Tuesday 6 December 2016

Investors attempt to cover some AIB losses

bond markets

Emmet Oliver

Published 21/06/2011 | 05:00

BONDHOLDERS are pressing to cover some of their losses incurred on AIB bonds by submitting a query to the international body that handles whether defaults have happened or not.

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A European financial group, not named, has submitted a query on whether a "failure to pay'' credit event has taken place at AIB to the International Swaps and Derivatives Association (ISDA) and it is currently being considered.

If the association accepts that such an event has happened, bondholders will be able to trigger insurance they have taken out to cover losses on these bonds.

This insurance, a Credit Default Swap (CDS), can only be triggered if ISDA allows it. The association disclosed the new query, but as is its practice, did not name the company who submitted it.

Meanwhile, AIB also ann- ounced yesterday plans to trigger an option to buy out a series of junior notes, at a huge discount, which formed part of its liability management exercise.

Queries

Several queries for AIB and other Irish banks have been submitted to the ISDA over recent months.

The association can decide if a failure to pay event has occurred or if a simple restructuring event has, in fact, taken place.

AIB had said it did not intend to pay the coupon on a Lower Tier 2 note which was due on June 5 and had a 15-day grace period, likely triggering the request which was submitted anonymously as a "general interest question".

The bank raised €1.6bn in capital last week when the vast majority of its junior bondholders opted for large losses on their holdings rather than risk a state-imposed wipeout.

Holders will likely trigger their CDS under a failure to pay credit event. This is because the payout involved is expected to be higher and more straightforward than under a restructuring event.

A credit event is financial industry jargon for default on payment, breach of bond covenants or other event that casts doubt on an issuer's ability to service its debt.

Irish Independent

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