AIB burden-sharing to raise €1.6bn

AIB is hopeful of raising at least €1.6 billion of its re-stated capital requirements from ‘burning’ junior bondholders.

The bank — along with the likes of Bank of Ireland, Irish Life & Permanent and the EBS Building Society — is actively looking to make bondholders, or those who invested in its debt, contribute to its recapitalisation needs.

This combined effort, though having already met with opposition from various bondholders, should have the net result of reducing the amount of extra bank funding likely to have to come from the state/taxpayer.

AIB announced yesterday that there has been an 86% acceptance rate of its buy-back offer to junior bondholders, pending future acceptance deadlines. The remaining 14% relates to one bond and is the subject of a court action taken by a single investor over the terms of AIB’s offer.

The International Swap and Derivatives Association (ISDA) ruled, earlier this week, that some junior bondholders in AIB — who are set to suffer heavy losses from the bank’s heavily discounted debt buy-back exercise — will be eligible for insurance payments.

AIB was hit with the highest capital requirement level — €13.3bn — in the recent Central Bank stress tests on the Irish banks.

Finance Minister Michael Noonan welcomed AIB’s announcement, adding that following further bondholder meetings this week, “the nominal amount effectively tendered is likely to increase further”.

“It is anticipated that the level of core tier-1 capital required from the state will reduce further, following the second phase of the LME (liability management exercise), which completes in July,” Mr Noonan said.

“It is Government policy to achieve appropriate burden-sharing from holders of bank subordinated debt, not only in AIB but also in Bank of Ireland, EBS Building Society and Irish Life & Permanent, where liability management exercises are all under way. I would like to restate my commitment to take whatever steps are necessary, under the Stabilisation Act or otherwise, to ensure that the required level of burden-sharing in all of these banks is achieved.”

Meanwhile, international credit rating agency, Standard & Poor’s lowered its ratings on Bank of Ireland-issued tier-1 and tier-2 bonds yesterday from ‘C’ to ‘CC’.

Further afield, additional pressure was put on the international bondholder community yesterday, with Dutch finance minister, Jan Kees de Jager, suggesting that Greece’s debt-holders should be forced to contribute up to 30% of potential additional refinancing aid for that country.

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