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Investors take legal action over buyback offer at BoI

A GROUP of 20 investors in Bank of Ireland's subordinated bonds has filed a legal challenge against the bank's debt buyback offer.

The group of mainly US hedge funds holds $1bn (€611,000) of the bank's €2.6bn of subordinated bonds. They are objecting to an offer from the bank to buy the bonds at discounts of up to 90pc or swap them for shares in the company.

Last night lawyers from White & Case filed legal papers with the High Court in London to try to block the offer from taking affect. They have not sought an injunction to prevent the buyback going ahead, however.

Stephen Phillips, a London- based lawyer representing the group, said the case was taken only after efforts to negotiate were rebuffed.

"A proposal has been put to the bank and the government and is being ignored, so regretfully bondholders have served litigation against the bank," he said.

The case is being taken under EU law. White & Case argues that the plan to recapitalise the bank, including through burden-sharing with the bondholders, goes beyond measures appropriate to putting the bank on a sound footing, which is allowed under EU rules. They say the proposal will leave the bank in better shape than its peers and so is not covered by the banking regulation on rescues.

The bondholder group initially formed a committee to try to renegotiate the bank's offer, they said. Mr Phillips said the bondholder group is realistic about the situation at Bank of Ireland and is not seeking to be repaid in full, but feels the offer made to them is unfair.

He said the group has offered to pump its own cash into the bank, which would cut the cost of the bailout to the state, but the offer has been ignored.

"Where private capital can be used to backstop the rights offer it seems strange not to seek bondholder participation, which would reduce the amount that has to be paid," Mr Phillips said.

Bank of Ireland needs to raise €4.2bn of new cash to meet capital targets imposed by the Central Bank. The bank has offered to buy back €2.6bn of subordinated bonds at steep discounts, paying for the bonds with either cash or bank shares, to help meet €2bn of the target.

The bank will also sell up to €2.2bn of new shares via a rights issue. Current shareholders can buy the new shares at 11.3-11.8 cent per share, compared to the 14 cent per share market price. Bondholders are objecting to not being allowed buy shares at that discounted price. The Government has underwritten the shares so if there is no demand the State will end up with 87pc of Bank of Ireland -- an effective nationalisation.

Irish Independent