Bank of Ireland has announced plans to enforce 'burden-sharing' on its subordinated bondholders in order to help meet the costs of recapitalising the institution.
Under the terms of a "debt for equity" swap announced today, junior bondholders will be offered 10% to 20% of the original value of the bonds in order to help raise the €4.2bn in capital needed to meet targets set by the Central Bank.
"The Bank intends shortly to launch a liability management exercise in respect of approximately €2.6bn of its subordinated liabilities," BOI said in a statement.
"The Bank’s current expectation is that the cash prices under the exercise will be 10% of nominal for Tier 1 securities and 20% of nominal for Tier 2 securities," it continued.
The bank also said it would not be paying any interest due on those bonds.
The bondholders will also be offered shares in the bank in return for the debt, with BOI stating: "the Bank may also offer an equity alternative to subordinated bondholders incorporating both a premium to the cash alternative and a payment in respect of interest accrued."
The scheme also includes proposals to amend the terms of the bonds to grant a 'call option', allowing BOI to buy back the bonds for a cash amount less than the terms already offered to bondholders.
"The Bank understands that the Government will take whatever steps it considers necessary to maximise burden sharing," the statement continued.