AIB seeks ruling over junior bondholder payments
The coupons were due for payment on Saturday but may not have to be paid if an order clearing the way for a severe debt buyback scheme survives a continuing legal challenge brought on behalf of some junior bondholders in AIB, the court heard.
Paul Gallagher, for AIB, said if the legal challenge fails, the bank would have no liability to make the coupon payments but, as the case was continuing, the bank wanted directions from the court as the coupon payments were due on Saturday. The bank was prepared to consider paying the relevant sum into an escrow account pending the outcome of the case, he added.
The application arose in the continuing challenge by a Cayman Islands investment firm representing some junior bondholders in AIB to an order secured by the Finance Minister from the High Court last April.
That Subordinated Liabilities order allows the minister change terms, conditions and maturity dates on AIB’s subordinated bonds, lift restrictions on buybacks and reduce the value of the bonds so as to encourage bondholders to take up a debt buyback offer which had a take-up deadline of June 13. Under the buyback, AIB will impose losses of as much as 90% on subordinated bondholders.
The challenge by Aurelius Capital Master Ltd, along with some linked firms, to the SLO opened earlier this month before Mr Justice John Cooke and resumed yesterday.
Aurelius had argued its action prevented the coming into effect of the entire SLO but on June 9 last, Mr Justice Cooke agreed with lawyers for the minister the challenge was limited to those parts of the SLO relating to the Aurelius bonds — two categories of securities out of 18. That meant the SLO was effective for the other 16 categories.
Mr Gallagher asked for liberty to bring a motion for directions concerning the coupon payment due on March 25.
When the judge asked what legal standing he had to make the application, counsel said the bank was directly affected by any order the court would make in the case.
If the court upheld the SLO, it was effective from April last and AIB had no liability for payment under the coupon, he said. If the coupon was paid on Saturday and later turned out not to have been payable, this would affect the effectiveness of the order made by the court in the Aurelius proceedings, he added.
John Gordon, for Aurelius, said he had concerns about the legal standing of AIB to make this application which affected not just his clients but other bondholders who should be put on notice. He required time to deal with the matter.
Mr Justice Cooke said any bondholders who had anything to say about the SLO should have done so within the five-day appeal period provided for when the order was made on April 14 last. He said he would deal with the AIB application tomorrow and directed the bank could issue its motion returnable for then.
The court has heard the SLO was sought after an earlier debt buyback exercise of January 2011 was taken up by about 50% of bondholders.
Aurelius claims that because it is an American firm it was excluded from the January LME which offered better terms. It claims the April SLO is an unnecessary and unlawful attempt to coerce it into a less favourable debt buyback scheme. The case continues today.
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