Anglo offers to exchange subordinated debt at discount

ANGLO Irish Bank Corp offered to exchange €1.6 billion of subordinated debt at a discount, paying in new bonds at a rate of 20 cent on the euro as the nationalised lender seeks to generate capital.

And Allied Irish Banks Plc may have a debt-for-equity swap next month.

Anglo Irish will offer bondholders that don’t take up the exchange 1 cent per €1,000 face amount to redeem their floating-rate notes due in 2014, 2016 and 2017, the lender said last night. The new securities will be due 2011 and guaranteed by the Government, according to the statement.

Holders of more junior securities in euro and pounds will get a £50 or €50 consent fee to give the issuer the right to buy them back at 1 cent or 1 penny for each €1,000 or €1,000 of securities, according to a separate statement.

“The Government is clearly trying to get as high a participation rate in the exchange as possible,” said Fergal O’Leary, a director at Dublin-based Glas Securities, which specialises in fixed income markets. “The alternative to taking part is quite penal.”

Ireland faces a bill of more than €50 billion, about 22% of 2009 gross domestic product, to prop up lenders and wants to ensure the burden is shared with subordinated bondholders.

The offer comes after Finance Minister Brian Lenihan vowed to “address the issue” of junior bondholders taking a loss on their investments in nationalised banks.

Repurchasing a liability such as a bond at a discount to face value generates a capital gain that the purchaser can use to bolster its capital.

The Government pledged as much as €11.4 billion to support Anglo Irish on September 30, on top of the €22.9 billion it has already pumped in since seizing the lender in January 2009. Its base-case calculation of the cost of the rescue, which involves keeping part of the lender alive while putting the remainder into runoff, is €29 billion.

The Anglo Irish rescue package will cost every man, woman and child in Ireland as much as €7,500.

And Allied Irish Banks Plc may have a debt-for-equity swap next month at the same time as a planned share placement to raise additional equity, Glas Securities in Dublin said.

The debt-management exercise “will probably take the shape of a debt-for-equity swap, with bondholders having the option to sell their shares simultaneously into a rights issue,” Glas said. It said €250 million to €300m is a “realistic equity raise from this”.