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Noonan seals deal on €3.1bn Anglo debt repayment


A DEAL to avoid the repayment of €3.1bn in Anglo debt due at the end of the month has been agreed between the Government and the European Central Bank.

The agreement was confirmed today by Finance Minister Michael Noonan who has headed up negotiations on the debt with the EU/ECB/IMF troika since last September.

The €3.1bn Anglo promissory note, or IOU, has been replaced by a Government bond not due for repayment until 2025, taking some pressure off the coalition as it gives it more breathing space in its management of the stretched public finances and banking debt.

It will also be a boost for the Government ahead of the weekend’s Fine Gael Ard Fheis amidst the ongoing controversy over the €100 household charge.

As part of the deal, the Anglo, now IBRC, debt will technically be repaid and there will be no default.

“Put simply, €3.06bn (in cash) will be settled by delivery to IBRC of a long term Government bond with an equivalent fair value,” Minister Noonan told the Dail today.

“Ultimately, it is intended that this long term Government bond will be financed for one year, on commercial terms, with Bank of Ireland who may in turn refinance the bond with the ECB.

“While this transaction has been approved by Bank of Ireland’s board it remains subject to the approval of the Bank of Ireland shareholders.

“Pending the result of the shareholders’ meeting, the financing of the bond will be a collateralised facility provided by NAMA to IBRC on equivalent commercial terms as the financing with Bank of Ireland,” he added.

The Anglo overall promissory note debt totals over €30bn and involves a further €17bn in interest payments over the coming years.

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Negotiations will continue in a bid to get the green light for the extension of the repayment time on the €30bn principal loan over a longer period.

Mr Noonan said the settlement removes the need for the Government to dip into its €85b bailout fund and pay cash.

"There is a significant cash flow benefit to the Exchequer in 2012 and our long-term debt sustainability is enhanced," he said.

While the deal could ensure a speedier return for Ireland to the markets, it will have no effect on what is expected to be another austerity Budget next year.

The deferred payment does not save the Government €3.06bn - it simply means it will not be forced to take the money in cash from bailout funds.

"If we soften the fiscal targets and say we don't need to do what we're doing then it won't work," said Mr Noonan.

The Finance Minister described the negotiations with the European Commission and European Central Bank as very complex, but insisted a long-term Government bond would ensure repaying Anglo's debts will become more manageable and ensure financial stability.

"If you bought a house on a five-year term and you pay big annual instalments over five years, you pay less over all than you would over 25 years," Mr Noonan went on.

"But the annual payments would be so large and burdensome that they would weigh you down."

Mr Noonan explained that the Government will present the bond to the IBRC, which will then hand it to the Bank of Ireland which will then turn the bond into cash, which it will get from the European Central Bank at a rate of 1pc, Mr Noonan said.

The cash will then be given to the IBRC, which then hands the money to the Irish Central Bank. It will then notify Frankfurt that the debt has been paid.

"There is a lot of complexities in this promissory note issue. It's a very complex arrangement in the first instance so it needed complex financial engineering to make sure it can be paid in this way," he added.

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