Promissory note deal likely within days

A deal on the restructuring of promissory note payments to the former Anglo Irish Bank is likely to be struck within days, according to Central Bank Governor Patrick Honohan.

However, he added that “some technicalities still need to be resolved” ahead of the Mar 31 deadline.

More than €28bn in outstanding funding is scheduled to be pumped into the Irish Bank Resolution Corporation (IBRC) over the next 20 years, via annual promissory note payments. The second €3.1bn tranche is due to be paid at the end of this week.

Finance Minister Michael Noonan said last week that an alternative to a cash payment, probably a long-term Government bond, was the primary aim.

Addressing the Oireachtas Finance Committee yesterday, Professor Honohan said the use of a long-term bond, at current market rates of around 6.8%, in lieu of a cash payment, would represent “a very considerable step forward”. The repayment of the bond has also been pushed out to 2025; although this suggests that the formal wind-down of IBRC — encompassing both Anglo and the Irish Nationwide Building Society — will drag on longer than the previously envisaged 2020 deadline.

Noting that the annual cash payment of the promissory notes has become a source of risk to Ireland’s financial stability, he said that the Central Bank had been working “vigorously” with the ECB and other parties “on a mechanism for ensuring such a result in a manner that is at an acceptable cost to Ireland”.

“While some technicalities still need to be resolved, it now seems likely that this effort will be successful,” he added.

Mr Honohan said that the net cost of a bond deal would be “quite low, relative to alternative sources of finance”.

The Governor added that the Central Bank — along with the troika — has been “actively” studying ways of improving funding arrangements for IBRC. While he said that this promissory note deal could be “a major step forward” for Irish debt sustainability, Mr Honohan added that “this is a large ambition, and the design of a full solution that would achieve the objectives and respect the constraints of all parties has not yet been finalised”.

However, he said that avoiding having to make this €3.1bn cash payment was a move “very much” in the right direction, although it would take “several more months” to reach agreement on full bank sector restructuring.

Reacting to yesterday’s meeting, Sinn Féin finance spokesperson and Finance Committee member Pearse Doherty said that the deal was “disappointing”, given that the Government had not asked for a debt writedown in relation to Anglo.


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