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Buyback of Anglo bonds in jeopardy as debt costs soar

There was more bad news from the bond markets yesterday with the revelation that the Anglo Irish buyback could be in trouble and cause another surge in the cost of government debt.

Holders of 43pc of Anglo Irish subordinated bonds said they would oppose the plan to swap €1.6bn of bonds for new government guaranteed debt worth 20 cent in the euro.

Most observers believe the real agenda is to raise the offer above the current 20 cent level.

A bondholder meeting will be held in a number of weeks and needs a double majority for the deal to be passed. Two- thirds of the bondholders must attend the meeting and a 75pc majority must be met to push through the deal. But market sources say a deal is far from certain.

If the deal goes ahead bondholders will automatically vote to pay dissenters just 1 cent per €1,000 of bonds.

One warned against being so tough with the group.

"Ireland's best friends (and worst enemies) right now are hedge funds because no real money account is investing a cent in the country," he said.

The risk of taking a loss if the exchange goes ahead, however, is key to its likely success. If members of the bondholder group fear others could break ranks the sensible option is to break ranks first.

Unicredit strategist Alexander Plenck said: "They would have to completely trust each other on the day or will end up backing the deal."

The mix of opportunistic hedge funds and vulture funds trying to block the deal makes it even harder to maintain discipline, said another source who is involved in the transaction.

If bondholders vote against the plan, or abstain in big enough numbers, the deal will fail and the debt will remain in place. Voting gets under way in the middle of next month.

Yesterday, Anglo Irish chairman Alan Dukes said the bank would not negotiate with the bondholders.


The bonds changed hands at prices between 20 cents and 23 cent each yesterday, above the price being offered in the buyback. Traders said the volume of trading was very low with few investors committing new money.

Credit strategist Brian Barry of Evolution Securities said the Anglo Irish news was not behind the increase in the cost of government debt yesterday.

The yield demanded by investors for holding Irish debt rose to 7pc early in the day before the European Central Bank stepped in to buy bonds for the first time in two weeks.

The ECB action stabilised prices. The cost rose on the back of bad news from Portugal and Greece about their budgets.

Irish Independent