Monday 22 January 2018

BoI clear to pursue gains on €750m debt pile

Laura Noonan

BANK of Ireland (BoI) is newly empowered to pursue gains on a €750m pile of debt after a so-called 'dividend stopper' clause expired earlier this week, analysts Davy's said last night.

The comments came as Bloomberg reported that Irish Life & Permanent (IL&P) is planning to raise up to €1bn to fund its takeover of EBS.

Both BoI and IL&P are battling to raise capital to bring their institutions in line with new regulatory demands from the Central Bank. BoI has raised €700m of the €2.2bn target it must hit by the end of February. IL&P must raise €100m for its group, and will have to raise another €925m under its plan to buy EBS.

So far, BoI's efforts have focused on offering investors the chance to swap piles of risky debt for 'safer' debt with a lower face value.

The bank already booked a €700m gain by convincing investors with €1.4bn of risky debt to exchange their holdings for €700m of safer debt.

Davy believes BoI will soon target another tranche of investors, who hold €750m of undated subordinate debt, one of the riskiest debt instruments on the bank's balance sheet.

According to Davy, that €750m pile of bonds was excluded from the original debt exchange because of a 'dividend stopper' clause imposed on the bank as a condition of its bailout.


That clause meant the undated debt could only be exchanged for equity, an offer Davy believes would be "unlikely to generate as high a take-up" as an exchange for cash or 'safe' debt.

Since that dividend stopper expired on January 18, Davy now believes the bank will launch an offer on the €750m debt pile "shortly". Some believe BoI could make as much as €200m from the exchange, putting them within €1.3bn of their target.

Meanwhile, Bloomberg says IL&P is drawing up plans to raise as much as €1bn to fund its purchase of EBS and set up a new company that would hold the building society and IL&P's Permanent TSB bank.

Previous reports suggested that IL&P had abandoned plans to carve out a new entity for EBS and Permanent TSB because it would be too hard to raise the necessary funding.

The banks would need less capital if they were part of the IL&P structure, because of the cushion offered by Irish Life's substantial financial might.

A spokesman for IL&P last night declined to comment, but referred to the plc's previous comments that it intended to raise €925m for the EBS deal from market sources.

The Irish Independent understands that these sources could include a rights issue, as well as a buy-back of some of IL&P's riskier debt.

None of these measures will be attempted until the bank becomes the preferred bidder for EBS. The National Treasury Management Agency is mulling over two bids for EBS and may not name a preferred suitor until March, sources said.

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