Examinership a bitter pill for landlords

Cantillon:You don't have to look too hard to see the parallels between the BQ examinership and the one through which Atlantic Homecare went last year.

The first, and most obvious, is that they are both in the same business, DIY, which is a branch of retailing and is consequently suffering the ill effects of what is turning into a never-ending recession.

The second doesn’t take long to become obvious either. BQ’s parent, Kingfisher, is a substantial creditor, as was Atlantic’s owner, Grafton Group.

This brings us neatly to the third: Kingfisher is willing to support BQ through the examinership and invest once the examiner, Declan MacDonald, can get a rescue plan over the line. Similarly , Grafton backed Atlantic while it went through the same process last year.

Atlantic emerged successfully from court protection and examinership, and the deal involved Grafton taking a haircut on its debt, along with a number of other creditors.

It would be dangerous to predict that BQ will also emerge from the process and that Kingfisher will have to take some sort of a hit on the €17 million it is due from its subsidiary. However, it would not be a shock if this were to happen. A rescue plan, if one gets High Court approval, is likely to involve all creditors, including the parent, taking some pain.

Rent is easily the fourth parallel. Atlantic’s oversized, pre-recession leases were a millstone on its business. BQ is paying €11.6 million a year on nine stores, €5.8 million over the going rate.

Examinership is one way out of the situation. This is clearly one of the issues that BQ – and presumably Kingfisher – want to tackle in the process. The company’s lawyers highlighted the problem in the High Court, and the level of rent attracted comment from the bench.

Atlantic’s landlords took a €5 million a year reduction in their rent, but some of them got to keep their tenant. The group proposed closing five stores when it entered examinership, but ultimately shut just two. Presumably it kept the other three because landlords were suddenly willing to talk. It might be pushing it to suggest that examinership is the now ultimate bargaining chip with stubborn landlords, but you could be forgiven for thinking it. If it is, then it’s time to find some other way of tipping the balance in tenants’ favour.

Thinking the unthinkable on arrears

If the idea of yesterday’s conference on how to fix distressed property markets was to shake up thinking on these shores, it must be scored a success.

At the outset, the governor of the Central Bank, Patrick Honohan (above), gave an address in which he referred to the unprecedented level of mortgage arrears, and distress, in the State. He went on to refer to the code the bank introduced some years ago, to prevent people who were in trouble with their mortgages being treated aggressively by their banks, and the view of the Central Bank that the Irish banks are behind the curve in addressing the problem.

He was quickly followed by speakers from the US who drew attention to the apparent correlation between the rapid processing of defaulting loans and the associated rapid foreclosures, or repossessions, by US banks, in some states, and the recovery of the property markets in those states when compared with states where the foreclosure process was less prompt.

In other words, the Irish were getting it all wrong.

A number of the participants from across the pond referred to the attractiveness of “getting on with it” and letting people, and banks, start again.

One of the participants, Anthony Murphy, a senior economist with the Federal Reserve Bank of Dallas, is a former academic from UCD. He said that while the level of foreclosures in the US was too high, the near-zero level of repossessions in Ireland was too low.

Interestingly, different states in the US have different laws in relation to whether people whose homes have been repossessed can be pursued for that part of their mortgage not satisfied by the sale of their former homes.

However, even in states where the banks can legally pursue people for the part of the mortgage that remains outstanding, the practice is not to do so.

This, the conference was told, is because everyone involved accepts that both the banks and the borrower have made mistakes, and the best thing to do is to draw a line under the whole matter, and move on.

Dalkey can Kish goodbye to oil fears

They may have been busy negotiating traffic in large, hydrocarbon-consuming cars at the time, but presumably some south Co Dublin residents gave a cheer when the news broke that Providence Resources had handed back its foreshore licence for the Kish bank area, effectively putting plans to drill off Dalkey on hold.

The move was a result of An Taisce’s discovery that the law under which the licence was issued in the first place was flawed.

The Government had incorrectly transposed the EU’s environmental impact assessment directive into law in 1999.

The Government now has to correct the error and Providence will have to go through the process again.

Presumably this means that its plans for exploratory drilling in the Kish licence area will be delayed.

The problem looks like it could be more of a headache for the State than Providence. The Government has to correct the error.

It is an EU directive and so the Government has no choice but to transpose it correctly into Irish law. Given that we are talking about a clause of a sub-clause, this should not be too difficult, but a large number of interested, influential and vocal parties will almost certainly be scrutinising the process.

Although it is not thought to be a big risk, there may be other licences, permits, etc, lurking out there that were issued on the back of the flawed provision, so there may yet be other consequences.

Providence, meanwhile, has other, much larger fish to fry. The Tony O’Reilly jnr-led company is likely to step up the search shortly for a farm in partner for Barryroe, the prospect in the Celtic Sea – far away from Dalkey – from which it says it could recover 280 million barrels of oil plus large quantities of natural gas.

Barryroe is close to the existing pipeline running to the mainland from the Kinsale field, cutting out at least some of the costs of exploiting its natural gas.

It also has a stake in Dunquin in the Porcupine basin, where multinational Exxon has plans to drill this year. Despite the setback with the Kish licence, Liberum Capital yesterday recommended Providence as a buy at £5.89 and set a long-term target price of £22 on the stock.

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