AIB junior bondholder case settled

A challenge by a Cayman Islands investment firm - Aurelius Capital Master and linked firms - to a ministerial order clearing the way for some burden-sharing by junior bondholders in Allied Irish Banks was struck out on consent at the High Court today.

Given the development, Mr Justice John Cooke made an order on consent that the disputed Subordinated Liabilities Order (SLO), which allows the bank to impose losses up to 90 per cent on junior bondholders, became effective on April 22nd last.

Counsel for other junior bondholders earlier failed in a last-minute bid aimed at requiring AIB pay his clients €8 million due under a coupon payment last Saturday but not actually paid following an AIB application to the court the previous day to be permitted defer that payment pending the outcome of the Aurelius case.

Michael Cush SC said he was representing two noteholders, "Vega", and his clients were only interested in the coupon payment monies lodged in court last Friday. His clients had an €8 million interest in that coupon payment, AIB was aware of that and should have paid the coupon, he said.

Lawyers for Aurelius, AIB and the State argued Mr Cush had no legal standing to make any application as the five day period for any bondholders to challenge the SLO had expired last April. Paul Gallagher SC, for AIB, said the bank had no liability to pay the June 25th coupon because of the order.

The court also heard the total €21 million coupon payment monies had not actually been lodged in court to date in circumstances where talks began in the Aurelius case as the official court order for payment of those monies was still being finalised.

Mr Cush said he had thought the monies were lodged in court. He also agreed his clients had not challenged the SLO within the statutory time period.

Having heard the parties, Mr Justice Cooke ruled Mr Cush was not entitled to be heard relating to the coupon payment monies.

Having received confirmation from John Gordon SC, for Aurelius, that the case could be struck out on consent, the judge then made three orders sought by Brian Murray SC, for the Minister for Finance, with the consent of Aurelius and AIB.

He made orders striking out the proceedings and directing that the SLO became effective on April 22nd last in relation to the two classes of bonds held by Aurelius.

The judge also vacated his order of June 24th last requiring AIB to pay the €21million coupon payment monies into court.

Mr Gordon consented to those orders and thanked the judge for the time afforded to the sides which had led to the "amicable resolution" of the proceedings. Mr Murray also thanked the judge.

Aurelius had challenged the SLO, secured by the Minister for Finance from the High Court on April 14th last, in proceedings against the Minister for Finance and State which opened on June 3rd last before Mr Justice Cooke.

The order allows the Minister to change terms, conditions and maturity dates on AIB’s subordinated bonds, lift restrictions on buybacks and reduce the value of the bonds so as to encourage bondholders to take up a debt buyback offer which had a take-up deadline of June 13th. Under the buyback, AIB imposes losses of as much as 90 per cent on subordinated bondholders.

Submissions for Aurelius concluded just after lunchtime yesterday, the tenth day of the hearing, after which the State was due to begin its arguments but instead talks began between the sides which led to yesterday's settlement.

During the case, the court heard the April SLO was sought after an earlier debt buyback exercise of January 2011 was taken up by about 50 per cent of bondholders. Aurelius claimed, because it is an American firm, it was excluded from the January LME which offered better terms.

It claimed the April SLO was an unnecessary and unlawful attempt to coerce it into a less favourable debt buyback scheme.

Another investment firm representing junior bondholders in AIB which had also challenged the SLO in High Court proceedings withdrew that challenge some weeks ago. British Virgin Islands registered Abadi & Co Securities Ltd withdrew its case on June 2nd last and told the court it would participate in the latest AIB debt buy-back exercise.

Abadi had raised concerns the latest Liability Management Exercise announced by AIB in May, aimed at raising up to €2 billion to meet the bank's additional €13.3 billion capital bill, may have overtaken the April SLO and could render its case pointless. If Abadi did not take up the May LME, its bonds could be rendered effectively valueless, it said.