Cerberus advisor discussed ‘less sophisticated’ borrowers’ taxman difficulties with civil servants

The special advisor to the Cerberus fund, which in 2014 acquired distressed loans attached to a huge swathe of Northern Ireland - including several Londonderry assets - told senior civil servants at the Department of Finance some borrowers, “especially those with smaller loans,” had “unrealistic expectations.”

Mr Ronnie Kells also told DFP officials that borrowers in the Ulster Bank portfolio, which was acquired by Cerberus were in many cases “less sophisticated” and were already in bother with the taxman.

He warned: “There may be potential for discontent with these borrowers.”

The officials were also told that the New York private investment fund would waive borrowers’ personal guarantees provided they agreed to “work with” it.

The details of two meetings between Mr Kells and Tony Simpson and Alan Ramsey of the DFP Strategic Policy Division in December 2014 and February 2015 have been newly released to the Sentinel following a Freedom of Information request.

The former Finance Minister Arlene Foster had refused to release details of the meetings but following an appeal by this paper to the Information Commissioner the minutes have now been finally released.

The minutes provide an impression of Cerberus’ mindset. They also show that in December 2014 the NI fund comprised 55 borrowers with a total loan book value of £4.5billion. The loans ranged between £100m and £1bn and were mostly attached to commercial property (850 properties; 10 per cent land).

According to the minute of the December 2014 meeting “Providing borrowers ‘work with’ Cerberus, Cerberus will waive the personal guarantee underpinning the loans, which represents a very good deal for borrowers, according to Mr Kells. In most cases the borrower will buy back the loan and this is being financed in the main by financial institutions outside Northern Ireland.”

The minute also reveals that the fund was being managed by Capita Asset Services in Belfast, and that Cerberus was keen to work with borrowers, although, it had misgivings.

“Cerberus is keen to work constructively with borrowers. They have completed a first phase of engagement, which involved meeting each borrower individually to discuss options. Mr Kells explained that some borrowers had unrealistic expectations, especially those with smaller loans.”

The minute also mentions a number of unspecified complaints that were made about Cerberus via both the Northern Ireland Affairs Committee and Sinn Féin MLA Daithí McKay.

This is interesting in that Liam Strong of Cerberus European Capital Advisors Ltd wrote to Mr McKay in May 2015 saying no complaint had been received.

At a second meeting on February 16, 2015, Mr Kells advised that the borrower complaint raised with Mr Kay was ongoing, he said two large borrowers had recently refinanced and were no longer on the Cerberus loan book, and that he expected the entire Cerberus loan book to have been resolved by the end of 2015.

“Mr Kells explained that there are three ways for borrowers to be dealt with. Either the borrower refinances, (usually with banks outside NI), alternatively agreement with the borrower that Cerberus will realise assets or in the last resort, Cerberus will take over the borrower’s assets and realise their value (e.g. [redaction]).”

A minute of the meeting also refers to the acquisition of the Ulster Bank loan portfolio and suggests Cerberus had doubts about some of the borrowers therein.

“Cerberus has acquired the Ulster Bank loan portfolio, which contains many more borrowers than the NAMA loan book they previously purchased. The borrower split in the UB book is roughly 25 per cent in Northern Ireland versus 75 per cent in the Republic of Ireland.

“The UB book will be managed in Belfast, creating around 50 jobs (Capita currently recruiting for additional staff). Mr Kells suggested that on average the UB book contains many ‘less sophisticated’ borrowers, many of whom already have issues with HMRC, for example. There may be potential for more discontent with these borrowers.”

Mr Kells also told Mr Simpson and Mr Ramsey that it would likely take until 2018 or 2019 to clear the Ulster Bank book.