Wednesday 22 November 2017

INBS bondholders fight payback plan

INBS Photo: PA
INBS Photo: PA
Donal O'Donovan

Donal O'Donovan

Holders of subordinated debt in Irish Nationwide Building Society (INBS) are challenging the Government's right to impose losses on them as is happening in Anglo Irish Bank.

Subordinated bondholders -- who normally have the last claim on the assets of a failed institution -- argue they would rank higher than depositors if they succeed in having the society liquidated. A bondholder source told the Irish Independent his fund believed depositors of a building society were members, not creditors, of the society and, therefore, ranked behind subordinated bonds.

INBS deposits are fully guaranteed by the Government under the banking guarantee but its subordinated bonds are not. These bonds are in line for a haircut as the Government seeks to impose 'burden sharing' on unguaranteed debt.

Two funds, Trimast Holding and Satin Finance, have petitioned the High Court in London to have INBS wound up. Their case is based on a claim that Finance Minister Brian Lenihan's plan to impose "haircuts" (losses) on subordinated bonds amounts to a breach in the terms of their debt.

The English court has yet to accept the petition. No date for a court hearing has been set. INBS has said it will fight the claims vigorously.

The bondholders who have lent to INBS are trying to stop the Government imposing losses on the bonds through a debt buyback.

One subordinated bondholder, who refused to be named, said he believed building society deposits should rank behind creditors, including subordinated bonds, in the order in which debts are repaid. As a result he said "burden sharing" should not be imposed.

The Department of Finance and INBS declined to comment on the claim. The bondholder source said his fund believed INBS was solvent and should therefore honour all of its debts or face liquidation.


The two funds hold more than 25pc of the €250m of subordinated bonds issued by INBS. One fund is understood to be controlled by Fortelus Capital, a London-based hedge fund.

There was better news for the Government in relation to the Anglo Irish buyback after the price of Anglo Irish subordinated bonds fell below the buyback offer price.

It means the exchange offer now represents a premium to market rates, making it far more likely to be accepted.

The Government wants holders of €1.6bn of Anglo Irish subordinated bonds to swap the paper for new government guaranteed debt worth 20 cent in the euro.

The subordinated bonds fell in recent days to trade at around 17pc to 18pc of face value. At those levels bondholders are far more likely to agree to tender the bonds at the 20 cent on offer, easing fears the deal could fail.

That exchange is due to take place in December. It looked to be in danger of falling through at the end of October, when bonds traded above the offer price.

The bonds traded at 23pc of face value in the final days of October after investors controlling 43pc of the bonds said they would block the buyback.

The deterioration of the market for Irish sovereign debt has driven down the prices of bonds issued by all of the Irish banks since then, however.

Irish Independent

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