An investment firm representing some subordinated bondholders in Allied Irish Banks is expected to ask the High Court tomorrow to make orders that would delay plans for a debt buyback aimed at raising up to €2 billion to meet the bank's additional €13.3 billion capital bill.
Abadi & Co Securities Ltd indicated it would seek the order in proceedings before Mr Justice John Cooke in which Abadi and another investment firm are challenging a court order secured last April by the Minister for Finance as part of an effort to achieve some burden-sharing by bondholders in AIB.
The April Subordinated Liabilities Order (SLO), made under the Credit Institutions Stabilisation Act, allows the Minister change terms, conditions and maturity dates on AIB’s subordinated bonds and lift restrictions on buybacks. The order reduces the value of the bonds so as to encourage bondholders to take up the buyback offer.
The proceedings by the investment firms - British Virgin Islands registered Abadi and Cayman Islands registered Aurelius Capital Master and linked firms - were due to open today but have been deferred to tomorrow as a result of outstanding issues concerning discovery of documents and other matters.
John Rogers SC, for Abadi, told the judge today his client was concerned that another Liability Management Exercise (LME) or buyback for AIB announced last month since the proceedings were initiated may have overtaken the April SLO.
That LME, published on May 13th last with a June 13th deadline for take-up, was very similar to the April SLO and could render Abadi's challenge in this case moot [pointless], counsel said.
If Abadi did not task up the latest buyback proposals, its bonds could be rendered effectively valueless, and Abadi wanted the June 13th deadline extended until after the court had decided the Abadi/Aurelius challenge, counsel said. His side contended this issue was "live" in the proceedings and wanted the matter dealt with at the outset of the case.
Mr Justice Cooke said counsel appeared to be saying the court should make some order before June 13th. He queried if the court could address matters that had arisen since the action was taken but told counsel he could renew his application when the case opened.
Under the latest buyback proposals, AIB will impose losses of as much as 90 per cent on subordinated bondholders. The bank is offering between 10 and 25 cent in the euro to AIB’s lenders across 18 subordinated bonds with a face value of €2.6 billion and just 1 cent for every $1,000 of debt held if they refuse to accept it.
Most of the debt is subject to an offer at a 75 per cent discount, while holders of the undated subordinated bonds are being offered 10 per cent of its face value.
Minister for Finance Michael Noonan has described the terms of the offer as “the minimum acceptable”. This was “the final opportunity of a market-based exit at a return which is reasonable and fair considering the level of Government support to date”, he said. The Government has injected €7.2 billion of public funds into AIB, taking a 93 per cent stake.
