German firm sues IBRC over bond values


THE DECISION to offer a German asset management company €170 for €17 million worth of Anglo Irish Bank bonds in 2010 when other bondholders received a fifth of the value of their holdings is being challenged in London.

The case has “profound implications” for UK debt and equity markets, the High Court was told, because, if legitimate, it means companies would be free to coerce creditors into selling debt for a fraction of its value.

The claim over the November 2010 expropriation has been taken by Assenagon against the Irish Bank Resolution Corporation (IBRC) – which took over the affairs of Anglo Irish Bank and the Irish Nationwide Building Society in 2010.

The holders of over 90 per cent of the bonds agreed to exchange nearly €700 million of them for notes worth a fifth of their value. Others, including Assenagon, refused to do so, despite warnings that their stakes would be expropriated. Subsequently, those who refused to exchange lost their holdings when IBRC paid just 0.01 cent per €1,000, with Assenagon claiming that the bondholders who had accepted IBRC’s offer had acted oppressively towards the minority.

The bank had used its position as the offeror to secure the votes of those prepared to accept, which “effectively extinguished all the rights and economic interests of the remaining noteholders who did not”, Assenagon lawyers said.

All noteholders had been faced with “a prisoner’s dilemma” by the bank, since they either accepted the exchange offer and got some compensation, or faced the risk that they would be out-voted and get nothing, the court heard.

Noteholders prepared to exchange the notes had to make an irrevocable commitment to doing so, along with issuing instructions to an agent to vote in favour of the devaluation resolution that liquidated everyone else.

The votes of those who had accepted a 20 cent in the euro exchange should not have been counted when the resolution to liquidate others was passed because, by then, the beneficial interest in the notes was held by the bank.

So far, IBRC had provided “no good explanation” for its decision to liquidate the holdings of those who refused, since it could have forced all to accept the 20 cent in the euro offer after a three-quarters majority had accepted.

“It is to be inferred from the bank’s failure to do so that its intention and objective was to coerce noteholders into offering their notes for exchange and to oppose those noteholders who declined to offer their notes for exchange,” said the Assenagon skeletal argument.

The devaluation resolution “was an abuse of the noteholders to modify the terms of the notes in that [it] had not conceivable benefit to the class of noteholders as a whole, but rather was for the sole benefit of the bank”.

Acknowledging that it could have been forced to exchange the notes for a fifth of their value by a majority vote of bondholders, Assenagon insists that its fellow noteholders did not have the right to extinguish the rights of everyone else.

“Moreover, it is notable that the bank itself has never sought to suggest that the devaluation resolution gave rise to any benefit for the class of noteholders as a whole, or to identify what that benefit might be,” its argument continued.

The notes were issued by Anglo in 2007 and were to be redeemable at par at any date between June 2012 and March 2017. Investors were to receive 0.25 of a percentage point over Euribor up to June 2012, and 0.75 of a point over Euribor subsequently.