The Nama Cashflows

[cyberianpan]

The Nama cashflows struck me as odd on day one. There are two key aspects where we would benefit from more information

1) Interest rolling
2) Equity Loans


1) Interest rolling
From reading the cashflows it is clear that there has been further capitalisation of interest liabilities. With many developers not due to start paying anything until 2013. (this is why we appear to make a loss on interest as it gets repaid as capital).
I am very surprised there hasn't been wider comment on this as it is a massive kick to touch.


2) Equity Loans
When you view the claimed property price uplift required... versus the current price of the property assets backing the loans... versus the total loan amounts to be repaid. It is very clear that at least some of these loans must relate to "wiped out equity". I.e. private investors will be repaying loans that are not secured on the property value... i.e. these loans appertain to the 23% side of the hosue rather than the 77% LTV. These loans themselves are sometimes secured on assets, often the businesses of the private investors. They are pure "dead money", where Ireland's professional class will have to pay over billions. I had sight of some of these before , from just one bank, and they appeared to be of order billions. I am not sure how much of these are in Nama. Also I wasn't sure that these loans were properly secured at all. Note some other commentators refer to these as "phantom equity".
How much of the Nama loans relate to equity loan repayment... I did some Excel fiddling and was finding the value was likely order €5-15b (the variance is becasue I simply lack other data)

If the figure is anywhere close as high as I fear it could cause significant problems to those investors as from my readings of the figures it loosk like Nama is going for 100% repayment.

Also I'm posting this now, as I'd assumed people were aware all along, but when talking with a few people tody they'd missed these issues, so perhaps they may aid debate.

cYp

[eyeswideopen]

The Nama cashflows struck me as odd on day one. There are two key aspects where we would benefit from more information

1) Interest rolling
2) Equity Loans


1) Interest rolling
From reading the cashflows it is clear that there has been further capitalisation of interest liabilities. With many developers not due to start paying anything until 2013. (this is why we appear to make a loss on interest as it gets repaid as capital).
I am very surprised there hasn't been wider comment on this as it is a massive kick to touch.


2) Equity Loans
When you view the claimed property price uplift required... versus the current price of the property assets backing the loans... versus the total loan amounts to be repaid. It is very clear that at least some of these loans must relate to "wiped out equity". I.e. private investors will be repaying loans that are not secured on the property value... i.e. these loans appertain to the 23% side of the hosue rather than the 77% LTV. These loans themselves are sometimes secured on assets, often the businesses of the private investors. They are pure "dead money", where Ireland's professional class will have to pay over billions. I had sight of some of these before , from just one bank, and they appeared to be of order billions. I am not sure how much of these are in Nama. Also I wasn't sure that these loans were properly secured at all. Note some other commentators refer to these as "phantom equity".
How much of the Nama loans relate to equity loan repayment... I did some Excel fiddling and was finding the value was likely order €5-15b (the variance is becasue I simply lack other data)

If the figure is anywhere close as high as I fear it could cause significant problems to those investors as from my readings of the figures it loosk like Nama is going for 100% repayment.

Also I'm posting this now, as I'd assumed people were aware all along, but when talking with a few people tody they'd missed these issues, so perhaps they may aid debate.

cYp

It is my impression that interest only loans that have been rolled over are categorised by the banks as "performing". Is that correct ?

[cyberianpan]

It is my impression that interest only loans that have been rolled over are categorised by the banks as "performing". Is that correct ?

I wouldn't get too bothered by what banks say are "performing" loans. There's no proper standards in that area. Which is one of the reasons why Nama is taking on ALL "development loans" both performing & non performing ... as well as "related loans".

But to answer your question directly: yes , loans with interest defined as rolling would be defined as performing.

So say in Jan 2008 a developer takes out a 5 year loan for say €100m.... the first 3 years will be cost to him, no income. Thus the bank will capitalize the cost of the first 3 years borrowing and say issue a €114m loan... with payback beginning in year 4 (January 2011)

However the problem is that when payback time came... some backs just altered the loan terms again.

From reading the Nama cashflows I was very concerned about the amount of interest rolling they implied. Others on p.ie weren't so interested and have instead sought to drown out all meaningful Nama debate with their own crazy conspiracy theories.

cYp

[eyeswideopen]

I wouldn't get too bothered by what banks say are "performing" loans. There's no proper standards in that area. Which is one of the reasons why Nama is taking on ALL "development loans" both performing & non performing ... as well as "related loans".

But to answer your question directly: yes , loans with interest defined as rolling would be defined as performing.

So say in Jan 2008 a developer takes out a 5 year loan for say €100m.... the first 3 years will be cost to him, no income. Thus the bank will capitalize the cost of the first 3 years borrowing and say issue a €114m loan... with payback beginning in year 4 (January 2011)

However the problem is that when payback time came... some backs just altered the loan terms again.

From reading the Nama cashflows I was very concerned about the amount of interest rolling they implied. Others on p.ie weren't so interested and have instead sought to drown out all meaningful Nama debate with their own crazy conspiracy theories.

cYp

I believe you are correct to be concerned. Very few property loans made in the last three years can possibly be performing. Most developers ploughed profit from previous successes back into new land acquisitions, attempting to maximise leverage. There were also loans made to inexperienced investors. Much of the money advanced by the banks was immediately tied up in overpriced land, costs of planning application, or unoccupied buildings. It takes a minimum of a year to get planning permission - often two to three years. Developers have costs. That is often forgotten.

The expection of the borrowers and the banks was that they would pay off the loan in full on completion and sale of the development.

Only a lucky few were at the right side of the cycle when the bottom dropped out of the market.

[cyberianpan]

Only a lucky few were at the right side of the cycle when the bottom dropped out of the market.

The second issue is at least as interesting.

I can still remember being stunned when I found out how much money the Irish wealthy classes were putting through CFDs and property ... they abandoned regular equities. Also from the CFDs they got very used to the concept of leverage. Thus when they were given a chance to say take a €10m subscription in a property fund... they got straight onto their banker who coughed up perhaps €7m. The issue is that a good few of these loans appear wrapped up in Nama also... we just don't know how much. Some of the disturbatix here seem to think all the Nama loans are secured on the developments.... whereas a decent chunk of them are to private investors... and I'm not sure how well these are secured

cYp

[eyeswideopen]

The second issue is at least as interesting.

I can still remember being stunned when I found out how much money the Irish wealthy classes were putting through CFDs and property ... they abandoned regular equities. Also from the CFDs they got very used to the concept of leverage. Thus when they were given a chance to say take a €10m subscription in a property fund... they got straight onto their banker who coughed up perhaps €7m. The issue is that a good few of these loans appear wrapped up in Nama also... we just don't know how much. Some of the disturbatix here seem to think all the Nama loans are secured on the developments.... whereas a decent chunk of them are to private investors... and I'm not sure how well these are secured

cYp

I'd say they're as safe as houses.

[Dreaded_Estate]

l would be more worried about how they expect developers to repay €74bn from assets that are only projected to be worth €54bn.

[cyberianpan]

l would be more worried about how they expect developers to repay €74bn from assets that are only projected to be worth €54bn.

Did you not read my second point ? Quite some number of the loans aren't to developers at all ....

cYp

[Dreaded_Estate]

Did you not read my second point ? Quite some number of the loans aren't to developers at all ....

cYp

Doesn't matter IMO cYp.
The total collateral underlying the loans was estimated to be worth €47bn currently. How are developers or anyone else going to repay €74bn?

[cyberianpan]

Doesn't matter IMO cYp.
The total collateral underlying the loans was estimated to be worth €47bn currently. How are developers or anyone else going to repay €74bn?

Ireland has over 15,000 millionaires

Many of these are on the hook for some of the loans, did you follow the link re part 2 in my OP and see the size of that tranche alone ?

And this is why I think it would be helpful to know how much of the capital repaid to Nama will belong to the 77% of the house... and how much to the 23% (by 77% I mean the loans secured on the assets (be they 47 or 54b))

It is looking to me as though a lot will be from the 23% side ... and remember that I posted the Anglo story well before Nama was announced.

The real issue here is how much Nama is going to collect as "dead money" from the wealthy who don't have ANY value for their equity stake ....

cYp