Fleming group loans look set for Nama

ANALYSIS:IT LOOKS almost certain that loans from the Irish banks to the Fleming construction group will end up in Nama after it emerges from examinership following yesterdays High Court ruling.

Tivway, John J Fleming Construction and JJ Fleming Holdings, remain under court protection until Monday, at which point one of their creditors, ACC, which opposed the plan, will have decided whether or not to appeal.

If ACC does not appeal, then the group gets a second chance and its 137 jobs are saved. A new company, Donban, is taking over the contracting and building business in return for €3.6 million. This money will be used to pay unsecured creditors 25 per cent of what they are owed.

Donban will begin trading immediately and is already looking at contracts, and it has the promise of working capital from the banks. John Fleming is providing €5 million in collateral to support the company.

In total, the group owed €1 billion to its lenders, much of this was secured over development properties, the largest of which is a series of sites in Sandyford, Co Dublin.

The banks, including State-owned Anglo Irish, which loaned €266 million, Bank of Scotland Ireland, AIB and ACC, will take control of this. They have up to 10 years to manage the assets and decide how and when to complete and sell them.

If they realise less than what they are owed, they will have the right to call on a reserve fund to make up the difference. Once the process is over, the Fleming property business has a clean sheet.

If the loans are transferred to Nama, it is the agency that will get any proceeds from the ultimate sale of the properties, and if necessary from the reserve fund. The non-Irish banks will collect in the way set out in the rescue plan.

The Irish banks supported the plan, and Anglo Irish was represented in the High Court at last week’s hearing.

But if Nama is going to inherit their interest, why did they facilitate a rescue of something they were not going to own?

The possibility is that Nama will pay them more for loans on properties that are not in liquidation. If the group were in liquidation, then the properties would have to be valued at close to current market prices, as liquidators have to sell assets reasonably quickly.

The scheme avoids this, so Nama has to value the properties according to what it believes they will be worth in the longer term. In short, it’s a better deal for the banks.