TWO INTERNATIONAL investment firms have commenced legal challenges against the Government’s plans to buy back debt from subordinated bondholders in AIB at a significant discount.

Last week the High Court made a subordinated liability order under the Government’s bank restructuring law, the Credit Institutions (Stabilisation) Act 2010, which will enable it to change terms, conditions and maturity dates on certain subordinate debt instruments.

The orders were sought by Minister for Finance Michael Noonan to ensure burden sharing by bondholders in AIB’s recapitalisation.

In a brief application before the High Court yesterday, two bondholders, Abadi Co, represented by Niall Buckley, and Aurelius Capital, represented by John Gordon, informed Mr Justice Kevin Feeney they had served motions aimed at overturning or varying the orders obtained by the Minister.

The bondholders’ actions are against the Minister, who was on notice of yesterday’s applications.

Mr Justice Feeney adjourned both motions to the first week of May, for mention only, when the new legal term commences. The motions will go before the president of the High Court, Mr Justice Nicholas Kearns, and it is hoped that the actions will be heard sometime the following week.

Last Thursday at the High Court Mr Justice Brian McGovern ordered the issuing of a subordinated liability order, under the 2010 Act, which provides for changes to be made to subordinated debt coupon terms and maturity dates for subordinated liabilities of the bank. It will also permit the purchase by AIB of debt instruments.

The intention was that subordinated debt holders will share in AIB’s capitalisation and reduce the burden on the taxpayer.