BONDS with a $200m (€149m) face value issued by Anglo Irish Bank were destroyed in New York after the vault where they were stored was flooded during Superstorm Sandy last October, a US court has been told.
The revelation comes as two Cayman Island hedge funds are poised this week to appeal the ruling in a 2011 case they took against the Irish state-owned bank, now known as Irish Bank Resolution Corporation (IBRC).
The legal dust-up erupted in 2011 when the two hedge funds – Fir Tree Capital Opportunity Master Fund and Fir Tree Value Master Fund – sought to prevent Anglo from moving assets out of the United States.
The hedge funds had acquired $200m of subordinated bonds, which had been issued by the bank in 2005, in November 2010.
The Fir Tree funds claimed that the bank had breached terms of the bonds by moving deposits and NAMA bonds to AIB.
It described the moves in its original lawsuit as a "brazen violation" of the bond provisions.
But Anglo claimed the case presented by Fir Tree was "utterly meritless".
In 2010, Fir Tree sought a preliminary injunction against Anglo.
That forced the US courts to examine the country's Foreign Sovereign Immunities Act due to the fact that Anglo is a state-owned institution.
The Fir Tree funds claimed that Anglo had breached terms of the bonds by moving deposits and NAMA bonds to AIB
Fir Tree argued that sovereign immunity had been waived under specific legislation dating back to 1950. But the US court found it lacked jurisdiction in the case due to Anglo's immunity and dismissed the case. Fir Tree appealed that decision.
Both sides were instructed this month to present their oral arguments in the appeal to the US Court of Appeals on Wednesday at 2pm.
Last week, Fir Tree sought to have the oral arguments postponed. It told the court that it has reached a conditional deal to sell the $200m bonds. It told the court the buyers of the bonds may or may not want to replace Fir Tree as the appellant in the case.
"The sale transaction has been negotiated between Fir Tree's broker and a broker for the purchasers, two of which have not wanted their identities disclosed prior to completion of the sale," said Fir Tree.
"In transactions such as this, purchasers may not want to be identified because they consider their buying and selling strategies to be proprietary information."
Fir Tree said that its Anglo bonds had been held with the Depository Trust Company, a custodian that guards securities worth $34 trillion (€25tn) on behalf of clients.
However, Superstorm Sandy flooded a vault at the company in which the notes were kept, said Fir Tree. "The water destroyed the notes, and the notes must be reissued before the sale can close."
The US appeals court rejected the motion to have the oral hearings postponed.