Noonan says AIB burden-sharing could save €2bn

THE HIGH Court has paved the way for the Government to force losses on to subordinated bondholders at Allied Irish Banks to help meet some of the bank’s €13.3 billion recapitalisation.

Minister for Finance Michael Noonan said AIB could save on up to four-fifths of the €2.7 billion of debt owing to the lenders. “It’s a matter for negotiations, but the ballpark figure would be something like 80 per cent,” he said.

Mr Justice Brian McGovern ordered the issuing of a subordinated liability order under the Government’s bank restructuring law, the Credit Institutions (Stabilisation) Act 2010, allowing the move.

Holders of the €2.7 billion in subordinated debt in Bank of Ireland may be offered a debt-for-equity swap, Mr Noonan said.

Bondholders in the other banks will be offered cash, he said.

Noonan said he hoped between €5 billion and €6 billion could be raised by imposing losses on holders of subordinated debt.

Mr Noonan said the Government would take all the steps it could to reduce the high level of capital required by the financial institutions from the taxpayer.

“Today’s action is intended to ensure that AIB’s subordinated debt holders share the burden of the capital position of AIB and reduce the level of capital sought from the taxpayer,” he said.

“If this exercise is not successful, the Government intends to take whatever other action is necessary to ensure appropriate burden sharing by remaining subordinated bondholders.”

AIB said that it would not pay interest on some subordinated bonds, and would extend the maturity of others to 2035 from 2017.

On “perpetual” subordinated debt, there will now be no restriction on the bank buying back those liabilities, the court heard.

In order to facilitate the measures, the bank has undertaken a liability management exercise where it is going to offer to buy back securities at a significant discount to face value.

In moving the ex parte (one side only) application, Brian Murray SC, for the Minister, said a five-day period after the court order was provided for under the law to allow creditors make representations to set aside the order.

Without State support, it was likely that AIB subordinated bondholders would receive nothing, while they would receive something under this approach, he said.