Given the size of the overall portfolio being acquired, NAMA has had to acquire the loans in a series of batches or tranches, beginning with the loans of the 30 largest borrowers (Tranches 1 and 2). As a first step, the five participating institutions identify loans which are eligible by reference to the Act and to the Eligible Asset Regulations published by the Minister for Finance in December 2009. They then provide NAMA with specific information about each loan including details of loan balances and the property or other asset which had been pledged as security. They must also notify NAMA of any legal difficulties associated with the loan or the underlying security. Finally, the institutions provide NAMA with valuations of the underlying property.
The information provided by the participating banks is then subjected to review by NAMA as part of a rigorous due diligence exercise. This includes a legal review of the title to the property so as to identify any deficiencies which might give rise to difficulties for NAMA in managing the loan or in engaging in enforcement action. Meanwhile, NAMA’s property valuers evaluate and accept or reject the property valuation which has been submitted by a valuer working for the institution but owing a duty of care also to NAMA. The due diligence examination also considers various features of the loan itself such as any income that it may generate.
The main factor which determines what NAMA pays for any particular loan is the value of the property securing it. The other factors are also taken into account but tend to be less significant. Generally speaking, if a property securing a €100m loan is now worth only €60m, NAMA will pay about €60m for the loan.
When NAMA has completed its due diligence for any tranche of loans, it proceeds to acquire them from the individual institutions and issues Senior and Subordinated debt securities as consideration.