LONDON, Dec 13 (IFR) - Bank of Ireland on Wednesday became
the first bank to sell subordinated debt after imposing severe
haircuts on junior bondholders in the wake of the eurozone
Those involved said the deal showed that banks can still
have (expensive) access to the capital markets even after
The bank sold a EUR250m 10-year Tier 2 transaction via sole
lead Deutsche Bank, defying the widely held perception that
investors would shun issuers that had burned them in the past.
Bank of Ireland's subordinated bond holders lost as much as
90% of their investments when they were forced to share the cost
of recapitalising the bank after the banking crisis. The bail-in
took place 18 months ago.
The final order book for the Single B rated transaction was
more than three times subscribed, with a combination of UK, US
and European accounts taking part in an offering that gave
investors a juicy 10% coupon.
"A deal like this would have been perceived to be impossible
earlier this year," said Vinod Vasan, head of European FIG CMTS
at Deutsche Bank.
"But there was a huge reception for the bond which shows
that there is a lot of demand for Irish credit and investors are
keen to put money to work."
However, some market observers were less than impressed by
the marketing of the deal, with one banker saying the
transaction does not represent the turning point people are
hoping for because of a relatively limited distribution.
"It was slightly cheeky to present this as a public deal
that was placed in the market," said the banker.
"There is a lot of talk that EUR200m of this went to Bank of
Ireland's largest investor and only EUR50m was placed with
investors on a syndicated basis."
Another banker had heard about the significant lead order
and said that, while it is good to see Bank of Ireland issuing
capital, the tight nature of the deal undermines its landmark
"The jury is still out on Ireland. So we'll just have to see
how they fair in the future," he said.
Deutsche Bank declined to comment on distribution.
Bank of Ireland carried out voluntary below par tender
offers on its junior debt as a way of bolstering its capital as
part of a state-backed recapitalisation and also used so-called
exit consents from 2010 as a way of forcing bondholders' hand in
taking losses on their investments.
Former investors in Bank of Ireland and Allied Irish Banks
are now seeking compensation for being forced to take just one
cent for every EUR1,000 of subordinated bonds they held.
In the summer, the English High Court ruled that exit
consents used by Anglo Irish Bank to forced bondholders to take
huge losses were illegal and now a group of Bank of Ireland
bondholders are now believed to be in discussions with the
institution about a possible settlement.
The group has also lodged letters with the Irish Ministry of
Finance, alongside a number of bondholders in Allied Irish. The
latter are at an earlier stage of proceedings and have yet to
engage fully with the bank. The Ministry did not respond to a
request for comment from IFR.
Unlike other Irish banks, Bank of Ireland escaped being
nationalised after a last-minute EUR1.1bn investment by US
investors - led by Fairfax Financial, WL Ross, Capital Research
and Fidelity - restricted the state's stake in Bank of Ireland
Bank of Ireland has been improving its franchise in recent
months as the credit story surrounding Ireland is being viewed
more favourably by global investors.
The bank managed to sell EUR1bn through a covered bond in
November that reinforced hopes that the bank is on a road to
recovery. The bond offered investors a 3.125% coupon for
three-year debt and managed to attract orders of EUR2.5bn.
But while certain investors seem to be warming to the
prospect of an Irish rehabilitation, many remain unconvinced.
"There is still a lot of restructuring work to be done in
Ireland and the country has a long way to go before it will be
perceived as a credible place to invest in," said one investor
who refused to take part in Bank of Ireland's Tier 2 bond.