Business Irish

Saturday 17 March 2018

BoI to save €2bn as 95pc of bondholders take shares


Donal O'Donovan

BANK of Ireland is on course to save almost €2bn through "burden sharing" after subordinated bondholders voted overwhelmingly to swap their bonds for shares in the bank.

Last night, a source said that even some members of a group of US investors that had campaigned against the deal ended up taking the offer.

BoI offered to "buy back" €2.6bn of its subordinated bonds at massively reduced prices, paying with either cash provided by the Government or shares in the bank. The price paid in shares was double the cash-offer price.

The buyback is part of a bigger set of related transactions aimed at allowing Bank of Ireland to raise €4.2bn by the end of July.

The cash is needed to meet capital targets imposed by the Central Bank.

Any shortfall in either the saving that results from the buyback of bonds or in the amount raised from a new capital raising will have to be made up by the Government, which could end up with majority control if it pumps more cash into the bank.

The State's stake in the bank may rise to as much as 69pc following a share sale, if private investors shun a rights offer next month.

The Government's stake would remain at about 36pc if the company's rights offer received 100pc take-up.


BoI said 72.4pc of bondholders agreed to sell their bonds back to the bank at steep discounts by an early-tender deadline of June 22.

The offer will stay open until July 7 but bondholders who accepted the offer before June 23 are offered a premium for selling back the bonds early.

An overwhelming 95.4pc majority of bondholders that agreed to sell back their bonds opted to be paid in bank shares, rather than in cash.

The bank said the strong take-up of shares meant it would generate a saving of at least €1.98bn from the buyback.

The bondholders will end up owning more than 19pc of the bank after the debt-for-equity swap is complete.

Last night's result means the group of US investors campaigning against the offer cannot affect the overall outcome.

A source at the bank said the Government was likely to apply to the High Court for a subordinated liabilities order (SLO) to sweep up any remaining bonds once the offer has ended.

Such an order would give Finance Minister Michael Noonan wide powers to impose new terms and conditions on bondholders who hold out against the buyback, including suspending interest payments and changing repayment dates.

Rights issue

Even after the saving that the deal will make for the bank, BoI will still need to sell €2.2bn of new shares via a rights issue.

The Government is underwriting that offer and could still see its stake increase if shareholders do not subscribe to the offer, which allows them to buy the new shares at a discount.

If shareholders do not subscribe to the rights issue, the Government will have to pour €2.2bn of new cash into the bank and will raise its stake from 35.8pc to 69.2pc.

If shareholders buy the new shares, they will be able to retain 44.9pc of the bank.

Glas Securities, the Dublin-based fixed-income firm said: "It is 1-0 to Bank of Ireland at half-time, with those who are seeking to block the bank's liability-management exercise finding that there is a strengthening wind blowing against them as we await the result of the 'late-bird' tenders in early July."

Irish Independent

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