Wednesday September 22 2010
Any future default on bonds at Anglo Irish Bank would have to be adjudicated upon in the English courts and not in Ireland, the Irish Independent has confirmed.
The Government is not planning to default on any Anglo bonds, but the idea has been floated by third-level academics and some opposition politicians in recent weeks.
Instead of defaulting, the Government is expected to give the bank the go-ahead to do a bond buyback with some classes of bondholders -- but who precisely is not yet clear.
Bonds issued by Anglo over recent years are covered by English law, so if bondholders were to take legal action they would petition the English courts.
English law treats the rights of bondholders differently to Ireland. In recent cases in England between issuers and bondholders, the courts have ordered the issuer not only to pay missed coupons (interest payments), but also the legal costs incurred in taking the action in the first place.
Guarantee
A large number of so-called 'legacy' bonds issued by Anglo will no longer be covered by the blanket guarantee from next week when it is due to run out.
However, it may be extended and other bond issues are covered by the Eligible Liabilities Guarantee (ELG) which runs until the end of the year.
It has been reported that the Government will allow Anglo to launch a bond buyback as part of a restructuring plan agreed with the EU Commission.
This would allow Anglo to offer less than face value to bondholders and it could then book a gain on the difference between the face value and the price is it offering.
So far the only buybacks have been on subordinated debt and there have been no moves to carry out such an exercise with senior bonds.
Finance Minister Brian Lenihan has said he is totally opposed to any default on Anglo bonds. A voluntary buyback arrangement is not considered a default, but it must be entirely voluntary, allowing the bondholder to refuse the offer and hold the bond until maturity.
- Emmet Oliver
