November 23, 2012 / 11:11 AM / 7 years ago

Bank of Ireland in talks with sub debt holders

By Chris Spink

LONDON, Nov 23 (IFR) - Former subordinated bondholders in Bank of Ireland and Allied Irish Banks are seeking recompense for being forced to take just one cent for every EUR1,000 of such bonds they held.

This follows hedge fund Assenagon’s successful suit in the English High Court against Anglo Irish Bank in July for executing similar coercive actions.

All three of Ireland’s major lenders carried out below par tender offers for their junior debt as a way of bolstering their capital as part of a state-backed recapitalisation process between 2009 and 2011, using so-called exit consents from 2010 onwards.

This ended with Anglo Irish wholly nationalised and 99% of Allied Irish Banks’ equity in state hands, too. However, 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 to 15%.

A group of such bondholders holding Bank of Ireland debt are now in discussions with the institution. “A standstill agreement has been reached between Bank of Ireland and the bondholders to allow them to talk and reach a settlement. This agreement is indefinite,” said an legal source with knowledge of the situation.

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 immediately respond to a request for comment.

Separately the Irish Bank Resolution Corp, which now manages Anglo Irish and Ireland’s other nationalised financial institution Nationwide Building Society, has confirmed to IFR that it is appealing July’s High Court decision in London concerning Assenagon.

“I can confirm that IBRC is currently appealing the London High Court decision to the Court of Appeal,” said an IBRC spokesperson. The appeal, which is not expected to be heard before next March, will have an impact on the other cases against Irish banks if it is successful.

In July when the High Court decision was handed down, IBRC said that the liability management exercise that swept up Assenagon “was proportionate in the circumstances and was fair, transparent and  all noteholders were provided with comprehensive notice in advance.”

The institution added that “these [Anglo Irish] securities would have been valueless without the recapitalisation of the bank by the Irish state”.

While Bank of Ireland is now the most robust of the institutions, it may be less likely to compensate investors since it did not ultimately make use of subordinated liability orders from the state to force tenders on hold-out investors in subordinated bank debt.

Indeed, the state could reactivate such SLOs to force Assenagon and other subordinated bondholders who manage to reinstate their holdings to tender those investments.

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