FACTBOX-How Ireland's "bad bank" will work

DUBLIN, July 30 (Reuters) - The Irish government unveiled draft legislation on Thursday giving its "bad bank" project wide powers to secure the stability of the financial system and restore investor faith in the former "Celtic Tiger" economy. [ID:nLU694667]

Here are some details how the National Asset Management Agency (NAMA) will operate:

HOW WILL LOAN VALUATIONS BE REACHED?

- NAMA will buy risky land and development loans, as well as associated collateral, with a book value of 80 billion to 90 billion euros ($113 billion-$127 billion) from participating banks at a significant discount.

- The payment for the loans will be in the form of government securities and/or guaranteed securities.

- NAMA will acquire portfolios at a price that reflects their longer-term economic value, not at "recent bubble property prices," nor the significantly lower current market value.

- Each loan will be valued separately.

- The government will publish detailed regulations in September on how the "longer-term economic value" will be calculated, which will give investors a flavour of the discount that will be applied.

- Finance Minister Brian Lenihan said some rural sites bought for development but now left fallow will likely be priced at current rates for agricultural land because of the unlikelihood of the projects being resurrected.

WHAT POWERS WILL NAMA HAVE?

- NAMA will have powers necessary to purchase, hold and dispose of assets and if necessary complete developments with a view to achieving an optimum return to the state.

- It will have full rights to pursue debts on the property loans it takes over and be able to take ownership of loan collateral where necessary, including limited powers to obtain property or interests compulsorily.

- It will be able to raise funds to finish half-completed, viable projects and could also enter into joint ventures with private equity firms for the same purpose.

- Where litigation arises in respect of NAMA's operations, the government says provisions have been made to ensure this does not unduly obstruct NAMA's efficient operations.

WHAT ARE THE BENEFITS TO THE BANKS?

- Removing the risky loans will free up the banks' balance sheets to start lending again.

- The bonds that they receive can be cashed with the European Central Bank, boosting their liquidity.

- NAMA will pay a floating rate of interest on securities and expects that the income generated from the loan assets it takes over will be sufficient to meet interest payments.

- The minister said he would address the issue of whether banks will be able to claim tax relief against losses on their loan book in September.

WILL FOREIGN BANKS PARTICIPATE?

- Institutions will have to apply to the Finance Minister if they wish to participate in the scheme.

- The minister will consider the systemic importance of the bank, the support available to that bank from any other country, any other financial assistance already extended to that institution and the resources available to him in approving or rejecting applications.

LEGAL CHALLENGES?

- If a bank objects to the acquisition value placed on a particular asset, it can appeal to a valuation panel which will pass its findings to the minister, who can confirm the value or return the matter to the panel for reconsideration.

WHAT HAPPENS NEXT?

- Ireland will outline on Sept. 16 the probable amount of bonds it will have to issue to pay for taking over the assets and Parliament will reconvene from its summer break to debate the draft legislation.

- The capital impact for lenders will be clearer in September when Lenihan publishes regulations on how valuations are to be calculated.

- Ireland hopes to start transferring assets to the "bad bank" weeks after it is formally established, likely in October.

- NAMA is aiming to transfer the assets of Ireland's top 50 property developers, with a book value of around 30 billion euros, by the end of this year

- The full capital impact will not be known until all 10,000 loans are moved over to the agency by the end of June 2010. (Reporting by Padraic Halpin; editing by Carmel Crimmins and Leslie Adler)