Anglo's subordinated bondholders take hit as €600m written off
Published 23/11/2010 | 05:00
The Government's plan to impose burden sharing on subordinated bondholders of failed banks had its first real success yesterday. Lenders voted to write-off more than €600m of Anglo Irish Bank's debt.
Lenders had threatened to resist the deal but that crumbled as they decided to take cash now rather than push for a better deal as the IMF moves in.
Lenders were balloted at a meeting in London. Investors who loaned €750m to Anglo Irish Bank voted to write-off €612m of the debt. It was the first in a series of votes that will eventually affect €1.6bn of loans. International bank JP Morgan is managing the process for Anglo Irish and the Government.
With a restructuring of the whole bank sector on the cards the €4.9bn of subordinated bonds owed by AIB and €4.1bn of subordinated bonds owed by Bank of Ireland are seen as vulnerable to a similar exercise as new money is put in by the Government. AIB bonds in particular have dropped in price in recent weeks, from 100pc of face value as recently as September, to a little over 40pc today.
Yesterday's vote saw lenders owed 92pc of a €750m slice of the Anglo subordinated bonds vote to swap their bonds for new bonds worth 20c per euro. The 8pc of bondholders who did not back the proposal will get just 1c per €1,000 of bonds held. That's because the vote included a clause to punish any lender who did not back the exchange offer. It means the €750m debt falls to €138m.
Two more votes of Anglo Irish subordinated bondholders will be held between now and Christmas. On Friday holders of one of those sets of bonds voted to change their contracts to allow the vote on the same exchange to go ahead.
Despite yesterday's capitulation, some bondholders are still trying to talk up their chances of blocking the deal.
A source involved with the bondholders said they still see the terms on offer as coercive.