Saturday 24 February 2018

Junior AIB bondholder withdraws action to stop a 'haircut' by State


Donal O'Donovan

THE Government has won its latest victory over bondholders trying to block so called "burden sharing" after the latest legal challenge was withdrawn at the High Court.

New York-based Abadi & Co Securities yesterday withdrew a legal challenge taken against the Finance Minister Michael Noonan's plan to impose losses on holders of AIB subordinated bonds.

It's good news for Mr Noonan, who has pinned his plans to recapitalise the banks on being able to force massive losses on holders of subordinated bonds. Abadi walked away after the State agreed to picking up their legal costs.

People involved say the costs are in the hundreds of thousands rather than millions. A separate challenge by a second firm, Aurelius Capital, is not affected by the news.

That case is due to be heard in the Commercial Court on Tuesday.

The latest victory comes after an earlier challenge against burden sharing was thrown out of court. Last November an unrelated group of bondholders tried to have Irish Nationwide Building Society (INBS) wound up by a UK court in an effort to block burden sharing there.

The High Court in London threw out that case. In a comprehensive victory for INBS the judge, Justice George Mann, said the effort to have the society wound up for pushing ahead with its bond buy-back "was bound to fail at trial".

Yesterday Abadi withdrew its case at the last minute, immediately before a first hearing was due to be held.

In addition to withdrawing its challenge, Abadi agreed to participate in the latest AIB debt buy-back exercise. It means the firm will sell bonds back to AIB at 20 cent in the euro and vote to punish any bondholder that rejects the offer.

Abadi and Aurelius Capital had taken legal action to challenge the April 14 Subordinated Liabilities Order (SLO) granted to the minister by the High Court under the Credit Institutions Stabilisation Act.

Mr Noonan has wide-ranging powers under the SLO, including being able to change the terms, conditions and maturity dates on the bonds and reduce the value of the bonds so as to encourage bondholders to take up the buy-back offer.

AIB said it is offering to buy back €2.6bn of the bank's subordinated, or higher risk, bonds at prices ranging from 25pc to 10pc of face value.

If the buy-back deal is accepted by bondholders it will cut AIB's debts by around €2bn. Bondholders that reject the offer will be hit with losses of 99pc if the deal goes ahead.

Irish Independent

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