Thursday 22 February 2018

Firms fight plan to 'burn' AIB bondholders

Laura Noonan and Aodhan O'Faolain

THE Government's efforts to force losses of up to 80pc on AIB's junior debtholders are facing a legal challenge by two international investment firms.

The news comes less than a week after Finance Minister Michael Noonan secured an offer from the High Court enabling him to force burden-sharing on so-called subordinated bondholders. Two of those bondholders, US financial giant Abadi & Co and Vienna-based Aurelius Capital, yesterday served legal motions asking the courts to vary or amend the order obtained by the minister.

The motions were adjourned until the first week of May, but are not expected to be actually heard until the following week when they will come before the president of the High Court.

If the motions succeed, it would mark a major blow to the Government's recently passed Credit Institutions Stabilisation Act, which allows for losses to be unilaterally forced on junior bondholders.

Mr Noonan is planning to impose losses across AIB's €2.7bn pile of junior debt. Last week he said that while the scale of the losses would be a "matter for negotiation", a "ballpark figure would be something like 80pc".

Losses at the 80pc level would see AIB achieve a capital uplift of as much as €2.1bn from the deal, contributing to the bank's overall target of raising €13.3bn in capital by the summer.

The bank is planning to offer to buy back debt at a discount, and is also halting interest payments on some instruments and extending the maturity of some bonds so investors who hold out will get their money back later.

Last week, Mr Noonan said that if the offer was "not successful" the Government would "take whatever other action is necessary to ensure appropriate burden sharing by remaining subordinate bondholders".

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