More lenders planning to burn bondholders but Anglo and Nationwide don’t need fresh capital
Published 31/05/2011 | 12:47
Bank of Ireland, Irish Life & Permanent and EBS have announced plans to burn junior bondholders.
The lenders are planning to reduce their debts by offering the bondholders between 10c and 20c in the euro on their debts.
The move comes shortly after Allied Irish Banks announced a similar plan which is being challenged in the courts by its lenders.
Junior bondholders are those who are only repaid after other lenders if the borrower gets into financial difficulty.
BoI also said it will shortly launch the plan which covers about €2.6bn of its subordinated debt – it needs to raise €4.2bn by later this year to meet targets set by the Central Bank.
And Finance Minister Michael Noonan had said he wanted subordinated bondholders to contribute significantly to this.
The bank also said it could offer an equity alternative to bondholders, allowing them to take a stake in the bank in return for debt.
IL&P plans to offer its lenders with around €840m of debt 20pc of the original value.
EBS said it intends to buy back around €260m of subordinated bonds for between 10pc and 20pc of the debt.
Last month international investors Aurelius and Abadi brought legal proceedings against Mr Noonan after AIB announced it would ask junior bondholders to accept cuts of up to 80pc on €2.5bn in loans.
Minister Noonan said the level of burden-sharing announced today was the minimum acceptable to the Government.
He added he still believes that two legal challenges to the AIB proposal are 'entirely unfounded'.
Meanwhile, new stress tests on the nationalised Anglo Irish Bank and Irish Nationwide have determined that the institutions do not need additional capital.
The Central Bank said the result of the independent review is in line with what was expected when other tests were conducted last September.
In September, the Central Bank estimated that Anglo Irish would need an additional €6.4bn to cope with losses from bad loans, while Irish Nationwide would need another €2.7bn.
This brought the total State capital provided to the two institutions since 2009 to €29.3bn and €5.4bn, respectively.
Independent reviewer BlackRock Solutions concluded that Nationwide's mortgage, commercial property and other lending books estimates are “robust” while Anglo figures are “reasonable'.”