On 30 July 2009 the Irish Government published the draft text of the long awaited legislation to establish the National Asset Management Agency (NAMA) for public consultation (the National Asset Management Agency Bill 2009) (draft Bill). It is to be formally published as a Bill in the Dail in September 2009 and may be substantially amended.

 
Participating institutions

 
The draft Bill states that credit institutions must apply within 28 days of the legislation coming into force to the Minister for Finance (the Minister) to participate in the NAMA process. The Minister may designate a credit institution as one covered by NAMA where the institution is systemically important to the Irish economy and the acquisition of eligible bank assets from that institution is necessary to achieve the purpose of the legislation. It is expected that the Irish banks currently covered by the Credit Institutions (Financial Support) Scheme 2008 will be covered by the NAMA legislation.

  

  
The draft Bill sets out in detail NAMA’s power and functions which include:

 

(a) acquiring eligible bank assets from participating institutions as is appropriate;
(b) holding, managing and realising those assets expeditiously but protecting and enhancing their long term economic value (LTEV);
(c) performing such other functions relating to the management or realisation of those assets as provided for in the Act or as directed by the Minister;
(d) facilitating restructuring of credit institutions of systemic importance to the economy; and
(e) taking all steps necessary or expedient to protect, enhance and better realise the value of assets transferred to NAMA.

  

NAMA will be a separate statutory body and will have all necessary commercial powers of a financial asset management company to establish subsidiaries; to operate through agents; to buy and sell assets; to manage loans and work with borrowers; to provide equity capital and credit facilities; to borrow, raise or secure payment of money in any manner; and to take full and determined action in relation to debts owed.

 
What assets may be acquired?

  
Under the draft Bill the Minister, after consultation with NAMA, has very broad powers to prescribe classes of bank assets as eligible for acquisition by NAMA. After listing various types of bank assets such as loans used to finance the development of land, there is a catch all provision in the draft Bill which covers “any other class of bank asset the acquisition of which, in the opinion of the Minister, is necessary for the purposes of this Act.” Bank assets entered in a participating institution’s balance sheet after 31 December 2008 are excluded. For the purposes of determining whether a bank asset entered a participating institution’s balance sheet on or before this date, NAMA may take into account the terms of any renegotiation, restructuring or refinancing of it effected after 31 December 2008. Participating institutions may challenge the designation of a financing arrangement as an eligible bank asset through the review procedure set out in the draft Bill. However the Minister will ultimately determine whether or not it is eligible.

 

 

This is the most controversial aspect of the draft Bill and is dealt with in Part 5. NAMA will buy bank assets from the participating institutions at a significant discount in order to take these riskier loan classes away from the balance sheets of the participating banks thus making them more secure. It will do so on the basis of valuations carried out by experts in accordance with a pre-defined valuation methodology set out in the draft Bill. It provides for an elaborate method of valuation and states that assets will be valued at their LTEV (calculated in accordance with the provisions of the draft Bill, regulations to be issued by the Minister and European state aid rules). This is to be determined by reference to the:

  

  

Detailed regulations on how the LTEV is to be calculated are expected to be published by the Minister in September 2009. NAMA shall have regard to the following factors in determining valuations:

  

 

The valuation methodology along with all other State aid aspects of the NAMA initiative will be subject to European Commission approval. The payment for the loans will be in the form of Government securities and/or guaranteed securities.
 

 
The draft Bill provides for the establishment of an expert reviewer and valuation panel. The expert reviewer will give its opinion on disputes as to whether or not an asset is an eligible bank asset and, as such, is transferable to NAMA. The valuation panel is to comprise a maximum of 12 persons appointed by the Minister. Its role is to review the total portfolio acquisition value specified for an acquired portfolio by NAMA. The panel’s advice shall be submitted to the Minister who will decide the acquisition value.

  

 
Once acquired NAMA will manage the eligible bank assets to obtain the best achievable return from them and, in effect, will put itself in the place of the institution that originated the loan, and will have all the same rights to pursue debts, where necessary.

  

NAMA has also been given specific statutory powers in order to facilitate enforcement of security/sale of assets, for example, a limited compulsory acquisition power on application to the High Court in certain circumstances; the power to appoint a statutory receiver; the power to obtain a High Court vesting order for land charged in its favour; to dispose of charged assets; and to convey land that has been mortgaged in its favour.