Monday 20 November 2017

Anglo bondholders to settle for 20c in euro

Rare victory for Government in battle to spread cost of bailout

Donal O'Donovan

Donal O'Donovan

THE Government won a rare victory yesterday after holding firm in its battle to spread the cost of bailing out the banks to subordinated bondholders.

The Government wants to swap €2.6bn of Anglo Irish Bank subordinated bonds for government-guaranteed bonds. The deal is aimed at cutting the overall cost of the bank rescue.

Holders of the first set of bonds affected yesterday voted to change the terms of their loans in order to allow an exchange offer to go ahead.

It means they are also likely to vote in favour of all of the terms of the deal.

Bondholders earlier threatened to block the deal unless the terms on offer were improved.

They could have done that by abstaining in big numbers or voting not to change their contracts.

The result of the ballot suggests that solidarity within the bondholder group has crumbled.

The offer on the table will see the bondholders swap their high-risk loans to Anglo Irish for low-risk government-guaranteed loans worth just 20 cent in the euro.


It has to be backed by majorities of each of the four sets of bonds affected.

The Government has said it will change the law in order to force losses on the bondholders if the deal fails.

If the required majorities of bondholders agree to the deal any bondholder who votes against the offer will get just 1 cent per €1,000 of bonds.

That makes it much harder to vote against the deal for anyone who fears other investors might back it.

The Government's hand was also strengthened by the latest bond-market crisis and the renewed focus on problems with the banks.

"With everything else that's going on it looks like a better deal now to cut your losses and take the deal," one source involved said.

If the deal succeeds it could be a template for reducing the cost of bailing out other banks

The subordinated bonds of other Irish bonds have fallen sharply in recent weeks. The market is convinced that if more capital is needed for other banks their subordinated bondholders are vulnerable to pressure.

AIB subordinated bonds have dropped from 90pc of face value to close to 40pc in recent weeks. Bank of Ireland bonds are better but have also fallen.

The next round of voting on the Anglo Irish deal will be held on Monday but the exchange of bonds is not expected until the end of December.

Irish Independent

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