Wednesday 13 December 2017

Court order may let AIB avoid £21m payment to bondholders


Allied Irish Banks has secured an interim High Court order that may allow it to avoid making a £21m (€23.6m) payment to junior bondholders.

That coupon payment was due to be made today, but following a decision by Mr Justice John Cooke yesterday, the funds will instead be lodged in court pending the outcome of a challenge by a Cayman Islands investment firm to an order secured by the Minister for Finance last April.

That Subordinated Liabilities Order (SLO), if upheld by the court, will permit AIB not to pay the coupon at all.

The SLO allows the minister to change terms, conditions and maturity dates on AIB's subordinated bonds, lift restrictions on buybacks and reduce the value of the bonds so as to encourage bondholders to take up a debt buyback offer which had a deadline of June 13. Under the buyback, AIB will impose losses of as much as 90pc on subordinated bondholders.

Aurelius Capital Master Ltd, along with some linked firms, has challenged the SLO in proceedings against the minister which opened earlier this month before Mr Justice Cooke. AIB previously consented to the making of the SLO.

This week, Paul Gallagher, for AIB, asked the judge for permission to apply to the court for liberty to bring an application to suspend today's coupon payment pending the outcome of the Aurelius case.


If the Aurelius challenge fails, the bank could avoid making the coupon payment, but as the case was continuing the bank wanted directions from the court as the payment was due, counsel said.

The bank was prepared to consider paying the sum into an escrow account pending the outcome of the case, he added.

Mr Justice Cooke allowed Mr Gallagher to bring the application yesterday when it was strongly resisted by Aurelius. Bondholders represented by Aurelius stood to gain about half of the £21m coupon payment.

Moving the application, Mr Gallagher argued that provisions of the Credit Institutions Stabilisation Act 2010 provided that no event of default arose if a coupon payment was suspended and paid into court pending the outcome of the legal challenge to the SLO.

He agreed with the judge that the best way to approach the matter was to join AIB as a notice party to the Aurelius action.

Counsel also agreed, if the coupon was paid and Aurelius lost its challenge, that the coupon monies would in the interim have been diversified to a number of unidentified people.

Declan McGrath, for Aurelius, argued AIB had no legal standing to bring the application and the court should refuse to join it as a notice party to the proceedings.

Maurice Collins, for the minister, supported AIB's application, and also disputed Mr McGrath's argument that, if the April SLO was upheld, it would only come into effect from the fate of the court's decision on the Aurelius case.

If Aurelius lost its case, the SLO was effective from April 22, counsel said. The case continues on Monday.

Irish Independent

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