Anglo offering to buy back debt at 20% of face value

ANGLO IRISH Bank has cleared the first hurdle in securing a deal with investors in the bank’s subordinated bonds, netting a gain by offering the investors just 20 per cent of the face value of their debt.

In a closely watched debt exchange to share Anglo losses with the bondholders, the bank secured the agreement of 92 per cent of the investors holding loan notes of €750 million due in 2017.

The bank has made the same offer to provide new bonds at a value of 20 per cent of the original value of the debt to investors in two of Anglo’s other subordinated bonds due in 2014 and 2016.

Investors who decline the offer will only receive one cent for every €1,000 of debt they owe in a proposal that was described by analysts as tantamount to default.

Bondholders with about €690 million of the 2017 notes, or 92 per cent of the debt, agreed to the bank’s offer. The vote brings the bank a gain of about €560 million.

The cost of insuring the bank’s debt – credit default swaps, a proxy for how risky a bank is – dropped slightly after the debt exchange. Anglo will hold two more votes on the same 20-cent-in-the-euro exchange on a €325 million 2014 bond and a €500 million 2016 bond next month. The bank stands to make a gain of €1.6 billion if all the offers are accepted.

A final vote on the 2014 and 2016 notes will be held on December 22nd in an exchange that is seen as a bellwether for a similar burden-sharing move at Irish Nationwide Building Society.

The Anglo deal has led to market speculation that the Government may seek to share losses of Allied Irish Banks with its subordinated bondholders when the bank is effectively nationalised.

Announcing the potential €50 billion bank bailout, Minister for Finance Brian Lenihan said the Government would seek a significant contribution from subordinated bondhlders to the cost of Anglo and Irish Nationwide. The Government has limited the loss-sharing to subordinated bondholders and is not seeking senior bondholders to foot part of the bills.

The High Court in London will rule today on whether an action by two holders of subordinated bonds in Irish Nationwide to wind up the building society over their debt can proceed in the Irish courts. Satinland Finance and Trimast Holdings have applied to the court to petition a unit of the French bank BNP Paribas to wind up the society. A group of investors in the 2016 Anglo subordinated notes are seeking a better deal from the bank and claim to hold a blocking stake in the bonds, which could yet derail the exchanges.

The protesting bondholders, who hold more than €690 million in debt, claim that the bank’s offer is coercive and represents the oppression of the minority. They are represented by investment bank Houlihan Lokey.