US hedge fund challenges Anglo plan

A US hedge fund that holds $200 million (€148.2m) of bonds in Anglo Irish Bank issued to investors in 2005 has filed papers with a New York court challenging the rights of the bank and of the Government to proceed with the sale of Anglo’s assets and to merge the remainder of the business with Irish Nationwide.

Fir Tree Capital’s submission also demanded Anglo be prevented by the New York courts from interfering in anyway with the €10.7 billion in assets held by the collapsed bank in the US.

Fir Tree’s case is that Anglo is governed by US law in relation to the €200m bond transaction and claims that under US law, Anglo is obliged to pay down its debt in full.

The hedge fund further argues the contract with Anglo was signed in the state of New York and that US law supercedes any decisions made subsequently by the Irish state concerning the bank’s future.

In Dublin last week the High Court granted the Finance Minister the right to sell off the assets of the two banks and to proceed with the merger of the remaining assets under one bank.

The hedge fund owners said such a move would “violate the bank’s covenants in the Notes Purchase Agreement.

Anglo must on that basis “refrain from consolidating with or merging into any entity unless that entity was solvent and agreed to assume all liabilities under the agreement.”

INBS is not an investment-grade institution and Fir Tree has “no assurance” it would assume the bank’s liabilities as required by the loan terms.

Last night, a spokeswoman for Anglo said “the bank has to file a response” to the Fir Tree submission, but would not elaborate further.

Fir Tree wants the New York judge stop Anglo from selling any of its assets and to block it from transferring any of its €10.7bn of US assets out of the country.

The Credit Institutions (Stabilisation) Bill 2010, passed into law in mid December allows for the reorganisation and restructuring of the banking system agreed as part of the EU/IMF €85bn bailout plan.

This law allows for the imposition of losses on subordinated bondholders in state-supported lenders on a case-by-case basis.

In the current environment, Fir Tee is trying to prevent an 80% haircut on the $200m loan. That was the deal offered to the five investors and the 16 funds involved back in November by Anglo as it moved to shore up its losses.

They rejected the offer and then Fir Tree stepped with a 23-25 cent offer for the bonds which they are now trying to realise full value through the New York courts. If it fails they are facing a loss of more than €160m.

One blogger on The Irish Economy website said “the first hurdle for the state/Anglo to overcome is to explain how a piece of Irish legislation can unilaterally alter the terms and conditions of notes subject to NY law.”