AIB secures ruling guarding against challenges

ALLIED Irish Banks has secured a court ruling aimed at guarding against legal challenges in other EU states to the bank’s decision not to make a £21 million coupon payment to junior bondholders.

That coupon payment was due to be made last Saturday, but Mr Justice John Cooke last Friday granted an application by AIB, supported by the State, permitting the funds instead to 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 last April.

That Subordinated Liabilities Order, if upheld by the court, will permit AIB not to pay the coupon at all.

The SLO allows the minister to 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.

Aurelius Capital Master Ltd, along with some linked firms, has challenged the SLO in proceedings against the minister for finance which opened earlier this month before Mr Justice Cooke.

Last week, AIB applied to suspend June 25 coupon payments pending the outcome of the Aurelius case. If the Aurelius challenge fails, the bank could avoid making the coupon payments, the court heard.

Bondholders represented by Aurelius stood to gain about half of the €21m coupon payment and the firm strongly resisted AIB’s application.

Mr Justice Cooke granted the application and has made an order for the coupon monies to be paid into court pending the outcome of the case.

AIB also asked the judge to rule his order was effective for the purposes of the EU CIWUD (Credit Institutions Winding Up) Directive, meaning AIB’s position would be protected across other EU states.

Aurelius opposed that application. The judge said he wanted to consider the CIWUD issue further, but granted interim protection under CIWUD until yesterday when he ruled CIWUD protection applies pending outcome of the Aurelius proceedings.

The case continues today when John Gordon SC, for Aurelius, will continue his submissions.