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Anglo bond exchange ‘tantamount to default’ -- DBRS

Anglo Irish Bank’s offer to swap its subordinated debt for new bonds is "tantamount to a default" because of the penalties inflicted on investors who refuse to take part, according to ratings firm DBRS.

The lender’s non-senior ratings will be cut one step to D for “Default” after the lender completes the exchange announced on October 21, Toronto-based DBRS said in a statement.

The nationalised bank is offering investors 20 cents on the euro in new bonds to those tendering junior debt, and 1 cent per 1,000-euro face amount for those declining to take part.

“DBRS views the proposed exchange as offering bondholders limited options,” the ratings company said.

“Should the bondholders reject the proposed exchange, at an 80pc discount on tendered notes, they face the risk of significant burden sharing.”

A spokesman for Anglo couldn’t be reached for comment.

The Government faces a bill of more than €50bn to prop up lenders, with Anglo accounting for as much as €34bn, and wants to ensure the burden is shared with subordinated bondholders.

Finance Minister Brian Lenihan has vowed to “address the issue” of junior bondholders taking a loss on their investments in nationalised banks.

Holders of the equivalent of about €370m of Anglo’s more-junior securities will get a 50-euro or 50- pound consent fee to give the issuer the right to buy the notes back at 1 cent for each 1,000 euros of securities, the bank also said last week.