Tuesday 16 January 2018

Anglo creditors ‘gambling’ on improved debt-swap offer

Anglo: bondholders plan to block a proposed debt exchange that imposes losses of more than €1.3bn. Photo: Getty Images
Anglo: bondholders plan to block a proposed debt exchange that imposes losses of more than €1.3bn. Photo: Getty Images

Anglo Irish Bank bondholders plan to block a proposed debt exchange that imposes losses of more than €1.3bn as they seek to force the nationalised lender to improve the offer.

Creditors holding a €690m “blocking position” of notes will vote against the deal worth 20pc of their €1.6bn of securities, according to a statement from Houlihan Lokey which is advising investors.

The extra yield demanded to hold Irish 10-year bonds over German debt rose by about 20 basis points to 443 basis points today, approaching the record 449 basis points last month.

The Government faces a bill of more than €50bn to prop up Irish banks and is seeking to ensure the losses of lenders it owns outright are shared with subordinated noteholders.

Finance Minister Brian Lenihan has said he will legislate to allow the Government to impose penalties on subordinated creditors while making senior investors whole.

“Bondholders are gambling the government is willing to pay up and doesn’t want to use the draft legislation to impose losses,” said Brian Barry, an analyst at Evolution Securities Ltd in London.

Imposing losses “has a knock-on impact on other banks, it creates uncertainty and raises the question of what the Government is willing to do in extreme situations.”

The Government also owns Irish Nationwide Building Society, where bondholders are also opposing enforced losses.

Ray Gordon, outside spokesman for the National Treasury Management Agency (NTMA), which manages certain bank oversight functions for the state, declined to comment. An official at the Department of Finance also wouldn’t comment.

Confidence undermined

Opposition to the proposals is undermining confidence in the creditworthiness of the Government and the nation’s other banks.

Credit-default swaps on Irish sovereign debt jumped 21 basis points to 465, the highest level in a month, according to data provider CMA. Contracts on Allied Irish Banks bonds rose 8.5 basis points to 629.5.

Credit-default swaps insuring €10m of Anglo’s subordinated debt for five years fell to €6.98m in advance and €500,000 annually from €7.07m upfront, according to CMA.

Anglo Irish subordinated bonds due 2014 rose 0.71 cent to 20.8 cents on the euro, according to pricing data compiled by Bloomberg.

Exchange penalty

The lender has said that bondholders who don’t accept the terms of the debt exchange will be given 1 cent per 1,000-euro face amount.

The challenge by investors risks ending up in court, especially if no consensus is reached and new legislation is introduced, said Simon Adamson, an analyst at CreditSights Inc in London.

“If bondholders are determined to challenge this, it could be quite a long, drawn-out situation,” he said.

“This goes against the general thrust of regulation right now, which is all about getting bondholders to share losses. There doesn’t seem to be much upside, except for the lawyers.”

The exchange of the lower Tier 2 notes will generate a capital gain of about €1.26bn that the bank can use to bolster its capital ratios, according to analysts at Barclays Capital in London.

A repurchase of more-junior so-called Tier 1 debt that was also announced this month, will generate a gain of €347m, the analysts said.

The bondholder meetings to approve the exchange must have a minimum attendance of holders of 66pc of the notes, 75pc of whom must agree to the changes, according to JPMorgan, which is managing the offer.

Martha Kavanagh, an outside spokeswoman for Anglo, said the bank was unable to comment while the exchange offer was open.


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