Bid to make bondholders share pain faces tests
The Government's plan to ensure some of the losses from bailing out failed banks are passed onto bondholders will face two tests today
A London court is due to rule on whether a plan to impose losses on some lenders to Irish Nationwide Building Society can go ahead without the building society being wound up.
Also in London, investors holding subordinated bonds issued by Anglo Irish Bank are voting on a proposal that will see them paid just 20 cent in the euro for the debt they are owed if it is accepted.
The two tests of government plans to impose so called "burden sharing" on subordinated bondholders are being watched across Europe, where bondholders have so far escaped the consequences of poor investments in banks.
On Friday, the first of four groups of Anglo Irish subordinated bondholders agreed to a change in the terms of their loans that would allow the exchange of old bonds for new, smaller amounts of debt.
Today, a second group of bondholders will vote on the offer itself. Today's group hold bonds that are due to be repaid in 2017. If they accept the offer they will receive new bonds due next year worth 20 cent in the euro. The new bonds pay interest of around 4.75pc.
The Anglo Irish Bank bonds are trading at 17pc of face value.
Holders of subordinated debt in Irish Nationwide Building Society (INBS) are due in court in London today for their challenge the Government's plan.
The case is being taken by two entities, Trimast Holding and Satin Finance -- both owned by hedge funds. They hold around 25pc of the €250m total of subordinated INBS bonds.
They want the court to order the trustee of the bonds to seek the winding up of INBS. They claim the threat to impose burden sharing should be considered an event of default. INBS has rejected the claim. The INBS bonds are changing hands for around 25 cent in the euro.