Thursday 23 November 2017

Order seeking burden-sharing was 'unlawful final solution' - bondholders


Tim Healy

AN order obtained by the Finance Minister in April seeking burden-sharing by AIB bondholders was part of an unnecessary and unlawful "final solution" aimed at coercing them into selling their bonds for "derisory" sums, the High Court heard yesterday.

The idea for that "final solution" appeared to have come from AIB in consultation with the National Treasury Management Agency and the bank's advisers, JP Morgan, it was claimed on behalf of a Cayman Islands-registered company that represented some of the bondholders.

The claims were made yesterday by John Gordon, for Aurelius Capital Master Ltd, and linked firms, who are challenging the minister's order.

While the State claimed that the Subordinated Liabilities Order (SLO) of April 14 was required in the context of AIB's recapitalisation requirements being revised upwards by the Central Bank in late March to €13.3bn, documents showed an SLO was under consideration within the Department of Finance from February, Mr Gordon said.

The Credit Institutions Stabilisation Act (CISA) required the minister to consult with the Central Bank about whether a SLO was necessary, he said.


Draft documents supplied by the Department of Finance to the Central Bank on April 12 and 13 showed there was "no real consultation".

It was clear it was originally intended to seek the SLO in March which would have avoided AIB having to make coupon payments to bondholders of some €80m, counsel said.

It was his case the manner in which the SLO was made breached provisions of the EU Credit Institutions Winding Up Directive. Mr Gordon was opening the challenge before Mr Justice John Cooke to the SLO, made under the CISA by the High Court on April 14.

The order allows the minister to change terms, conditions and maturity dates on AIB's subordinated bonds, lift restrictions on buybacks and reduce the value of the bonds so as to encourage bondholders to take up a debt buyback offer.

Aurelius claims, because it is an US firm, it was excluded from an earlier AIB debt buyback or Liability Management Exercise of January 2011 which offered better terms.

It claims the April SLO is an unlawful attempt to coerce it into a less favourable debt buyback scheme announced last month with a closing date for take-up set for June 13.

The case continues.

Irish Independent

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