(07 Sep 2011)

An inevitable consequence of the Financial Regulator’s decision to increase the capital adequacy ratio for the banks from 4% to 8% will be a substantial deleveraging by the banks (i.e. the banks will reduce their loan books). Accordingly, it is becoming apparent that the only substantial facilities available for property companies over the next 12 to 18 months will be the National Asset Management Agency (“NAMA”), as it has authorisation to borrow €5 billion in order to complete projects.

It is expected that the demand for monies to complete developments will exceed €5 billion, so NAMA will be selective in what proposals it finances. In order for developers to obtain financing debtors will need to submit a comprehensive business plan outlining how they propose to repay their existing loans and any new loans.

By the end of June 2010 it is estimated that €38 billion of the riskiest loan portfolios on the balance sheets of Irish banks will have been transferred to the National Asset Management Agency (“NAMA”). The total portfolio identified for transfer to NAMA consists of almost 2,000 customers with approximately 21,500 loans. The banking institutions are obliged to make reasonable efforts to notify debtors, associated debtors or guarantors of the acquisition of the loan or associated loan by NAMA within 60 days of the acquisition. The borrowers whose loans have been acquired by NAMA will be required to submit a comprehensive business plan in accordance with NAMA’s template within 1 month outlining how they propose to honour their loan commitments. NAMA will assess the business plans, give feedback to the borrowers and work with the borrowers to achieve the best outcome for all parties.

Business Plan Requirements – Version One

The primary purpose of the business plan is:

1) To present a complete account of each debtor’s financial affairs; and

2) To provide a detailed plan of how and when all debtor liabilities to NAMA will be redeemed.

Decisions made by NAMA regarding a debtor may partially or wholly be based upon the business plan. The Business Plan should be completed in utmost good faith with full disclosure of all facts, assumptions and issues likely to influence NAMA in reaching a decision on a course of action regarding a debtor.

The business plan template (as currently issued by NAMA) consists of seven distinct sections:

1) Executive Summary

2) Financial Information

3) Market Analysis

4) Corporate Overview

5) Management and Employees

6) Legal Considerations

7) Other

In addition to the business plan, debtors are also required to submit a detailed “Datapack”.

Section 1: Executive Summary

The template specifies what should be included in the Executive Summary. The information to be provided includes a summary schedule of all current Debtor lending facilities by property / development analysed by loan (specifying NAMA and non-NAMA facilities), from all sources. It also requires details of key actions necessary to fully repay NAMA, a cost benefit analysis of strategy including identification of key risks and dependencies.

Section 2: Financial Information

The template requires exhaustive financial information on all aspects of the business, including full details of all leases and tenants.

If the property asset comprises of a development site, then the debtor must provide a residual appraisal, and cash flow forecasts for a minimum of three years.

The debtor must provide details of any new monies to be provided, including counterparty, status of negotiations, nature of investment, etc.

Details of current creditor pressure, including a schedule of the top 10 creditors must also be provided. Other information that must be provided includes a summary table of results for the two years up to the date of the latest available accounts (whether audited or unaudited) and projections for the following three years. Full details of the company’s Taxation position are also required.

Sections 3: Market Analysis

The template calls for a market analysis for the relevant market sectors of each of the company’s property locations, including identifying competing properties/schemes and comparing and contrasting the properties and their pricing.

The template also requests comment on enhancement potential and active management proposals to maintain/ enhance value together with comment on the attractiveness of the property to the market both now and in the future.

Section 4: Corporate Overview

Debtors must provide a detailed company overview, including an overview of company strategy and a description of all activities undertaken by the Debtor. A detailed operational structure / chart for the Debtor is also required showing how the business is managed and monitored.

Section 5: Management and Employees

Debtors must provide details of the Management Team, Board of Directors, and Investment Committee, if any, indicating relevant track record, roles and primary responsibilities of all members of the management team.

Details are also required of any transfers (including sale) of company assets during the past three years to the benefit of the Ultimate Beneficial Owner(s) or their related parties.

Section 6: Legal Considerations

Debtors are required to provide a detailed legal structure chart, including any holding companies, all wholly and partially owned subsidiaries and holdings in other structures such as joint ventures, consortiums, partnerships etc., if any.

Debtors are also required to provide details of all security, (including, but not limited to: debentures, mortgages/charges and guarantees) the Debtor and related entities have granted, and the parties to whom they have granted such security.

Section 7: Other

The debtor is required to provide any other documents or information which, in the debtor’s judgement, are significant with respect to any portion of the business of the Debtor or which should be considered and reviewed in order to adequately disclose the Debtor’s repayment plan to NAMA, business, assets, liabilities, prospects, financial condition or results of operations.

The “Datapack”

The debtor is also required to submit a detailed “Datapack” of financial analyses/schedules to support the business plan.

Delivery of Business plan

The debtor is required to submit four, double sided, A4 bound copies of the business plan, together with a CD containing an electronic copy to NAMA by recorded delivery.

The top 100/150 borrowers

It is expected that these large exposures will be managed directly by NAMA. Each of these borrowers will be required to submit a detailed business plan to NAMA within 1 month of the loan being acquired by NAMA. NAMA, and its professional advisors will review the plan, and prepare its own credit report to submit to the NAMA Board Credit Committee. The NAMA Credit Committee will determine whether, in its view, the plan is viable and will either approve it, reject it or refer it back for amendment.

Where a plan is approved by the credit committee and the NAMA Board, the borrower’s subsequent performance will be monitored closely by NAMA Banking/Lending and Portfolio Management Divisions to ensure adherence to targets set out in the approved business plan. Administration of the loans will remain with the original institutions under the control and supervision of NAMA.

Other borrowers

For borrowers outside of the largest 150 borrowers, NAMA will make an early determination as regards the borrower’s creditworthiness, taking into consideration information from each of the participating institutions on the performance history and level of impairment of acquired loans. Borrowers will be classified by reference to

1) The level of their exposure

2) Their creditworthiness and

3) Their level of impairment

The larger and more impaired exposures will be assessed as a matter of urgency by NAMA and appropriate action will be taken subject to the approval of the NAMA Credit Committee and the NAMA Board.

Conclusion

It is expected that any borrower with lending in excess of more than €5 million with a NAMA institution will be transferred to NAMA in due course. The business plan expected by NAMA is extremely detailed, and many borrowers would never have had prepared such exhaustive business plans before. Many borrowers will not have the necessary skill sets to prepare such business plans and will be reliant on their business advisors.

On receipt of notice from the bank that a debtor’s loan has been acquired by NAMA the following month will require an intense information gathering exercise in order to submit a complete picture of the debtor’s financial affairs. This will create challenges for both the debtor and their professional advisors. Accordingly, it is suggested that such debtors commence preparing their business plans now in anticipation of being transferred to NAMA. Each debtor should be proactive, and if the debtor is seeking additional funding from NAMA, it is vital that it can demonstrate that the required funding will add value, and would present a good return to NAMA.

The legislation establishing NAMA contains strong sanctions against anybody who misleads it, and thus debtors must take great care their business plans are accurate and truthful.

[The above article was originally published in the June 2010 edition of Accountancy Ireland]

NAMA Business Plan – Version Two

There are two versions of business plans used by NAMA. Business plan version 1 is used by the larger borrowers that have transferred to NAMA in tranches 1 to 3. Business plan version 2 is to be used by all other borrowers with no greater than 20 loan facilities and no more than 300 pieces of security for the loans. NAMA require debtors to submit their NAMA business plan version 2 to their participating institution within 1 month of notifying them of the transfer.

Business Plan Requirements

The primary purpose of the Business Plan is to:

  1. Present a complete account of each Debtor’s financial affairs and their asset value maximisation strategy.

Decisions made by the participating institution regarding a debtor will be substantially based upon the business plan submitted. The Business Plan should be completed in utmost good faith with full disclosure of all facts, assumptions and issues likely to influence NAMA/the participating institution in reaching a decision on a course of action regarding a debtor.
The business plan version two template (as currently issued by NAMA) consists of eleven distinct sections:

  1. Executive Summary
  2. Corporate Overview & Details of Management Team & Employees
  3. Individual Asset Strategies
  4. Debtor Funding / Working Capital Requirements
  5. Unencumbered Cash / Assets available to support borrowings & Information on any Assets transfer in the last 5 years.
  6. Taxation & Other Financial Costs
  7. Creditors & Litigation
  8. Non-NAMA Facilities
  9. Statement of affairs
  10. Legal Considerations
  11. Reference Documentation

In addition to the business plan, debtors are also required to submit a detailed “Information Pack” and “Cashflow Model” (downloadable from the NAMA website). The business plan also requires a sworn statement of affairs for the debtor to be included in section 9 as outlined above.

The NAMA “Information Pack”
The Debtor is required to input information into this document about their loan facilities, the assets securing these loans, any unencumbered assets and some general organisation financial information. Once the borrower has filled in all the required information into the NAMA information pack they are then required to input the information into the NAMA Cashflow Model as outlined below. The Debtor is required to submit a soft copy version on disk of their NAMA Information Pack.
The NAMA “Cashflow Model”
This is an Excel document. The borrower is required to input the data from their NAMA information pack into the NAMA Cashflow Model. This model once populated will create the Tables and Pie Charts that are required to be included in the NAMA business plan template. Careful consideration should be given to the output tables in the NAMA cashflow model to ensure they are meeting the borrower’s debt repayment strategy.

The Statement of Affairs
Each debtor must complete a sworn statement to be submitted with the NAMA business plan. This document requires the debtor to list all NAMA, Non-NAMA and unencumbered assets together with all sources of income. Debtors are also required to show any asset transfers that they have made in the previous 5 years. It is imperative that this form is completed in the utmost good faith as the debtor is required to have it sworn in the presence of a solicitor. There are serious legal implications for any debtor who knowingly submits a materially misleading statement of affairs. The legislation establishing NAMA contains strong sanctions against anybody who misleads it, and thus debtors must take great care their business plans are accurate and truthful.
Delivery of Business plan
NAMA have set out very specific delivery criteria which are set out in the last 2 pages of the NAMA business plan. The debtor is required to submit four, double sided, A4 bound copies of the business plan, together with a password protected CD/USB key containing an electronic copy of the NAMA Business plan, Information Pack, Cashflow model and any reference documentation to NAMA by recorded delivery.
Other borrowers
For borrowers outside of the largest 170 borrowers, they will be managed by their participating institution. The participating institution will make an early determination as regards the borrower’s creditworthiness, taking into consideration the performance history and level of impairment of loans acquired by NAMA. Borrowers will be classified by reference to
1) The level of their exposure
2) Their creditworthiness and
3) Their level of impairment
The larger and more impaired exposures will be assessed as a matter of urgency by NAMA and appropriate action will be taken subject to the approval of the NAMA Credit Committee and the NAMA Board.
How can we help you?

We can help you prepare your business plan and help ensure that you make a persuasive case to NAMA so that your plans are supported. We have developed strong relationships with some of the country’s leading town planners, architects, valuers and quantity surveyors and are therefore able to assemble a team to assist in preparing the best possible business plan.

As a key component of any Business Plan submitted to NAMA will be the ability to show that loans can be repaid, we can evaluate different exit strategies, whether it be by sale to Real Estate Investment Trusts or possible re-financing.

We can provide a number of services, ranging from preparing the complete business plan from raw data, to carrying out a strategic review of a business plan prepared by you prior to its submission to NAMA.

If your Business Plan shows that you are unable to repay all of the loans due, then, as experts on Personal and Corporate Insolvency, we can advise you on the options which are available to you.

Once your Business Plan is submitted we can assist you in how to present your best case to the Independent Business Reviewer. We can also assist in your negotiations with NAMA (or the relevant Participating Institution) on the Memorandum of Understanding.

For further information please contact Jim Stafford or Tom Murray on 01 661 4066 or by email: jim.stafford@frielstafford.ie or tom.murray@frielstafford.ie