Liquidator turns down €179m repayment offer

IBRC special liquidator Kieran Wallace has rejected an offer from property tycoon Paddy McKillen to repay €179m he owes the bank, the Irish Independent has revealed.

Had the proposed repayment – which had already been formally approved by the board of the IBRC last December – been accepted, it would have delivered an immediate windfall to the Exchequer amounting to roughly two-thirds of the €300m the Government is seeking by way of cuts to the public sector pay bill.

It is understood Mr Wallace has turned down Mr McKillen’s offer to repay the €179m on the basis that the bank would have to forego the collection of early-repayment penalties believed to be in the region of €7m that had been written into the Belfast businessman’s original loan agreement. The Sunday Independent understands that the board of the IBRC had already made a commercial decision to waive the requirement for Mr McKillen to pay the €7m penalty to encourage him to pay down the €179m debt ahead of schedule.

According to the terms of his original loan agreement with the former AngloIrish Bank, Mr McKillen was legally entitled to keep the debt with the IBRC until the year 2016 on a low fixed-interest rate. Given the distinct shortage of credit available internationally for property lending, it is understood that Mr McKillen was happy to keep his loans with the IBRC and to continue repaying them in the normal fashion. Having been assured that early repayment of the €179m would not leave him saddled with the requirement to pay the €7m penalty fees, however, Mr McKillen went in search of and secured refinancing of the massive debt from two major international financial institutions.

Quite apart from the opportunity to secure the early repayment of such a substantial sum from one of its biggest borrowers, the IBRC is understood to have been minded to the other major benefit the reduction in the size of its overall loan book would deliver for the Irish taxpayer.

Were the €179m in loan facilities to have remained with the IBRC for a further three years, the bank’s management would have been required under strict ‘Tier 1 capital ratio’ regulations laid down by the Central Bank to hold an additional €14.4m in capital (eight per cent of the amount lent to Mr McKillen) on its books to balance the notional risk it faced in connection with the loan. With the IBRC in wind-down mode, that €14.4m had to be borrowed each year from the Central Bank under the terms of the ELA (Emergency Liquidity Assistance) programme. Mindful of the extra burden this was imposing on the State, the bank’s management are understood to have been anxious to secure early repayment of the €179m from Mr McKillen and eliminate the need to borrow that €14.4m each year.

It is understood that about €66m of the €179m relates to Mr McKillen’s interest in the Jervis Centre in Dublin city centre, while a further €103m is tied up in borrowings against commercial assets in which he has an interest in Boston. The IBRC had sought the repayment of an additional €10m in borrowings to protect its security on the remainder of Mr McKillen’s loan portfolio and to recover the maximum amount possible for the taxpayer. It is understood that under the proposed refinancing of the loans agreed with the board of the IBRC, the entire debt would have been repaid at 100 cent in the euro.

While the special liquidator’s refusal to accept Mr McKillen’s repeated offers to repay the €179m will invariably raise fresh questions in relation to the Government’s decision to liquidate the IBRC and its intentions for the bank’s loan book, the Belfast businessman has meanwhile mounted a fresh legal assault on Nama.

Last Friday evening, lawyers for Mr McKillen lodged a Statement of Claim in the High Court in Dublin and served a plenary summons on the agency, in which Nama is accused of “wrongly and improperly” providing confidential information in relation to Mr McKillen’s business and financial affairs to representatives of the billionaire Barclay brothers. A spokesman for Nama denied the claim and said the agency would vigorously defend its position.

While Mr McKillen successfully resisted attempts by Nama to acquire his loans in 2011 on foot of a successful challenge in the Supreme Court, his ongoing battle against Sir David and Sir Frederick Barclay for control of the famous Claridge’s, Berkeley and Connaught hotels has been made more complicated by the agency’s decision in September 2011 to sell some €800m in loans behind the prestigious London assets to the Barclays.

Further complicating matters for Mr McKillen is the decision made by Nama in 2011 to approve the sale of loans supporting Derek Quinlan’s 36 per cent stake in the hotels to the Barclay interests. Source: The Irish Independent.