Bank of Ireland boosts balance sheet with €400m bond exchange
BANK of Ireland said yesterday it generated over €400m of equity from a subordinated bond restructuring deal -- at a time when the group is looking to shore up its balance sheet against the impact of NAMA and mounting bad loan losses.
Last week, the bank offered to buy back up to €2.9bn of so-called lower tier 2 bonds, which were trading at an average of 74c in the euro.
But instead of offering cash, as it did in a similar debt restructuring last year that raised €1bn, the bank offered bondholders 10-year fixed rate lower tier 2 notes.
The bank has been able to generate equity by booking the difference between the bank's offer price for the bonds and how they are accounted for on its own balance sheet as a liability.
BoI said yesterday that bondholders, owed a total of €1.62bn, subscribed to the offer.
They will receive about €1.2bn of new bonds, carrying an annual coupon of 10pc.
Analysts Davy estimate that BoI needs to raise a total of €2.2bn of capital to leave its key equity reserves ratio at 6pc.
This comes as the bank prepares to stomach multi-billion-euro writedowns on €16bn of property loans it is sending to NAMA, as well as rising bad loans on its remaining portfolio.
Meanwhile, BoI is still considering a €500m plan to beef up its capital base by offering to convert tranches of its so-called tier 1 and upper tier 2 bonds, which were not covered by the state banking guarantee scheme.
Sources have suggested that the bank would look to announce a debt-for-equity swap package over the coming months -- at the same time as it unveils a 'rights issue' stock sale to existing shareholders and the outcome of its EU restructuring plan.