AIB bondholders can claim for losses

MILLIONS of dollars in insurance payments are set to be paid out to investors by derivatives traders in the wake of Allied Irish Banks burning junior bondholders.

Last week, AIB ceased interest payments on some bonds and postponed their repayment dates — a move which led international trading watchdog the International Swap and Derivatives Association (ISDA) to declare a “credit event”.

That term relates to any event — debt restructuring, breaches of bond covenants, payment default — that casts doubt over an issuer’s ability to service its debt, and which can trigger a payout on credit derivatives (financial contracts aimed at protecting against the risk of a borrower going bust).