BoI raises a third of €2.2bn recapitalisation total
BANK of Ireland has raised almost a third of the extra €2.2bn capital it needs by February. Figures announced last night show the bank will book a €700m gain on a bond buyback exercise.
The transaction sees lenders who own €1.4bn of risky subordinate debt agreeing to take part in the offer and accepting new safer securities worth 53pc of the original bonds' face value.
On the back of the BoI offer, Standard & Poor's yesterday downgraded its rating on similar instruments issued by AIB to 'CCC', or junk, citing a "clear and present risk" that the debt would be restructured.
The deal had been open to investors with €3.1bn of debt, but BoI capped take-up at €1.5bn so yesterday's result was at the higher end of expectations.
"The strong participation rate in BoI's bond exchange is a positive result for the group, helping to mitigate shareholder dilution ahead of its February-end €2.2bn total recapitalisation," NCB's banking analyst Ciaran Callaghan said in a note last night.
But other market sources were more sceptical, pointing out that less than half those eligible to participate had taken BoI up on their offer.
Earlier in the week, advisers said the offer was unattractive because the new bonds being offered by BoI were government guaranteed and would have to immediately be marked down to reflect the weaker sovereign.
That means that if investors are being offered new bonds with a face value equal to what the current subordinate bonds are trading at, investors will still book a net loss because those new bonds will have to be immediately marked down.
That situation became more acute yesterday after Moody's downgraded Ireland's sovereign rating by five notches.
Investors were encouraged to take up the offer by new legislation that will allow the Government to force pain on subordinate bondholders if they don't subscribe to voluntary programmes. Mr Callaghan said he believed BoI's capacity to raise to under "further meaningful" debt buybacks "may be constrained", putting the focus on asset disposals.