BoI bondholders seek debt-for-equity swap deal to avoid forced losses

FIVE HEDGE funds holding about €300 million worth of Bank of Ireland subordinated bonds have asked the Government to consider a debt-for-equity swap instead of proceeding with plans to inflict up to 100 per cent losses on them.

The North American and European bondholders have told the department that they are also open to investing additional capital into the bank at a discount to the share price in line with other right issues by European banks.

The noteholders, including US fund Appaloosa Management, made the proposals in a submission in response to Minister for Finance Michael Noonan saying last week he was considering imposing losses on the remaining €350 million of subordinated debt at Bank of Ireland.

A spokesman for the department referred to the statement last week which said that neither the Minister or the department would “speak, meet or otherwise engage with interested parties”.

The Minister said he was considering using emergency banking legislation to secure a Subordinated Liabilities Order to raise the final €350 million required to meet the bank’s €4.2 billion capital target set by the Central Bank.

Submissions on these proposals were sought by last Wednesday.

Stephen Phillips, a partner with London law firm White and Case, which represents the bondholders, said they would take legal action in the Irish courts if the Minister proceeded to seek the order.

“To take what is a confiscatory approach without compensation is a very serious thing to do and any risk premium on Irish debt in the capital markets will increase as a result,” said Mr Phillips.

He pointed to the Minister’s statements that the Irish banks were “over-capitalised” and argued that Bank of Ireland didn’t require further capital given the better-than-expected results from the bank’s sale of non-core assets.

Mr Phillips represents the subordinated bondholders who chose not to participate in the liability management exercise in June.

He claimed the Minister’s plans were a transparent attempt to “advance a political agenda”.

“It is hard not to conclude that this is almost a deliberate policy agenda to impose losses to show the Government is being tough on bondholders,” said Mr Phillips.