Loan Acquisition

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).

Facts & Figures

  • 12,000

    The number of loans acquired by NAMA with 60,000 properties as security

  • 800

    The number of NAMA debtors

  • 5

    The number of participating institutions

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.

Summary of loan acquisitions

By the end of 2011, a total of €74 billion in loans had been transferred to NAMA by the five participating institutions and €31.8 billion has been paid as consideration to the institutions, an overall discount of 57%. Table 1 summarises the position by institution:

Table 1: Loan acquisitions from participating institutions at end 2011
  AIBAngloBOIEBSINBSTotal
Loan balances transferred20.434.19.90.98.774
Consideration paid9.013.45.60.43.431.8
Discount56%61%43%57%61%57%

Distribution of largest debtors

Table 2 provides a breakdown of all debtor connections by size of nominal debt exposure. It should be noted that many of the debtors are also indebted to financial institutions which are not part of the NAMA scheme.

Valuation of assets

Bank assets (loans and derivative transactions) were acquired at an acquisition value which was determined in line with Part 5 of the NAMA Act and the Valuation Regulations which were made by the Minister and published on 5th March 2010. The reference valuation date for the valuation of all property assets was 30 November 2009.

The acquisition value of each bank asset is the long-term economic value of the loan (LEVL). Various factors are taken into account in the calculation of the LEVL, including the current market value of the security (typically real estate but also including non real estate assets, such as shares), the LEV of property and the market value of the bank asset.

The Valuation Regulations require that NAMA applies an uplift adjustment factor ranging from 0% to 25% to the current market value of property to reflect its long-term economic value (LEV). This is defined in the Act as the value that (a) a property can reasonably be expected to attain in a stable financial system when the crisis conditions prevailing at the passing of the Act are ameliorated and (b) in which a future price or yield of the property is consistent with reasonable expectations having regard to its long-term historical average.

The weighted average Property LEV (LEVP) uplift factor applied to acquired loans was 8.2%.

Table 2: Distribution of NAMA debtor connections by size of nominal debt
Nominal DebtNumber of debtor connectionsAverage nominal debt per connection €mTotal nominal debt in this category €m
In excess of €2000m32,7588,275
Between €1000m and €2000m91,54913,945
Between €500m and €999m1767411,454
Between €250m and €499m3434711,796
Between €100m and €249m8215212,496
Between €50m and €99m99686,752
Between €20m and €49m226327,180
Less than €20m 30272,117
Total7729674,015

Discounts

The discounts applied to nominal loan balances to derive an acquisition price are determined for the most part by the current market value of property securing the loans and, to a lesser extent, by further discounts made to reflect legal difficulties such as the extent to which security can be enforced or deficiencies in title. Table 3 summarises aggregate data for all acquired loans for which the overall discount was 57%.

Table 3: Aggregate Loan Valuation Data
Data€bn
A. Aggregate loan balances74.2
B. Current market value of property securing the loans (CMVP)32.4
C. Long-term economic value of property (Incorporating 8.3% uplift)35.1
D. Current market value of loans26.2
E. Long-term economic value of loans (LEVL - acquisition price)31.8
F. Loan uplift (E minus D)5.6
G. Discount (A minus E)42.4
H. Percentage discount (G/A)57%
I. CMVP/LEVL (B/E)102%