IRISH NATIONWIDE has reported a mixed response to its €1.5 billion debt swap, with 90 per cent of investors taking up an offer for two sterling bonds but just one-third accepting the swap for a €900 million bond due in 2012.

The customer-owned lender said there was an average 90 per cent take-up on its offer to swap two sterling bonds of £500 million (€585 million) for new Government-guaranteed debt.

However, participation in the €900 million senior floating rate note, due in 2012, was considerably weaker, with about 33.5 per cent, or €301.9 million, taking it up. Investors were most interested in the offer for £250 million (€292 million) worth of sterling lower tier-two bonds, a ranking of debt capital sitting above pure equity. Participation in the swap on this debt was 92 per cent.

Some 88 per cent of investors opted for the swap on £250 million of bonds maturing in 2012.

Irish Nationwide had offered 78 per cent of the face value for the €900 million bond and for the £250 million of senior bonds, and 55 per cent for £250 million of lower tier-two bonds.

The new bonds will be consolidated with the existing Government- guaranteed debt on the books of the building society which are priced to pay a spread of 170 basis points above the market rate.

International ratings agency Moody’s said last week that Irish Nationwide would require “additional capital to remain a going concern” and that the most likely source of further capital would be the Government.

The agency said concerns about the building society, from which the deeply discounted offer was benefiting, were that bonds not covered by the guarantee “may also not benefit from State support and therefore could face a significant risk of non-payment at maturity”.

Moody’s said the debt swap raised the question of “how much comfort investors can take from Government support to shield them against further losses, particularly once the blanket guarantee expires in September 2010”.

Irish Nationwide is estimated to require up to €900 million in additional capital to protect itself further from higher losses on its loan book due to its heavy exposure to property development and investment in Ireland and Britain. It is expected to transfer about €7.5 billion in loans, some 75 per cent of its loan book, including €4 billion in development loans, to Nama.