THE NATIONAL Asset Management Agency (Nama) may acquire derivative instruments nominally valued at up to €40 billion as part of the deal to buy property and development loans from banks.
Tender documents in which Nama says it wishes to engage a “derivatives valuation service provider” indicate that derivatives to an aggregate nominal value of between €20 billion and €40 billion will be valued prior to acquisition by Nama.
Legislation to establish the agency on a statutory footing will be debated in the Dáil next month.
Pending Nama’s establishment, preparations for the agency are being managed within the National Treasury Management Agency (NTMA).
It is understood that the derivatives tender is to value mainly interest-rate swaps associated with the commercial property loans transferring into Nama.
Borrowers were typically extended floating interest-rate loans on commercial premises, but they receive fixed rents under leases. Borrowers entered into interest-rate swaps with the banks to pay the fixed rents received to the banks and receive floating-rate interest in return from the bank.
“It is envisaged that one firm will be appointed to conduct the valuation of derivative positions transferring from all of the participating institutions,” the tender documents say.
The service provider will be expected to determine derivatives’ valuations based on market-accepted methodologies and market rates. “Valuations will incorporate adjustments which will be based on the creditworthiness of the derivatives’ counterparties and which will be specified in guidelines agreed by Nama with the service provider.”
This tender follows a call for expressions from qualified firms to advise and assist Nama in carrying out valuations of bank loans and other credit facilities to be acquired by Nama. “It is envisaged that individual firms will be appointed to conduct loan valuations for each of the participating institutions,” the tender says.
Nama is also tendering for real-estate valuation services.
From the total book value portfolio of €90 billion that will be acquired by Nama, the portfolio of loans for property in Britain is valued at roughly €25 billion.
“It is estimated that the US portfolio of loans which may be eligible for acquisition by Nama is approximately €3 billion,” the tender documents state. They also suggest that the loan coverage is for property in “major cities”.
The appointment of real-estate valuers will last four years. “It is not possible to quantify or estimate in advance the volume or the frequency of valuation work that will be required,” the tender documents state.
