IRISH NATIONWIDE has succeeded in its legal bid to dismiss a lawsuit by two subordinated bondholders in the High Court in London as a judge said he could not stop the Government’s plan to share the €5.4 billion cost of the building society.
The bondholders, Satinland Finance and Trimast Holding, had sought to force a unit of French bank BNP Paribas, the trustee of the bonds, to file a winding up petition against Irish Nationwide to force their repayment in full.
The investment funds did not have a valid legal claim, Judge George Mann said in his ruling.
The investors took the action after the Government said last September that it expected subordinated bondholders to share in the cost of bailing out the nationalised building society.
Irish Nationwide asked the court to dismiss the case, claiming that there had been no default.
The bondholders claimed that the Government signalled that it would not repay their loans as they fell due and wanted the society wound up in a bid to be repaid.
“[They] have not established, and will not be able to establish, any ground for the court to intervene,” the judge said.
He found that the bondholders were faced with a risk of losses at the building society, “which is inherent in the risk they take as subordinated shareholders”.
The judge noted that they were paid more for taking a greater risk by providing such loans.
“The trouble with being a subordinated noteholder is that you are subordinated,” he said. “That has its obvious drawbacks, but it also has potential benefits – in this case a 13 per cent interest rate.”
The judge declined to allow the bondholders permission to appeal, saying that the funds would have to ask the appeals court directly.
Lawyers for the building society had warned that the legal action was “misconceived on a whole host of grounds” and that it could “cause a run on the Nationwide”.
The investors argued that the proposed burden-sharing imposed “losses on one class, namely subordinated noteholders, while not imposing losses on another class, namely the Irish Government”.
The legal action attracted attention in the financial markets as subordinated bondholders in AIB and Bank of Ireland fear they will face loss-sharing as part of the bailout.
Markets are pricing in the possibility that the €4.9 billion owing by AIB on subordinated debt and €4.1 billion borrowed by Bank of Ireland will not be repaid in full to raise capital levels at both banks.
AIB’s 12.5 per cent subordinated debt due in 2019 fell to 36.5 cent in the euro in the bond markets down from 42 cent a day earlier, while Bank of Ireland’s 10 per cent debt, due in 2020, stayed around 60.6 cent in the euro.
The subordinated debt has been falling in value on the secondary debt markets over the past week. AIB’s debt was trading at face value as recently as September.
