Tag Archives: Vulture funds

Pat Comer, President, Irish Creamery Milk Suppliers' Association (ICMSA). - Photo: Kieran Clancy © 19/1/12 **NO FEE ** With Compliments ICMSA

John Comer, president of the Irish Creamery Milk Suppliers Association (ICMSA)

This morning.

On Today with Sean O’Rourke 

The show looked at farmers’  distressed loans being sold to vulture funds. Contributors to the discussion included solicitor John Murphy, of John A Sinnott &Co Solicitors in Enniscorthy, Co Wexford, and president of the Irish Creamery Milk Suppliers’ Association (ICMSA) John Comer.

From their discussion:

John Murphy: “I saw somebody, as recently as yesterday, getting a letter from a mainstream bank saying his loan had been sold to a vulture fund. If you read the bottom of the page, it says ‘and will be managed by’ a different firm involved. So, you know, you’ve gone from a bank to a vulture fund but you can’t contact the bank, you can’t contact the vulture fund. There is a management organisation in charge of it who are based in a warehouse, where you just can’t really call in.

“And the difficulty, I think, about a lot of places, is trying to get a name, try to get a face that you can talk to. Try and do a deal. Let me give you a quick example.

“A vulture fund buys a mainstream debt, approximately six months ago. Within, there was information freely available that the debt was bought for 25% of its value. Within three months, the farmer concerned offered that vulture fund, its managing receiver, offered him 100% profit on the debt. Now, 100% profit in three months, by my reckoning is 400% per annum. And it was refused.”

Sean O’Rourke: “On what grounds?”

Murphy: Because the receiver took the view that the asset was worth more than the offer because his client had bought the loan, and the loan was in arrears, he was entitled to the whole asset. And I had a conversation, we had a polite conversation, and I asked how the receiver proposed to realise this farm which is in rural Ireland obviously. And, you know, who was going to buy it?”

“And really, I got absolutely nowhere. The attitude was, ‘ah, I heard all these arrangements about rural Ireland before, we’ll see where we go’. Now that’s the best part of a year ago. And nothing really has happened since.”

O’Rourke: “And what’s been happening on the farm, John?”

Murphy: “Oh the farmers are farming away.”

O’Rourke: “Are they repaying any money to anybody?”

Murphy: “They’re doing their best to make some repayments, yes. But, you have to wonder why was that offer refused? Were the, there must be investors behind every vulture fund. And you wonder, were they told that they were in line for a 100% profit within three months. Because anybody I know, in business, over the years, if they were getting 100% profit at three months, there’s only one thing they’d do, they’d take it and run, and get out.”

O’Rourke: “On the other hand, the vulture fund, or the person you were dealing with, may believe that there’s a better offer if they just sit tight for a little longer.”

Murphy: “Well you’d wonder about that because the offer was very well presented. There was an accountant, a very experienced accountant involved, it wasn’t just a kind of stab in the dark, you know, ‘we’ll get a quick deal from the vulture fund’. It wasn’t that kind of situation at all, Sean. This was carefully put together and a realistic, maximum, serviceable borrowing for this particular farmer was put forward and it was demonstrated, you know, on past figures, how he could. And he’d sourced another mainstream bank, by the way, to come up with the money. It wasn’t accepted. Now you have to wonder, did it have anything to do with the continuation of the case? Which obviously would bring the receiver in much better fees than if he cleaned it out fairly quickly.”

Later

John Comer: “There is a lot of stress and anxiety out there in terms of, by the fact that we’re dealing with an unknown entity. There has been a lot of representations made to our office in Limerick, looking for advice on how to proceed. Obviously, the individuals involved were in a distressed situation anyway. But this has, as they say, added insult to injury. People, you know who had two or three generations of farming dealing with a bank, now find themselves in a situation where they don’t know actually who they owe the money to. They have no point of contact and they fail to understand why a bank would sell off these loans at 30, 40, we’re hearing different percentages of the value when, perhaps there was other options that could have been explored.

“We feel that I don’t think there was enough done overall to get loans that were, probably under performing, restructured and given to business people an opportunity to restructure their loans and essentially pay back the debt.”

“…we have met with all the pillar banks, you know, with an overall policy that we do not want to see a repeat of ugly scenes of farms and family farms, I stress, being sold in this manner. Because we believe, in most cases, there can be a resolution found if there was more engagement and if there was more recognition of the reality of the situation. Because, I can assure you, if vulture funds start selling off family farms in rural Ireland over the course of the next year or two, there certainly will be, you know, ugly scenes manifesting themselves because it’s ingrained in all of Irish citizens, I think, the repulsion of people being thrown out of their business and their home and there actual farm because of  a history and I think people would be making a mistake if they felt there was going to be no resistance in that area.”

Listen back in full here

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From top: A clip from last night’s RTE documentary The Great Irish Sell Off in which Minister for Finance Michael Noonan is recalled talking about vulture funds; Joan Burton questions Mr Noonan last June

Further to last night’s documentary, The Great Irish Sell Off…

Minister for Finance Michael Noonan was recalled talking about vulture funds at an oireachtas committee on housing and homelessness – in May 2016.

In response to a question from Anti-Austerity Alliance TD Ruth Coppinger, Mr Noonan said:

“You criticise me for not intervening with vulture funds. Well, it was a compliment when they were so dubbed in America because vultures, you know, carry out a very good service in the ecology. They clean up dead animals that are littered across the landscape.”

Then, in June, 2016…

…Mr Noonan faced questioning in the Dáil from the former Labour Party leader Joan Burton.

Joan Burton: “Has the Minister met with the purchasers of these loans, the vulture funds and hedge funds? By and large, they bought with the idea of flipping these loans within a relatively short period of three to five years.”

“We are now at a stage where, as the Minister said, we are reducing the number of distressed mortgages, but those left in distress are probably much worse cases and many have not engaged with the process.”

“Has the Minister directly met these funds? On various international trips he has occasion to meet some of these organisations or people connected with them, but has he met them in Ireland and talked about our society and how difficult the final work-out is? Many people who have not engaged are in deep difficulty and are likely to go under financially unless a structure is put in place to help them.”

Michael Noonan: “I meet various investors from time to time, at home and abroad, at their request. I cannot recall specifically meeting any of the investor companies that would generally be described as vulture funds, but if the Deputy tables a specific question I will have it researched within the records of the Department and give the Deputy a full answer.”

Then, in September, 2016…

… People Before Profit TD Richard Boyd Barrett asked Mr Noonan a similar question:

Richard Boyd Barrett: ‘Will the Minister provide details of meetings held between his Department officials and vulture funds during his terms as Minister for Finance; if he or his officials suggested to these funds that they might benefit from tax loopholes such as section 110 of the Taxes Consolidation Act or any other tax loopholes for the purposes of minimising their tax contributions; and if he will make a statement on the matter.

Michael Noonan: “While the term vulture fund is not recognised in the Taxes Acts, a small number of structures that have been using section 110 TCA 1997 to avoid paying tax on Irish property transactions have been brought to my attention.  To address these concerns, on 06 September, I published a proposed amendment which tackles any misuse of the current section 110 regime in relation to Irish property. Details may be found in my press release on my Department’s website regarding Section 110s.  The amendment as published is not finalised and may be subject to further refinements to clarify certain aspects of the provision.”

“In the context of the State’s interests in Nama, IBRC, the banks and other financial institutions, my officials would have met with representatives of companies that would have been involved in bidding for and purchasing loan books.  However, at no stage would my officials have been in a position to suggest any mechanisms regarding the minimisation of tax.”

“The rationale for publishing said proposal was to ensure appropriate feedback is received on a technical and complex section of the Taxes Acts.  As is standard practice when a technically complex piece of legislation is being examined, officials from the Department of Finance and the Revenue Commissioners have held meetings with a broad range of stakeholders including meeting with members of the Irish Debt Securities Association, the body that represents the securitisation industry and other members of the accounting, law and tax professions.  My officials are currently in consultation to clarify certain aspects of the provision and to ensure the proposal successfully carries out the intention for which it was created. This is an ongoing process and I would like to reiterate that we welcome input from all stakeholders, including Deputies, on the matter.”

There you go now.

Earlier: Stranded

‘Judgements In Favour Of Vulture Funds Will Explode In 2017’

Transcripts via Kildarestreet.com

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Michelle Moran and Roughan MacNamara of Focus Ireland launching the charity’s campaign calling for legislation to fully protect Irish homes from vulture funds in August

First-Time Buyer writes:

Effective lobbying is done as quietly as possible behind the scenes, ensuring that you get the result you were looking for without anyone else being the wiser…

Back in September, Minister for Finance Michael Noonan proposed a number of changes to Section 110 of the Taxes Consolidation Act 1997 which contains the provisions for Ireland’s securitisation regime.

This was on the back of various concerns raised in the media that “investors” (foreign funds) were using the legislation to avoid paying tax on Irish property by using S110 Special Purpose Vehicles (“SPVs”) for their transactions.

The Irish securitisation regime is very generous in that it permits certain companies to deduct interest payments on profit participating debt (i.e. loans where the interest rate is directly linked to the underlying profits of the SPV rather than a set rate).

In effect, this means that these SPVS could wipe out all of their profits with interest deductions leaving only a very small taxable margin (usually €1,000). These SPVs were making tens of millions from Irish property, but effectively were only paying as little as €250 to Revenue.

The aim of the amendments to the regime were to ringfence profits arising from a property business and ensure that a deduction was not available for profit participating interest.

This would protect the Irish tax base by ensuring these SPVs would pay tax at 25% on all of its Irish property profits, rather than only on the token €1,000.

A property business was originally defined as one which is involved in the holding or managing of “any financial asset which derives its value, or the greater part of its value directly or indirectly, from land in the State”.

When interpreted this would include property loans and mortgages but also shares in a company which derive its value from Irish property (e.g a Limited company that holds property, also known as a “Propco”).

What nobody noticed though was that in the time between the publishing of the original legislation in September to the publication of the Finance Bill in October a very deliberate change was made to narrow the definition of ‘specified mortgage’.

Such a narrowing means this anti-avoidance legislation is now only confined to loans and specified agreements deriving their value from Irish land but not to shares in a Propco (more on why below).

At the same time of this deliberate change, the Government included another, seemingly unrelated, measure to restore 100% interest deductibility for landlords of residential properties. This generous tax break encourages Propcos to be highly geared, to ensure their rental profits are significantly reduced by interest deductions.

When you combine these two measures it means the ‘investors’ will warehouse their Irish properties into simple Propcos, rather than the complicated SPVs, QIAIFs or ICAVs that we’ve been reading about in the media.

The investors will own the Propcos, via their existing S110 SPVs. They will fully leverage the Propco with related party debt, maximising the new 100% interest deductibility rules. This will ensure that any income arising will be fully sheltered by tax deductions, thus a continuing ability to avoid tax on the Irish rental profit.

In addition, the investor can avoid capital gains on a disposal of the property by simply selling the shares in the Propco rather than selling the property asset directly.

The gain on the sale of the shares of the Propco will arise to the S110 SPV and because the definition of ‘specified mortgage’ does not include the sale of shares, the SPV can use profit participating interest to wipe out its gain on the sale.

You couldn’t make this up.

Related: Vulture funds hit by political cave-in on tax reprieve (The Irish Times, November 22, 2016)

Previously: Mars Capital, Matheson And The €250 Tax Bill

Sasko Lazarov/Rollingnews

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This morning.

Kildare Street, Dublin 2.

Michelle Moran and Roughan Mac Namara of homeless charity Focus Ireland launch the charity’s new campaign which is calling for “Government legislation to fully protect Irish homes from the threat posed by vulture funds”.

More at VultureShock

Previously: A Rising Shame

Sasko Lazarov/Rollingnews

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From top: The Cruise Park housing estate in Tyrellstown in West Dublin this morning; Yesterday’s Sunday Business Post

Journalist Fearghal O’Connor, in yesterday’s Sunday Business Post, reported how more than 200 families renting homes in Tyrrelstown, Dublin 15 are facing eviction.

Twinlite – a property company owned by developers Michael and Richard Larkin – sent letters informing the families that they have to leave the properties, after a Goldman Sachs vulture fund bought an €89million loan secured on the homes by the Larkins, from Ulster Bank.

The €89million loan was secured on Tyrrelstown’s local shopping centre, ‘a significant’ land bank in the area, and the 208 houses in Cruise Park which the Larkins rented out.

Mr O’Connor reported:

“The Larkins, Davy [Stockbrokers] and Goldman Sachs signed a profit-sharing agreement that will see all the houses sold and the shopping centre ultimately refinanced to allow a Goldman exit.”

Some families have been renting the homes for up to 10 years.

Further to this, business editor of the Sunday Business Post Tom Lyons spoke to Keelin Shanley on RTÉ One’s Today with Sean O’Rourke Show earlier, about the wider implications of this move.

Keelin Shanley: “This is just one incident here. I heard David Hall, on Morning Ireland earlier today, talking about a potential 47,000 homes that could be in a similar situation. I mean, is that accurate?”

Tom Lyons: “I would have thought, it sounds, if anything, conservative. If you look at the type of numbers we’re talking about, you know, we know that IBRC, the former Anglo Irish Bank and Irish Nationwide, you know they offloaded about €20billion, Ulster Bank, it would be €9billion, Nama, sales to actual vulture funds, in Ireland, you would have thought that’s somewhere around €10-€15billion and then you’re looking at Dankse, KBC, Bank of Scotland Ireland, that’s another €5billion. These loans are not only secured on people’s homes, they’re also secured on investment properties and SMEs. But because everything is linked together, you know, if you see a vulture fund move against an SME, chances are they’re going to default on their mortgage. If you don’t have a job, or your company’s been taking away from you or you’re working for one of these companies which suddenly you find yourself being fired, you can see that this could have a massive ripple effect.”

Shanley: “Massive.”

Lyons: “Far beyond just the straightforward high residential mortgages being acquired by a vulture fund.”

Shanley: “And Tom, just to be absolutely clear, I mean if we’re talking David Hall’s figure, say, 47,000, you think it could be even more. Some of those mortgages, they will have people in the homes, they are paying their mortgages, are those people safe?”

Lyons: “Well, in theory, like there are protections around your home. But it’s very easy to default and we’re talking about, if you look at AIB or Bank of Ireland – they can see ‘we’re here for the longer term’ and whereas if you’re talking about a vulture fund, these are companies which are acting on 3, to 5, to 7-year horizons.”

Shanley: “They’re a quick hit, so if for example, you know have your mortgage arranged, you can afford it, you are paying it, but in the past you had some issues around it, are you vulnerable?”

Lyons: “You should be OK if it was in the past. But if it’s meant that there are payments outstanding, suddenly these funds can start saying ‘hang on, these are your missed payments, you need to start paying for these’. And that could put people under pressure. There are any number of things that could put people under pressure but these funds have got relatively short-term horizons and they have aggressive investors who are looking for big returns.”

Shanley: “And this is the beginning, would you say, of what we’re seeing here?”

Lyons: “I would have thought it is just the beginning and I think it’s something that was absolutely inevitable because of the way that we decided to solve the crisis which was to ‘let’s sell everything to these big funds’. These big funds, they’re not here for the long term and they need big returns to justify the risks.”

Shanley: “So you’re saying it’s Government policy. The Times is reporting today that 90% of asset disposals by Nama were to vulture funds like this so it’s vast quantities of money.”

Lyons: “It’s absolutely vast, it’s tens of billions ultimately when you add it altogether. I mean it has been a massive transfer of money, assets, loans and power to a relatively small group of funds, probably seven or eight of them and they are now incredibly powerful. They can do things, like they now own, in certain parts of Dublin, they would own 80% of apartment blocks. So if you’ve got that, you’ve got market dictating power and there’s things you can do with rents, there’s things you can do with terms of deciding when and where do we sell, they own an awful lot of sites, so they can decided when and where do we start building the new houses.”

Shanley: “Any easy solution? We’re going to be talking about this later in the programme but, at this point, is it just you’re on a  roller coaster or is there a way to halt this?”

Lyons: “Well we decided a number of years ago that this, we’re going to put ourselves on this roller coaster and trust these funds are going to act correctly, and ethically, and it’s a fact that many of them have but as they get towards the end of their funding cycle, when they’re looking at returns, I think they’re going to start taking much tougher and tougher decisions and we’re really getting into that period of time round about now.”

Meanwhile, separately…

Also in yesterday’s Sunday Business Post, Mr Lyons reported that Nama sold Dublin’s Clarence Hotel to a consortium including Bono and the Edge without inviting any other bidders to tender for the hotel.

Mr Lyons reported:

“The hotel is understood to have been sold for less than the total debts of the company which previously owned it. Last year, another State agency, the Dublin Docklands Development Authority, sold U2’s former recording studio for €450,000 to the band without a public tender.

“The transaction was later investigated by the Public Accounts Committee amid allegations the site could have fetched more on the open market, a claim denied by the DDDA.”

Good times.

Listen back to Today with Sean O’Rourke in full here

Bono and Edge buy Clarence Hotel in off-market Nama deal (Sunday Business Post, Tom Lyons)

200 Dublin families face eviction in vulture deal (Sunday Business Post, Fearghal O’Connor)

UPDATE: 

Richard Larkin has spoken to Joe Duffy on Liveline this afternoon and is disputing the story in the Sunday Business Post.

He said:

“We don’t want to be in the rental business anymore. The only way to do this is to sell the houses. And we’re not selling them off in one big bunch to some investor. We’re selling them off one-by-one to families who are coming in here, who want to make their home here in Tyrrelstown.”

“As a developer we don’t have any debt at all. This rental property is held in a property fund, called EPS, that we manage the assets for. Now that company has a loan that they owe to Goldman Sachs but Goldman Sachs don’t know anything about this. I mean the first thing Goldman Sachs heard about this was on Sunday when the read the Sunday Business Post.

“This idea that somehow a deal was cooked up in a back room of this big bad American bank to kick people out of their houses is absolutely nonsense and if it had checked, they would have been told that and they wouldn’t have ran this story and they wouldn’t have been scaring people…”

“…There’s not going to be mass evictions at all. A lot of people who have received notices their leases are not going to be renewed have already found new accommodation and have moved, others have agreed to buy their properties and have wanted to buy their properties  from us and they will be staying exactly where they are.”

“We’re talking a very small number of people and nowhere near the numbers that were thrown around by the Business Post.”

“We’ve gone to all of them and we’ve said, look, you know, it’s not always possible, people don’t always have the ability to get a mortgage but anyone who can and who wants to own their own home, we will not put it on the market we will sell it directly to them, there will be no bidding wars, there will be no anything.”

“… There’s no evictions, first of all, their lease won’t be renewed, some people have six months left on their lease, some people have four months left on their lease, you know.

“But the other thing to point out is any of these properties, where the leases are not being renewed, the day comes at the end of the lease, if we haven’t agreed to sell that house to somebody, we’re not going to tell the tenant he has to get out. We’ll say to the tenant, ‘right you can remain there month-to-month, it’s ok, until we can find a buyer, or until you can find alternative accommodation, or until the tenant can [buy it].”

“…Their lease is going to expire and it’s not going to be renewed so if you want to call that eviction, you can call it an eviction but I mean, you know, we’re not telling them, get out of your house, we’re saying in six months time, when your lease is up, you need to find somewhere else to live.”

Listen back to Liveline here