AIB repays €1.5bn to unsecured bondholders

NATIONALISED bank AIB has repaid € 1.5 billion to unsecured bondholders, with investors receiving the full 100 cents in the euro on their investment.

Issued as part of the bank’s € 30 billion floating rate note programme in 2007, the five-year bond, which is not covered under the Government’s guarantee scheme, was repaid yesterday.

At its low in February 2011, the bond traded below 75 cents in the euro. At the time, some investors sold out, fearing that they would be forced to take a haircut on their investment. For those who invested at that time, however, their speculative investment has paid off with the Government’s subsequent promise that it will not “burn” any bondholders.

According to a spokesman for the Department of Finance, the rationale for AIB, which is 99.8 per cent owned by the State, meeting its debt repayments in full yesterday is the same as that which guided the € 1.25 billion repayment by the now defunct Anglo Irish Bank in January.

“The key thing for Government is to make sure that there’s no loss of confidence in the Irish banking system,” he said, adding that the goal for the Government remained getting a deal on the promissory notes related to Anglo Irish, now the Irish Bank Resolution Corporation. “We wouldn’t want to undermine that process,” the spokesman said.

Last April, the Central Bank published statistics indicating that the total outstanding senior and subordinated debt for Irish covered institutions was in the order of €64.3 billion, with a quarter of this accounted for by senior unguaranteed unsecured bonds. Since then, this figure has fallen.

Based on Bloomberg data, AIB has about €14.7 billion to be repaid by the end of 2015, although a spokeswoman for the bank said this figure included covered bonds. The bank assesses its bond exposure – including that of EBSD – at €9.5 billion by 2015.

Following its repayment in January, IBRC has about €4 billion in outstanding bonds left to repay – €1.8 billion in Government guaranteed notes, which are due to mature during 2012, € 900 million of notes which are scheduled to mature in 2015 and €1.3 billion in unguaranteed medium-term notes which are due to mature during 2012.

Bank of Ireland’s outstanding debt is of the order of €18.2 billion – €5.1 billion in senior guaranteed bonds; €10.1 billion in senior secured unguaranteed; €2.6 billion in senior unsecured and unguaranteed bonds and €400 million in subordinated bonds.

According to a spokesman for Irish Life & Permanent, it has about € 5 billion in senior bonds outstanding, with maturity going out to 2015. It has a “minimal” amount of subordinated bonds, as the bulk of these were bought back under the bank’s liability management exercise last year.

The decision to meet bond repayments continues to generate criticism.

Independent TD Stephen Donnelly yesterday criticised the move, arguing that the debts were incurred by “professional investors which have no sovereign guarantee and which occurred before the State took control of the bank”. On these grounds, he argued the Government had no “moral obligation” to repay them.