Business Irish

Friday 9 December 2016

Anglo investors to swap €696m debt at 80pc discount

Published 22/11/2010 | 14:07

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. Photo: Bloomberg News
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. Photo: Bloomberg News

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.

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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.

Bloomberg

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