High Court gives AIB stay of execution on paying £21m coupon

AIB has secured an interim High Court order which may let it avoid making a £21 million (€23.7m) payment to junior bondholders.

The coupon payment was due to be made today but, following a decision by Mr Justice John Cooke yesterday, the funds will instead be lodged in court pending the outcome of a challenge by a Cayman Islands investment firm to an order secured by the Minister for Finance in April.

That Subordinated Liabilities Order (SLO), if upheld by the court, will exempt AIB from paying the coupon at all.

The SLO lets 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 up to 90% on subordinated bondholders.

Aurelius Capital Master Ltd, along with some linked firms, has challenged the SLO. AIB previously consented to the making of the SLO.

Earlier this week, Paul Gallagher SC, for AIB, asked the judge for permission to apply to suspend today’s coupon payment pending the outcome of the Aurelius case. Mr Justice Cooke allowed the application, although it was strongly resisted by Aurelius.

Bondholders represented by Aurelius stood to gain about half of the £21m coupon.

Moving the application, Mr Gallagher argued provisions of the Credit Institutions Stabilisation Act 2010 provide that no event of default arose if a coupon payment was suspended and paid into court pending the outcome of the legal challenge to the SLO.

He agreed with the judge the best way to approach the matter was to join AIB as a notice party to the Aurelius action.

Declan McGrath, for Aurelius, argued AIB had no legal standing to bring the application and the court should refuse to join it as a notice party to the proceedings. AIB had a contractual obligation to pay the coupon and was seeking the court order in an effort to be “immunised” against an event of default, he said.

Counsel also submitted the SLO did not require AIB not to pay the coupon. All the SLO did was to alter “must pay” to “may pay”, he said. Even if the coupon money was paid into court, AIB would be in breach of contract with the bondholders and would commit an event of default, he argued.

When Mr Gallagher asked the judge to rule his order was effective for the purposes of the EU’s credit institutions winding-up directive (CIWUD), meaning AIB’s position would be protected across other EU states, this was strongly opposed by Mr McGrath.

Mr Gallagher said he was “alarmed” by Aurelius’ attitude which he said appeared consistent with an intention to take action in other EU member states.

The judge said he wanted to consider the CIWUD further and would rule on that next week, but would make a provisional CIWUD protection order returnable to Monday.

Aurelius had argued its action prevents the coming into effect of the entire SLO but, on June 9, Mr Justice Cooke agreed with lawyers for the minister that the challenge was limited to parts of the SLO relating to the Aurelius bonds — two categories of securities out of 18.