State won't make IL&P resort to investors for finance
Bid to prevent bondholders from demanding €9bn repayment
THE State won't push Irish Life & Permanent (IL&P) to explore ways to raise some of its €4bn capital target from new investors because officials believe "fundamental issues" with its business model make private investment "highly unlikely".
The bleak outlook for IL&P's fundraising was revealed in court documents filed yesterday as part of a bid to prevent bondholders from using the impending sale of IL&P's life insurance business to demand the immediate repayment of €9bn.
The Department of Finance successfully obtained a "Direction Order" from the High Court for the sale of Irish Life Assurance (ILA) under the exceptional powers granted by the Credit Institutions Stabilisation Act.
Officials believe this will prevent bondholders from declaring the sale a "default event" and demanding their money back early -- an action they said would "cause immense damage to IL&P and the State" even if it failed.
Affidavits lodged by the Department of Finance said the life-insurance business should be sold to help IL&P reach the €4bn capital target set down by the Central Bank in March's stress tests.
The documents also revealed that the Government will pump €2.9bn into IL&P at the end of July and will stump up further cash at the end of October if the sale of ILA yields less than €1.1bn in capital.
"I believe that it remains highly unlikely that private capital is currently available to IL&P, and that parties other than the state are highly unlikely to invest in IL&P for a wide variety of reasons, including fundamental issues arising in the IL&P business model," Department of Finance official William Beausang said in an affidavit.
He goes on to list IL&P's "large tracker-mortgage book", its high "loan-to-deposit ratio" and its reliance on funding from monetary authorities, as well as the "high quantum of capital required" and the "uncertain outcome" of the plc's restructuring plan as some of the issues facing the plc.
The comments cast BoI's ongoing efforts to raise private capital in a harsh light and come as a group of IL&P investors push for an extraordinary general meeting that would force their company to explore private investment prospects.
Sources described yesterday's direction order as a "safety net" in case of bondholder action. In his affidavit, Mr Beausang points out that, in the absence of the direction order, bondholders could argue that the sale of ILA was a default event.
"While IL&P has advised the minister that it does not accept and would dispute any such contention, if bondholders were to maintain that an event of default had been triggered, this would cause immense damage to IL&P and the State," Mr Beausang said.
The president of the High Court, Mr Justice Nicholas Kearns, said he had received the legal documents at 8am yesterday and noted the overall intention of selling Irish Life was to stabilise and reorganise IL&P.
David Barniville, senior counsel for the Finance Minister, said the background to the application was the "precarious" financial position of IL&P which was reliant on support from the State and the ECB.
The market needed to be tested to see whether a public offering or private sale of Irish Life was best, he said.