Are some Irish developers getting taxpayer-funded bailouts as Nama starts offloading their loans? It certainly looks like it.

Take Michael O'Flynn, the Cork developer whose loans were sold by Nama last week. In 2009 Mr O'Flynn owed €1.8 billion to various Irish banks. As of today he owes €1.8 billion to US private equity house Blackstone. In the interim he was a co-operative client of the National Asset Management Agency.

He remains in charge of his property business.

The difference between 2009 and now is that nobody seriously expects or needs him to repay even close to €1.8 billion. We can deduce this because Nama sold the loans for €1.1 billion, which presumably is close to their best estimate of what is recoverable from Mr O’Flynn’s business in the medium term.

This amounts to a potential effective writedown of his debts by €700 million. The loss ultimately shows up in the books of the banks that lent him the money – not Nama, which probably made a profit buying and selling his debts. The loss will have been met by some of the €65 billion pumped into the banks by the taxpayer. Hence the allegation of a taxpayer-funded bailout.

Exactly how much of the €1.8 billion Mr O’Flynn repays is between him and Blackstone. No doubt they will squeeze him but the chances are it’s not going to be far off €1.1 billion unless Nama has got its sums badly wrong.

It's not quite the outcome promised in 2009 when then minister for finance Brian Lenihan and taoiseach Brian Cowen were adamant there would be no bailouts. "Nothing in the proposed Bill will provide a bailout for borrowers, whether builders, developers or otherwise . . . anyone who owes money before Nama, continues to owe it and is expected to repay the full amount of the debt," said Lenihan in July of that year.

He was followed by Cowen a few days later, who was reported in this paper as saying that while Nama would acquire loans from the banks at a discount, the developers who had borrowed from the banks would still be required to pay back to Nama the full value of the loans they had taken out.

Taxpayer burden
It's pretty clear that the two men either did not understand what Nama was and how it was going to work or instead played fast and loose with the truth in order to get the Nama legislation over the over the line. One suspects it was the latter.

Nobody suggested that Nama was going to involve anything other than huge writedowns of the loans given by the banks to property developers. And, likewise, anybody who was paying attention knew the bill for the writedowns was always going to be borne by the taxpayer, who would have to recapitalise the banks – to the tune of €65 billion – in order to allow them absorb these and other losses.

But what did turn out to be at best a fib was the claim that Nama would operate in a way that would make it impossible for the developers who took out the loans to benefit from the writedowns. The Nama legislation did include a clause that the developers could not buy their loans back from Nama but, as we have seen, it was not possible to prevent them having a continued interest in the underlying business and assets once the debt had been written down and sold off by Nama.

Implementing and enforcing such a punitive but popular policy would have been extremely difficult and arguably counterproductive. Selling Irish property assets and related loans looked like a pretty difficult job in 2009, so why make it even harder by imposing all sorts of conditions on the prospective buyers ?

The consequences of all of this dissembling have now been manifested. Mr O’Flynn has the dubious distinction of being one of the first – if not the first – developers to emerge from the process with their debts effectively written down. There will no doubt be others.

There will probably be those, like Mr O'Flynn, who had the stronger and better managed business going into Nama and co-operated with the agency by selling assets and paying down debt. Sean Mulryan and the Cosgraves are seen as likely candidates.

Whether the public can make the distinction between them and their peers or swallow the pragmatic arguments for writing down their debts remains to be seen.