Government proposes Anglo bond buyback
The government is expected to launch a bond buyback for Anglo Irish Bank in the coming weeks, as part of a restructuring plan agreed with the EU Commission.
The buyback, which will reduce the bill for taxpayers, will offer some bond holders in the new Anglo asset recovery vehicle the option of a bond, or a term deposit, in the new funding bank, at a significant discount.
While it will go some way to reducing the taxpayers’ bill, any amount recovered from bondholders will pay only a small portion of the overall cost, expected to approach €30 billion.
The reason for offering bondholders alternative investments, as opposed to cash, would be to avoid an immediate cash payout by the exchequer.
The government has already announced that Anglo is to be split into two sections - an asset recovery vehicle, to wind down loans not transferring to Nama, and a funding bank for deposits.
The bondholders’ liabilities will initially move to the asset recovery vehicle.
While full details of the Anglo plan have still to be agreed, sources have said that the government will seek a significant discount from subordinated bondholders, who have investments of more than €2 billion in Anglo.
These bondholders may be offered the option of transferring at a steep discount to a bondholding or a term deposit in the funding bank, or remaining as bondholders in the asset recovery vehicle, with no guarantee of getting anything back.
As this debt is trading at around 20 to 30 cent in the euro - and none of it will be covered by state guarantee after the end of this month - the government is likely to be able to recoup the bulk of the cash owed to these investors.
It is not clear whether the government will also offer buyback terms to higher-ranking bondholders - known as senior debt holders.
The government has been adamant that it will not default on these bondholders, but it could still offer to buy back the portion of Anglo senior debt invested before the September 2008 guarantee, around €4 billion. If it did so, then the discount on this would be much less.
The remainder of Anglo’s senior debt - about €10 billion - was issued under government guarantee in the last two years and is thus unlikely to be affected.
Last week, Fine Gael leader Enda Kenny wrote to the EU competition commission saying there was, in his party’s view, ‘‘no sound legal or economic case for the Irish taxpayer to repay bond investors in Anglo Irish Bank following the expiry of the guarantee’’.
The letter made it clear that he was referring to those bondholders who invested before the September 2008 guarantee, both subordinated and senior debt holders.
Labour Party leader Eamon Gilmore has also called on the government to negotiate with bondholders.
Senior government sources have pointed out that, while there was a general expectation of subordinated bondholders taking significant losses, any move to default openly on more senior debt would have serious consequences for the state’s ability to raise borrowings and for the ability of the other banks to roll over their debts.
Quelle: http://www.sbpost.ie/news/ireland/government-proposes-anglo-bond-buyback-51762.html
