Anglo investors to swap €696m debt at 80pc discount
Anglo Irish Bank said holders of €690m of its 2017 subordinated bonds agreed to swap their debt for new notes at an 80pc discount as the Government spreads the burden of the banking crisis.
Investors with 92pc of the €750m of outstanding bonds will now receive €136.8m of one- year government-guaranteed securities paying 375 basis points more than the euro interbank offered rate, Anglo said in a statement today.
The discount allows the nationalised bank to generate a gain that can be used to bolster its capital ratios.
The Government was forced to turn to the European Union and International Monetary Fund for a bailout because of losses racked up by Irish banks after the decade-long property bubble imploded.
Anglo will absorb about €34bn of new capital to make up for bad loans, while other lenders will increase the total to as much as €54bn, the Government said in September.
“Sub debt is at risk whenever the government is significantly involved in the capital structure of a bank,” said Eleonore Lamberty, an analyst at ING Bank NV in Amsterdam. “There will be a read-across for all Irish banks.”
Subordinated bonds of lenders including Bank of Ireland, the nation’s largest bank, declined.
Bank of Ireland
Bank of Ireland’s €1bn of 10pc notes due 2020 fell 3.25 cents on the euro to a record 63 cents, according to BNP Paribas prices on Bloomberg.
The company’s €248m of floating-rate notes due 2017 declined 1 cent to 53 cents, BNP Paribas prices show.
Junior debt of Allied Irish Banks, in which the Government holds more than 90pc and which must raise €10.4bn of new capital by year-end, also fell. The lender’s £368m (€430m) of 12.5pc subordinated bonds due 2019 dropped 3 cents to 40 cents.
Anglo bondholders will vote tomorrow to allow the bank to buy back notes that weren’t tendered at 1 cent per 1,000-euro face value, according to the statement. Holders agreeing to the exchange will be deemed to support the proposal.
The agreement may trigger credit-default swaps insuring Anglo debt, according to Barclays Capital. These contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.
The cost of insuring AIB senior bonds fell, with credit-default swaps dropping 79.5 basis points to 796.5, while contracts protecting subordinated notes were little changed at 56pc upfront and 5pc a year, according to CMA.
A total 683 contracts insuring $372.8m of Anglo’s senior and subordinated debt were outstanding on November 12, according to the Depository Trust & Clearing Corp, which runs a central registry for the market.
Under the terms of the contracts, holders of swaps linked to both senior and subordinated debt can demand payment.