A SUBORDINATED bondholder in Allied Irish Banks has claimed a court order obtained by the Minister for Finance last April was part of an unlawful “final solution” aimed at coercing investors into selling bonds for “derisory” sums.
New York-based Aurelius Capital Management is challenging the Subordinated Liabilities Order of April 14th which allows the Minister to change the terms of the bonds so as to effectively wipe them out in value.
Aurelius claims the order is an unnecessary and unlawful attempt to coerce it into last month’s less favourable debt buyback which has a closing date of June 13th.
The case opened yesterday before Mr Justice John Cooke.
The State was seeking to “super-capitalise” AIB “way out of all proportions” to attract outside investors and to wipe out subordinated bondholders, said John Gordon SC, for the Cayman Islands-registered Aurelius Capital Master.
The idea for the “final solution” appeared to have come from AIB in consultation with the National Treasury Management Agency and the bank’s advisers, JP Morgan, he said.
While the State claimed the order was required to meet AIB’s recapitalisation bill being revised up to €13.3 billion by the Central Bank in late March, documents showed the order was under consideration within the Department of Finance from February, he said.
Under the Credit Institutions Stabilisation Act 2010 the Minister had to consult with the Central Bank about whether an order was necessary, he said, but draft documents supplied by the department to the Central Bank on April 12th and 13th showed there was “no real consultation”.
Mr Gordon said the 2010 Act was an “extraordinary piece of emergency legislation”. While there is a “real emergency” over the State’s financial stability and Aurelius had “no difficulty with the concept of burden sharing”, using the law to force bondholders to sell up for derisory sums was entirely inappropriate, he said.
Mr Gordon said the April order breached the EU credit institutions winding up Directive, which required the State to consult with affected persons.
Aurelius claims that, because it is a US firm, it was excluded from a AIB debt buyback in January which offered better terms.
Under the latest buyback, AIB will inflict losses of up to 90 per cent as part of Government plans to share the banks’ losses with their subordinated bondholders.
AIB is offering between 10 and 25 cent in the euro to lenders on 18 AIB junior bonds with a face value of €2.6 billion and virtually nothing if they decline the offer.
Aurelius wrote to the authorities over the weekend looking for an undertaking on the buyback of euro bonds, but none was given.
Brian Murray SC, for the State, said it would ask the court to declare that the case relates only to two of 18 bonds in the April order, meaning the order would apply to the other 16 bonds, regardless of the outcome of the case.
Mr Gordon said that he would oppose this application.
