If the Government loses an appeal against a UK high court ruling, Irish banks will owe bondholders an extra €460m, documents released under the Freedom of Information Act reveal.
Department of Finance officials noted that the Assenagon judgment — which found that the method used to burn Anglo Irish Bank bondholders was illegal — created an "unhelpful precedent".
The documents show the Government did everything in its power to strike a deal with Assenagon before Justice Briggs made his ruling, in an effort to avoid legal precedent.
An email from Gary Hynds, assistant principal of the banking division in the Department of Finance said: "For your information and not for onward dissemination to any other parties we have been in settlement negotiations with Assenagon over the past number of days, a final offer was made last night (July 17) and the response we have gotten suggests that it will not be accepted.
"In these circumstances we expect the Judge may issue a judgement at any stage after close of business today (July 18)."
If the Government’s appeal of the ruling fails, they will be forced to repay bonds valued at €210m from IBRC (formerly Anglo Irish Bank); €100m from Bank of Ireland; €70m from AIB; €70m from Irish Life and Permanent, and €10m from Irish Nationwide Building Society.
Department officials said: "The notes [bonds] in other institutions will not be immediately reinstated and will obviously need to be challenged; however, the judgment in this case creates a very unhelpful precedent."
The documents also reveal Dr Micheal Briem, believed to be an AIB bondholder, contacted the Department of Finance following the judgment.
Another investment firm, Enid Investments, have lodged an action against IBRC, following on from Justice Briggs ruling.
IBRC have delayed the action pending the result of the Government’s appeal.
Legal costs have already run to €160,000.