McKillen loans are clearly impaired, court told

THE ATTORNEY General has told the High Court property investor Paddy McKillen has total loan exposure of €2.1 billion to participating institutions in the National Assets Management Agency and has admitted he is unable to repay certain loans which have expired.

It was “an inescapable fact” those loans were impaired and non-performing, AG Paul Gallagher said.

Mr McKillen has not given a date when he can pay the €2.1 billion and one did not need to be an expert to see the risk involved, Mr Gallagher said. Nama could not be held up because Mr McKillen wanted a “reasonable” time to try and secure refinancing which he had so far failed to obtain.

As a matter of law, Mr McKillen had to repay loans which had expired and on his own testimony he could not, Mr Gallagher said. “What else is that but impaired?”

Mr Gallagher, who drafted the 250-Section Nama Act 2009, was continuing submissions for the State in opposing the action by Mr McKillen aimed at preventing the transfer of his loans to Nama.

The case relates to Mr McKillen’s Bank of Ireland loans – which he estimates at €211 million but Nama puts at €297 million – but the outcome has implications for Mr McKillen’s entire €2.1 billion loans with the five participating institutions in Nama.

Yesterday, Mr Gallagher completed a forensic analysis of sections of the Nama Act and then addressed a range of matters in affidavits for both sides, including testimony from experts for Mr McKillen.

Mr Gallagher said it was “of very serious concern” there was non-disclosure “of a material kind” by Mr McKillen of matters about his borrowings and loans when he initiated his challenge to the takeover of his loans by Nama. Even before Nama came into being, some of Mr McKillen’s loans had expired, he said.

The “elephant in the room” was that, while his experts were saying Mr McKillen was a good borrower with just “technical defects” in some loans, if a loan had expired, there was an obligation to repay and that had not been done.

Mr McKillen also initially said none of his loans were development loans when that was not the case. He had also failed to disclose breaches of loan covenants and that he had not secured refinancing for a number of loans.

After Nama pointed out these matters, Mr McKillen had asserted in a second affidavit that loans often reached their expiry date and were extended by agreement with the banks before or after expiry, Mr Gallagher said.

Mr McKillen had said it would be “contrary to good banking business” to “simply call in a performing loan” because of a “temporary loan to value issue” or because the loan had reached maturity. Mr McKillen and his experts argued calling in such loans was contrary to “established practices” of the banks but what they failed to recognise was such practises “have no place now”, Mr Gallagher said.

It was an “extraordinary proposition” that a commercial risk-taker who decided not to achieve contractual protection should then be able to claim constitutional protection. Mr McKillen’s case did not stand up to analysis “for one minute,” said Mr Gallagher.

Earlier, Mr Gallagher said Nama was an essential part of the bank recapitalisation scheme and is essential to the State banking guarantee coming to an end.

Mr Gallagher rejected arguments by Mr McKillen that Nama will “underpay” for loans.

The entire Nama process would be undermined if individual borrowers were permitted make submissions about the effect on themselves and their commercial interests of their loans going into Nama, he argued.

The case continues on Tuesday before a three-judge court.