Irish Seek to Avoid ‘Funding Cliff’ With 2014 Bond Switch
Ireland’s debt agency said it will swap a note due to be repaid in 2014 for one maturing a year later to smooth its funding requirements as the government seeks to return to international debt market.
In its most significant move since Irish bond auctions were suspended in 2010, the National Treasury Management Agency is offering to switch an 11.9 billion euro-bond ($15.5 billion) due for payment in January 2014 for a new note maturing in February 2015. The size of the take-up will be announced after 4 p.m. today, the agency said, after pricing the new security at a 5.15 percent yield, which has a 4.5 percent coupon.
“We expect a good bid for the 15s as it fits perfectly” into the ECB’s long-term funding window, Cathal O’Leary, head of fixed income at NCB Stockbrokers in Dublin, said in a note. “This is very good news for Ireland as this pushes their funding requirement 13 months further down the road.”
Irish Finance Minister Michael Noonan in September called the 2014 maturity “one big jump” as the state seeks to regain its economic sovereignty after an international bailout in 2010. Spreading out repayments may mean Ireland needs to raise less cash next year to finance 2014 needs and help avoid a second bailout. The state currently has no bonds maturing in 2015.
“A successful Irish ‘debt swap’ could encourage other peripheral issuers to offer voluntarily swaps of short-term bonds with new issues of longer maturities to ease their refinancing schedules,” Sercan Eraslan, a fixed-income strategist at WestLB AG in Dusseldorf, wrote in an e-mailed research note.
The agency may switch between 1.5 billion euros and 2 billion euros in today’s swap, according to a person with knowledge of the matter, who declined to be identified as the process has not been completed. The agency may repeat the operation later this year, the person said.
The yield on the 2014 bond bought back by the NTMA is 4.90 percent. The agency may repeat the operation later this year, the person said.
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