THE SUBORDINATED bondholders at Anglo Irish Bank who took out insurance on their investment by paying for credit default swaps (CDS) may receive settlements next Thursday against losses from the bank’s ongoing debt exchange.

The trade body that monitors the CDS market ruled last month that the bondholders could claim on losses incurred from the bank’s burden-sharing deal where Anglo exchanged debt with investors for 20 per cent of its value.

The International Swaps and Derivatives Association (Isda) ruled that the subordinated bondholders should be compensated as “a restructuring credit event” had occurred, not an event of default.

Isda said yesterday that CDS traders plan to settle contracts on Anglo at auctions on December 9th but it was not bound by this date as it was agreeing the settlement terms for each CDS auction.

The prospect of subordinated bondholders recovering most of their losses from CDS insurance, which is optional, may encourage investors in the two remaining bond offers to sign up to the deal.

The bank will learn on December 22nd whether investors holding two other subordinated bonds maturing in 2014 and 2016 have agreed to the exchange.

Bondholders holding loan notes of €750 million due in 2017 have agreed to the deal. The decision to compensate subordinated bondholders for their losses only affects these investors. The terms of the offer are regarded as penal because investors will get one cent for every €1,000 of debt they hold if they do not accept the proposal.

The Financial Timesreported this week that a second bondholder group holds a big enough interest in the bank's 2014 subordinated notes to block that part of Anglo's exchange offer.