BoI plans to generate €350m through bond exchange deal
Tender expected to raise more than €350m in much-needed capital for lender
Bank of Ireland (BoI) yesterday launched a subordinated bond exchange deal that is expected to generate more than €350m of much-needed equity at a time when loan losses continue to spiral among the country's lenders.
Sebastian Orsi, analyst at Merrion Capital, said the deal would "meaningfully reduce the amount of capital the bank needs to raise over the coming months", as National Asset Management Agency discounts and mounting losses on loans not bound for the 'bad bank' take their toll on the group's reserves.
The bank is offering to buy back up to €2.9bn of so-called lower tier 2 bonds, which are trading at an average of 74c in the euro.
But rather than offer cash, as it did in a similar exercise last year, which raised €1bn, it plans to offer the bondholders 10-year fixed rate lower tier 2 notes. The bank can book the difference between the bank's offer price and how the bonds are accounted for on its own balance sheet as pure profit.
The new bonds carry an annual coupon of 10pc, above the average 9pc yield of the existing notes. This may provide current bondholders with an incentive to take up the deal, according to market observers.
NCB Stockbrokers analyst Ciaran Callaghan estimates that maximum take-up of the offer would increase BoI's equity base by €730m.
"However, a more realistic outcome of 50pc participation in the tender would generate equity in the region of €365m," he said.
Bond market sources were surprised by BoI's move on the lower tier 2 bonds, which were covered by the guarantee scheme.
But Mr Orsi said it raised expectations that Allied Irish Banks may look to redeem some of its long-standing €2.8bn+ of lower tier 2 bonds.
Meanwhile, sources said BoI was still considering a €500m plan to beef up its capital base by offering to convert tranches of its so-called tier 1 and upper tier 2 bonds, which were not covered by the state banking guarantee scheme.
BoI has about €1.5bn of these bonds outstanding.Sources have suggested that the bank would look to announce a debt-for-equity swap package over the coming months -- at the same time as it unveils a 'rights issue' stock sale to existing shareholders and the outcome of its EU restructuring plan.
Shares in BoI rallied as much as 4.7pc yesterday afternoon following the bond exchange announcement, before ending the session up 4.5pc at €1.32.