repayment obligations. While it may be seen as an obvious step, NAMA is discovering it was not, by any means, the universal practice among financial institutions to secure asset cash flows for purposes of debt repayment. Other options available to NAMA include debt rescheduling, loan restructuring and the potential sale or assignment of loans or loan portfolios to third parties. This will be assessed on a case-by-case basis and the decision will be dictated by commercial criteria.

Inevitably, it will be necessary to foreclose on debtors incapable of managing the burden they have taken on. Accordingly, NAMA will become more the manager of a portfolio of property assets. To date, NAMA has approved enforcement action on 15 debtors. Not all of this will lead to actual enforcement, as the experience so far has been that debtors begin to co-operate when faced with actual enforcement. In cases in which NAMA will enforce, it will have to pursue the normal avenues through the courts in Ireland and elsewhere.

Banks and debtors are enduring significant pain as part of the current process - the banks through the write-downs they must accept on the sale of their loans to NAMA; debtors, through loss of their equity. NAMA has advised it is well placed to break even, or do better, on behalf of the taxpayer. The agency will pay no more than a realistic price for the loans it acquires and has the advantage of time to extract optimal value from the loans and from any property it may acquire through foreclosure.

While not directly related to this Adjournment matter, it should be noted that NAMA yesterday was successful in facing down the first significant legal challenge it encountered with a comprehensive ruling in its favour in the High Court. There should be no doubt that the agency will pursue developers who owe money to it and foreclose on bankrupt developers where this is the best course of action to take.

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