Not so tender

22 October 2010 By George Hay Follow @gfhay

The government is making an offer to buy out holders of Anglo Irish Bank sub debt but at just below the market value. A premium would have enraged taxpayers, but wiping investors out completely might have alarmed the market. The compromise is the best bondholders can hope for.

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Anglo Irish Bank has offered holders of its subordinated debt the option to revise terms and write down their principal. If approved, the revisions could net the stateowned Irish lender a 1.6 billion euro capital gain, according to CreditSights.

Holders of the bank's 1.57 billion euros of lower Tier 2 subordinated debt have been offered the chance to exchange their debt into a new seniorranking government guaranteed Anglo bond, worth 20 percent of the principal value of their existing debt. The existing debt had been trading at about 25 percent of par value. The new bond will mature in December next year.

As part of the swap, bondholders will agree to change the terms of the debt to allow Anglo to repay the old bonds at 0.01 euros for every 1,000 euros they hold. If the changes are approved by 49 percent of bondholders, any who don't agree to the swap would be repaid just 0.001 percent of the par value of their claim. If not enough bondholders approve the changes, Anglo could still impose losses on bondholders under planned bank resolution legislation.

Holders of Anglo Irish's 377 million euros perpetual subordinated securities have been asked to approve changes allowing the bank to redeem the debt at 0.01 euros for each 1,000 euros, or 0.001 percent of par. Investors who agree will be given a 5 percent consent fee. The bonds had been trading in the high singledigit area. Bondholders who don't agree the changes would miss out on the consent fee, and risk receiving nothing later.

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