Thursday, October 21, 2010

Anglo Irish Bank has offered its junior debt holders a deal that wipes out 80pc of the face value of their bonds

Anglo Irish Bank has offered its junior debt holders a deal that wipes out 80pc of the face value of their bonds : The state run bank has offered bondholders 20 cents on the euro for the €1.6bn of subordinated debt. If bondholders take up the offer their debt will be exchanged for a senior bonds guaranteed by the Government which can be cashed in a year from now. Anglo Irish, which is desperate for capital, has already bought back €400m of the junior tranche of debt. Ireland faces a bill in excess of €50bn to prop up lenders and wants to ensure the burden is shared with subordinated bondholders.

The exchange offer, advised by JP Morgan Cazenove, comes after Finance Minister Brian Lenihan vowed to "address the issue" of junior bondholders taking a loss on their investments. This week Michel Barnier, Europe's combative market chief, said that creditors at failing banks would have to accept more of a burden when those banks needed bailing out.

However, bondholders, who complained they were getting a raw deal, said their treatment could have a long term impact on banks' ability to find financing. Before the deal, the subordinated debt was trading at an already low 28c. The Irish government pledged €11.4bn to support Anglo last month on top of the €22.9bn it has already pumped in since seizing the lender in January 2009.

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