LEGAL CHALLENGE:IRISH NATIONWIDE has applied to the High Court in London to have a legal action taken by two holders of its subordinated bonds struck out, arguing that it is a ploy to force the full repayment of the debt.
The building society lodged an application at the Chancery Division of the Royal Courts of Justice in London late yesterday seeking to have the action taken by two funds, Trimast Holdings and Satinland Finance, both Irish Nationwide subordinated bondholders, dismissed.
The funds, which are creditors of the building society, hold more than 25 per cent of the lower tier-two bond due in 2016 issued by the building society. London-based investment firm Fortelus Capital Management controls Trimast Holdings.
Represented by London law firm SJ Berwin, the funds have sought direction from the London court as they want the bond trustee, a trust corporation run by French bank BNP Paribas, to present a petition winding up the lender.
In an escalation of the stand-off with the subordinated bondholders, Irish Nationwide will seek to have the legal action struck out over the coming days before the bondholders’ action comes before the London court next Monday morning.
The building society is understood to be claiming that the legal action by the funds is designed to put pressure on the Government and Irish Nationwide to ensure they are repaid in full. “It’s a negotiating ploy,” said a source familiar with the legal challenge.
Irish Nationwide had no comment to make on its application. The State-owned building society said in a statement last Friday that it would be “vigorously defending this action” and noted that no event of default had occurred.
The funds are basing their action on a claim that a statement by the Minister for Finance Brian Lenihan on September 30th amounted to a breach of the terms of their debt.
Mr Lenihan said that the Government would seek “a significant contribution” from subordinated bondholders, whose debt is not guaranteed by the Government, and share the €5.4 billion burden of the Irish Nationwide bailout.
They are trying to prevent the building society forcing them to take losses in a debt exchange similar to a capital-generating offer presented to subordinated bondholders by Anglo Irish Bank.
State-owned Anglo is offering the bondholders holding €1.6 billion of debt in exchange for new bonds to the value of 20 cent in the euro and just one cent for every €1,000 face value of debt if they decline the offer.
The action against Irish Nationwide has been taken in the London courts as the bond documentation falls under UK law. However, any action to have the building society wound up would have to be heard before the Irish courts.
The building society and Anglo had their subordinated debt ratings reduced by credit rating agency Moody’s a month ago on the basis of an expected default with little prospect of recovering the debt.
A number of subordinated bondholders at Anglo are threatening a legal challenge over the bank’s refusal to negotiate on the debt offer. The lenders to the bank are using the investment bank Houlihan Lokey and law firm Brown Rudnick.
