Ireland starts action on subordinated bank debt
By Conor Humphries
DUBLIN (Reuters) - Ireland's High Court opened the way on Thursday for the government to force burden sharing on the owners of subordinated debt in nationalized Allied Irish Banks <ALBK.I>, the finance ministry said.
Last month, Ireland said it would seek significant contributions from junior debtholders in its banks to help pay for recapitalizing the industry, a cost that has so far fallen mainly on taxpayers.
The country had to take an 85-billion-euro ($120 billion) bailout from the European Union and International Monetary Fund last November after the collapse of a construction boom crippled the banks that had financed it.
Finance Minister Michael Noonan said Allied Irish Banks' 2.6 billion euros in subordinated debt could lose up to four-fifths of its value.
"It's a matter for negotiations, but the ballpark figure would be something like 80 percent," Noonan told national broadcaster RTE.
The High Court on Thursday issued a Subordinated Liability Order that will amend certain subordinated debt coupon terms and maturity dates, and permit the AIB to purchase debt instruments, the finance ministry said in a statement.
"Today's action is intended to ensure that AIB's subordinated debt holders share the burden of the capital position of AIB and reduce the level of capital sought from the taxpayer," the statement said.
"If this exercise is not successful, the government intends to take whatever other action is necessary to ensure appropriate burden sharing by remaining subordinated bondholders."
AIB said in a statement that it would not pay interest or coupons on some subordinated bonds, and would extend the maturity of some other bonds to 2035.
Irish lenders have around 7 billion euros worth of outstanding subordinated bonds, according to Central Bank figures released earlier this month.
Holders of the 2.7 billion euros in subordinated debt in Bank of Ireland <BKIR.I> may be offered a debt-for-equity swap, Noonan told RTE. Bondholders in the other banks will be offered cash, he said.
Allied Irish Banks <ALBK.I> posted a loss of 10.4 billion euros on Tuesday. It has been effectively nationalized and saved from collapse by emergency ECB funding after being shut out of debt markets and losing 22 billion euros in deposits last year.
Noonan said he hoped between 5 billion and 6 billion euros could be raised through imposing losses on holders of subordinated bank debt.
The finance minister dropped a previous threat to impose losses on senior unsecured bonds in Bank of Ireland and Allied Irish Banks, the two "pillar banks" the government plans to build a new banking system around.
(Writing by Conor Humphries; Editing by Ruth Pitchford and Jan Paschal)