July 6, 2011 / 12:52 PM / 6 years ago

UPDATE 1-ISDA says Irish Life & Permanent has had credit event

* ISDA declares restructuring credit event after jnr debt buy-back

* Irish Life CDSs have net notional value of $276.8 million (Adds background)

DUBLIN, July 6 (Reuters) - Sellers of insurance against a default by Irish Life & Permanent will have to pay out after the International Swaps and Derivatives Association (ISDA) ruled on Wednesday that a restructuring credit event had occurred with respect to the bancassurer.

The ruling means that one or more auctions will be held to settle Irish Life & Permanent credit default swaps (CDS), that are used to insure against a default.

CDS on Irish Life & Permanent have a net notional volume of $276.8 million according to data from the Depository Trust & Clearing Corporation.

A credit event is financial industry jargon for default on payment, breach of bond covenants or other events that cast doubt on an issuer’s ability to service its debt.

The ISDA said that the credit event happened on July 1 when Irish Life & Permanent announced an 87 percent take up of a heavily discounted offer for its junior debt.

Irish Life & Permanent is hoping to generate around 1 billion euros by imposing losses on junior bondholders.

Ireland’s government is bidding to impose losses of up to 5 billion euros ($7.1 billion) on junior bondholders across the sector to help fund a 24-billion euro bill to recapitalise struggling lenders.

The ISDA in June ruled that a restructuring event had occurred in relation to Allied Irish Banks after it did not pay the coupon on a lower Tier 2 note. A week later it upgraded the credit event to the more serious “failure to pay.”

Last year, sellers of credit default swaps for Anglo Irish Bank paid out around 82 percent of the subordinated debt they had offered insurance on, after it was decided the nationalised lender would not fully meet its obligations. (Written by Carmel Crimmins and Conor Humphries; Editing by Hans-Juergen Peters and Jane Merriman)

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