Inside The World Of Business
McNamara may be more like Carroll than he thinks
DEVELOPER BERNARD McNamara has said that he does not want “to go the Liam Carroll route” following yesterday’s judgment for €62.5 million against him obtained by investors in his Irish Glass Bottle site project in Dublin.
McNamara was referring to his decision not to seek court protection through examinership from his personal debts and those of his companies; debts which he said totalled about €1.5 billion.
But he may yet end up in a predicament similar to his rival developer, who failed on two occasions last year to secure court protection for his Zoe Group, one of his three development groups which have debts of about €2.8 billion.
Eight banks have subsequently moved to appoint receivers to protect assets backing loans totalling €1.3 billion owing by Zoe, while two, AIB and Ulster Bank, have moved against a second Carroll group, Orthanc.
The High Court was told earlier this week that McNamara had no “unencumbered” or debt-free assets. He has said he has put all his assets “on the line”.
The main banks – AIB, Anglo Irish Bank, Bank of Scotland (Ireland), Ulster Bank and Bank of Ireland – may yet move to appoint receivers over assets held by him or his development firms. If this happens, they are likely to adopt a holding pattern, similar to the position taken by Carroll’s banks.
In that case, receivers appointed by both Nama and (the expected) non-Nama banks are taking an asset management approach, seeking to enhance the value of development lands by trying to get better planning permission. The receivers recognise that given the dire state of the property market, the only option is to hold the asset and wait until there is a recovery, or at least, until the loans are sold to Nama.
The scale of McNamara’s debts mean that he will be one of the first to move to Nama next month and presumably the same logic applies.
Building a ring fence
Separately, McNamara’s decision to resign from Michael McNamara Company in order to put a firebreak between the company and his personal financial problems is laudable, if a little puzzling.
According to McNamara, the family building firm is a profitable and legally separate entity and unaffected by the judgment obtained against him yesterday.
However, given the extent of McNamara’s problems, it is difficult to see how the eponymous building firm can escape the fallout from his personal difficulties, if, as he has said, all his assets are “on the line”.
Michael McNamara is an unlimited company and according to the most recent annual return filed in the companies office – for 2008 – it is owned by two Isle of Man companies, Cladagh Ltd and Homecrest, both with the same address in Douglas. The veil of corporate confidentiality available to the owners of Isle of Man companies mean that the ownership of these two entities is not clear. According to sources close to McNamara, the business is ring-fenced from the rest of his property empire. But given the size of his debts, it will be surprising if this structure is not challenged by his creditors.
Davy in Deep
Yesterday was not a good day for Davy Stockbrokers and their clients. Their success in obtaining a judgment against McNamara may turn out to be something of a pyrrhic victory given he extent of his debts.
A separate, but possibly overlapping, group of Davy clients was presumably also licking their wounds yesterday as Education Media Publishing Group – the company formerly known as Riverdeep – announced another restructuring.
Davy clients put some $200 million into the group in 2006 to underpin its highly leveraged reverse takeover of US publisher Houghton Mifflin for $4.95 billion. The Houghton Mifflin deal was followed by the no less ambitious and equally leveraged acquisition of Reed Elsevier’s Harcourt business for $2.9 billion in 2007, taking debt to an eyewatering $7 billion.
The deal had hardly been put to bed as the wheels started to come off the global credit markets and the company has been under pressure ever since. Cuts in the US school budget, its main market, have put the squeeze on earnings.
A debt for equity swop last August, which cut $100 million from the $500 million annual interest bill, was intended to buy some breathing space. Davy’s clients were diluted along with other equity investors and saw their stake in the company fall from 10 per cent to 5.5 per cent.
Founder Barry O’Callaghan also felt the pain, seeing his stake fall from 38 per cent to 21 per cent. How they will fare in the latest restructuring remains to be seen, but the reference in yesterday’s statement to lenders making substantial new investments hints at further dilution.
The EPMG deal had much the same allure for investors as the Irish Glass Bottle site and relied on the same benign credit markets in which debts could be repackaged, refinanced and sold on almost ad infinitum as the value of the underlying assets increased. The connections don’t end there. O’Callaghan was named in court as an investor in McNamara’s Glass Bottle Site deal. There would be a certain perverse symmetry if McNamara returned the favour by investing in EPMG.
Today
The National Competitiveness Council publishes Ireland’s Competitiveness Challenge its annual review. The Consumer Price Index for December is also due.
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