Madam, – Brian Lucey (Opinion, April 1st) makes a number of incorrect statements about the National Asset Management Agency (Nama) and the NTMA.
In particular I want to address the incorrect statements made by Mr Lucey in relation to the funding of Nama.
Mr Lucey states that the taxpayer has been “exposed . . . to massive refinancing and interest rate risk” and that “we are funding Nama at the short end of the maturity spectrum to purchase long-term illiquid assets.” This is not the approach Nama is taking to funding the purchase of the troubled loans. To use Mr Lucey’s terminology, Nama is not funding short to buy long and Nama has not exposed the taxpayer to refinancing or interest rate risk.
With respect to refinancing risk, the guaranteed securities which Nama is using as consideration for the troubled loans carry a maturity of one year but are extendable at Nama’s option (not that of the banks) on a continuous basis for a further one year at each maturity date.
This means that we can extend each of these securities for the full 10 years envisaged as the lifespan of the project. In addition, the subordinated debt issued by Nama carries a maturity of 10 years. Details of these securities can be found in their term sheets on the Nama website.
Regarding interest rate risk management, the loans which Nama has acquired from the financial institutions typically pay a six-monthly interest rate plus a margin from the borrower. Nama, however, will pay a six-monthly interest rate only and no margin to the financial institutions on the Nama guaranteed securities. The NTMA, acting on behalf of Nama, will execute Nama’s interest rate hedging strategies in the capital markets to deal with interest rate risks as appropriate. This approach is in line with what any business would do to manage its risks appropriately. – Yours, etc,