Apr 21st, 2012 by Conor McCabe
[With thanks to jackbethel]
Two weeks ago the Irish State via the Irish Bank Resolution Corporation paid out full value of €2.5 billion to investors in Armoin Residential Securities - a residential mortgage-backed special purpose vehicle set up by Irish Nationwide in 2009 and listed in the IFSC for tax avoidance purposes - these SPVs remain the great untold story of the Irish mortgage sector -
Armoin was given a triple-A rating by Fitch in 2009.
Within 12 months over 8 per cent of the loans within Armoin were in arrears. So, Armoin and Irish Nationwide, instead of following through on the vehicle as void, swapped the defaulting loans for new, performing, loans.
As at 28 February 2010, the percentage of Loans in the Portfolio that were In Serious Arrears was 8.61 per cent.. Because such percentage is greater than 6 per cent., the Issuer was unable to acquire (and Irish Nationwide Building Society (”INBS”) was therefore unable to sell) any New Loans pursuant to the mortgage management and agency agreement (the “MMAA”) dated 9 March 2009 between amongst others, the Issuer and BNP Paribas Corporation UK Limited (the “Security Trustee”) and the mortgage sale agreement (the “MSA”) dated 9 March 2009 between amongst others, the Issuer and the Security Trustee. Such situation was neither in the interests of the Issuer and its Secured Parties (as the increased arrears may ultimately result in losses to such parties) nor INBS (as INBS cannot benefit from the sale of New Loans to the Issuer).
INBS therefore proposed and the Issuer agreed with the consent of the Note Trustee and the Security Trustee that, notwithstanding that the Transaction Documents do not expressly permit substitutions, the Loans In Serious Arrears (amounting to €62,575,018.41 in Principal Balance) (the “Substituted Loans”) be removed from the current portfolio and be replaced (the “Substitution”) with New Loans which are not In Arrears (the “New Portfolio”). INBS certified that such Substitution (as defined below) would be beneficial (and therefore not prejudicial) to the Issuer and its Secured Parties (including the Noteholders).
This was not enough and in 2012 the notes were recalled and paid out at par with interest.
The prospectus for Armoin stated clearly that if Irish Nationwide was not in a position to pay then the investor will lose out - yet the Irish taxpayer paid out full value on an investment from a bankrupt bank, even though the contract itself clearly states that such a risk of non-payment was part of the deal…
“There can be no assurance that Irish Nationwide will have the financial resources to honour its repurchase obligations under the Mortgage Sale Agreement. This may affect the quality of the Loans and their related security in the Portfolio and accordingly the ability of the Issuer to make payments on the Notes.” (p.17)
Armoin was transferred to Anglo Irish Bank in 2011, along with Irish Nationwide. This was despite the fact that Armoin was a separate legal entity to Irish Nationwide.
going back to the prospectus:
The Notes will be obligations of the Issuer only and will not be guaranteed by, or be the responsibility of any other person. The Notes will not be obligations of, and will not be guaranteed by, the Note Trustee, the Security Trustee, the Arranger, the Account Bank, the Servicer, the Agent Bank, the Paying Agents, Irish Nationwide Building Society (Irish Nationwide) or any company in the same group of companies as, or affiliated to, Irish Nationwide. The issue proceeds of the Notes will be used by the Issuer to purchase the loans and their related security from Irish Nationwide (the Loans). (p.2)
The Irish State has taken the decision to pay out at par on Irish mortgage-backed securities - of which there is at present somewhere between €50 bilion and €76 billion.
This does not include mortgage-backed bonds which were issued as a separate scheme from 2004 to 2008 (under legislation passed in 2001 and amended in 2007), and of which Bank of Ireland alone has €20 billion securitised.