Thursday 18 January 2018

Minister's new powers allow AIB to hit its last junior bondholders

Emmet Oliver Deputy Business Editor

AIB has warned it plans to hit the remaining junior bondholders in the bank by using draconian powers available to the Minister for Finance since late last year.

The High Court yesterday gave an order to Finance Minister Michael Noonan allowing the bank to force losses on these bondholders, although senior bondholders remain secure. It is estimated there are about €2.6bn worth of junior bondholders remaining in AIB.

In his court application, Mr Noonan's legal representatives said AIB was now a "pillar'' of the Irish banking system. The losses forced on the bondholders will go towards the €13.3bn of capital AIB requires.

"The Minister also confirmed that there are no actions planned in respect of AIB's senior bondholders,'' said a statement.

A table provided by the bank named 18 different classes of junior bondholders who could have losses imposed upon them. The minister also got permission yesterday to allow AIB tosuspend coupon payments on a range of the bonds.

The Government said it would "take whatever other action is necessary to ensure appropriate burden-sharing" with the lender's remaining junior bondholders.

"They're clearly trying to spook the market with a view to pushing bond prices lower so that they can get a decent take-up for any voluntary offer," Jim Ryan, director at Dublin-based Glas Securities, told Bloomberg.

The terms of the offer to the bondholders is likely to be extremely draconian and as a result those holding the bonds are likely to sign up.

The original holders of such bonds have in many cases sold them into the markets at a greatly discounted price. The holders of them now in many cases are hedge funds.

Irish Independent

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