* Ireland to use 2025 bond to sidestep cash payment
* Irish fin min says deal not template for wider talks
* Bank of Ireland, NAMA involved in complex arrangement
By Padraic Halpin and Conor Humphries
DUBLIN, March 29 Ireland will avoid a 3.1
billion euro payment to one of its failed banks, settling the
bill by issuing a 13-year bond, the country's finance minister
said on Thursday ahead of broader talks on easing the country's
Dublin has been campaigning for months to soften the terms
of its bank bailout, concentrating principally on replacing 30
billion euros of high-interest IOUs given mainly to the former
Anglo Irish Bank with another instrument that would lengthen
their maturity and cut their interest rate.
With those talks with Europe set to take months, the
government has been scrambling to sidestep the end-March
Michael Noonan said the complex solution, initially
involving the former Anglo accepting the 2025 bond in lieu of
the cash payment, could see the cash saved being used to ease
the country over an 8.3 billion euro, post-EU/IMF bailout
funding hurdle looming in January 2014.
"The (EU/IMF) programme funding that would otherwise have
been used to make the promissory note (IOU) payment should
potentially allow greater flexibility around when and at what
level Ireland returns to the capital markets," Noonan told
Ireland must return to bond markets in the next 12 months to
build up enough funds to exit its bailout next year and a deal
on part of its state-owned bank debt would boost the sovereign's
debt sustainability described by its central bank governor this
week as not being in a comfortable situation.
Yields on Ireland's benchmark 2020 bond, which have more
than halved since Ireland's cost of official funding was cut
last summer, fell to 6.8 percent on Thursday, the lowest level
in almost 18 months.
Noonan said the deal signalled that the European authorities
no longer saw the promissory notes as set in stone though the
wider talks on easing Ireland's fiscal burden, which could
include using the euro zone's temporary rescue fund to refinance
the notes in full, would likely take a different tack.
"I wouldn't see this as a template for a broader deal,"
Noonan said, adding that the imminent increase to the combined
lending ceiling of Europe's bailout funds would help the broader
talks he expected to be completed in the autumn.
He later told state broadcaster RTE that Ireland wanted a
wider deal on refinancing the remaining 27 billion euros of IOUs
to involve a longer bond than 13 years.
Following talks with European Central Bank (ECB) president
Mario Draghi, Noonan announced the plan for changing the terms
of the end-March payment last week.
He confirmed on Thursday that a 2025 bond would be used in a
complex new arrangement involving both part state-owned Bank of
Ireland and the country's state run National Asset
Management Agency (NAMA).
Noonan said it was ultimately intended that the government
bond will be financed for one year, on commercial terms, with
Bank of Ireland which may in turn refinance the bond with the
However prior to approval needed from Bank of Ireland's
shareholders, the financing of the bond will be a collateralised
facility provided by NAMA to Anglo, or Irish Bank Resolution
Corp (IBRC) as it now known as, on equivalent commercial terms.
The promissory notes are largely used to repay emergency
funding from the country's central bank and IBRC said it had
42.2 billion euros of funding from central banks and monetary
authorities at the end of December, representing 87 percent of
its total funding.
Analysts said it was this large exposure that likely
necessitated the widely encompassing arrangement.
"It seems that the ECB does not want to face Anglo directly,
they want Anglo's exposure to either the Central Bank of Ireland
or the ECB directly to be reduced as quickly as planned," said
Owen Callan, a senior dealer at Danske Markets.
"They want someone else, a proper private sector bank, to
step into the middle and reduce the overall exposure of the
European System of Central Banks even if the end result is the
As well as changing the promissory notes' terms, Dublin
wants to shift the burden of loss-making mortgages from some of
its other banks and IBRC confirmed on Thursday that it was in
talks to do so as Ireland's EU/IMF lenders work through a
technical paper on the wider agreement.