B of I to impose 60% haircut on junior bondholders

BANK OF Ireland yesterday said it would impose a 60 per cent haircut on a group of UK junior bond investors through a revised debt buyback offer.

In July the bank withdrew its original offer to swap £75 million (€85.3 million) in perpetual unsecured junior bonds for cash or equities, citing administrative difficulties.

The decision to terminate the offer came as the lender faced a legal action by a British investor in the bonds which were originally sold by Bristol and West Building Society, which Bank of Ireland acquired in 1997.

A spokeswoman for the bank said yesterday that the legal proceedings have now been resolved “to the parties’ mutual satisfaction”. The bank is now offering to pay a total of £40.20 per £100 of bonds owned. This is broken down into a purchase price of £35 plus accrued and unpaid interest of £5.20, and represents a discount of roughly 60 per cent of the face value of the bonds. The proposal is part of the bank’s drive to raise capital through so-called bondholder burden-sharing.

Bank of Ireland was ordered to raise €4.2 billion in cash and a further €1 billion in contingency capital by the Central Bank following the stress tests in March.

The bank originally offered 40 per cent of the face value of the bonds (which pay an interest rate of 13.375 per cent) if investors accepted new shares in the bank, or 20 per cent for cash. Therefore some investors had faced a haircut of as much as 80 per cent.

The revised offer does not have a debt-for-equity alternative.

A Dublin broker said the terms of the revised deal seem slightly improved from a bondholder perspective as the maximum discount has fallen from 80 per cent to 60 per cent.

The bank said the latest offer is voluntary and that bondholders are under no obligation to participate. The offer began yesterday and is expected to close on September 22nd.

The 13.375 per cent bonds represent just 3 per cent of the bank’s subordinated bondholders on whom losses are being imposed.

Bank of Ireland avoided falling into State ownership last month after it attracted a €1.12 billion investment from a group of five North American fund managers. The bank will hold an egm in Dublin on September 9th regarding the Government’s agrement to sell a 34.9 per cent stake in the lender to these investors.

Takeover rules mean an investor is required to make a takeover offer for the remainder of a publicly quoted company if it moves above 30 per cent. Bank of Ireland has said the five investors will manage their holdings separately.

The Irish Takeover Panel has determined the five are acting in concert, it said.

Meanwhile, Irish Life Permanent said €265 million of subordinated bonds were tendered by investors ahead of a delayed settlement deadline for acceptance of a bond buyback offer. – (Additional reporting: Bloomberg)