Junior bonds hold key to AIB hitting target

AIB’s chances of raising the remaining €4.7bn of its end-of-February capital requirement may rely on holders of undated junior subordinated bonds in the bank being forced into a deal, according to new analysis from Davy Stockbrokers.

“In its authorisation of the €3.7bn recapitalisation of AIB, in December, to satisfy regulatory minimum capital requirements, the EC expressly indicated that subordinated bondholders must make a significant contribution to the bank’s restructuring cost,” Davy said.

AIB’s recent €2bn subordinated bond buyback leaves the bank with €4.7bn to raise in order to meet revised capital guidelines. Davy has suggested that the bank’s €775m worth of undated subordinated debt “will need to make a contribution towards this target”, adding that a debt-to-equity offering appears to be the only option and “coercive action” may be unavoidable.