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Ireland May Be Allowed Delay $4 Billion Anglo Irish Payment

Ireland may be allowed to delay a 3.1 billion euro ($4.1 billion) cash payment to two nationalized lenders this month as it works on a longer-term plan to cut the cost of bailing out the nation’s financial system, two people with direct knowledge of the plans said.

Ireland is discussing with the so-called bailout troika of institutions, the International Monetary Fund, the European Central Bank and European Commission, reducing the cost of promissory notes -- or IOUs -- used to rescue the former Anglo Irish Bank Corp. and Irish Nationwide Building Society, now merged and renamed Irish Bank Resolution Corp.

A longer-term accord is unlikely to be reached by the time the annual 3.1 billion euro pay-down on the notes is due on March 31, said the people, who declined to be identified as the talks are private. Instead, Ireland may be allowed to issue another promissory note or government bond to cover the installment, the people said. In all, the state issued about 30 billion euros of notes to the lenders.

Prime Minister Enda Kenny said in parliament in Dublin today that while “intensive work” is ongoing on how the notes could be restructured, he didn’t want to “heighten expectations” that an accord would be achieved within two or three weeks. He declined to put a timeline on a possible accord.

The Finance Ministry declined to comment on a possibility of delaying the end-March payment in the meantime.

“The negotiations on the promissory notes are progressing,” the Dublin-based ministry said in an e-mailed response to questions. “This is a medium-term process and it is too early to speculate on the outcome of these negotiations.”

Plan

Any new plan to replace the promissory notes would have to be approved by all 27 EU states, Irish Finance Minister Michael Noonan said on Jan. 20.

A delay in March cash payment may facilitate the longer- term effort to cut the cost of Ireland’s banking rescue, which helped tip the nation into an international bailout in 2010. Ireland’s October 2020 bonds, regarded as the benchmark, yielded 6.9 percent today, down from 9.1 percent at the start of December. The yield on the equivalent Greek security is 38 percent and on the Portuguese note it’s 14 percent.

The government nationalized Dublin-based Anglo Irish (ANGL) in 2009 and Irish Nationwide a year later as their loan losses soared following the collapse of a domestic real-estate bubble.

To avoid injecting cash immediately into the lenders, the previous Irish administration pledged to give the money over more than a decade by issuing promissory notes. The two lenders use the notes as collateral to access emergency funding from the country’s central bank.

Broadly, IBRC uses the money it receives each year to help pay off its borrowings at the central bank. The first payment was made last March, with the next payment due before April.

“We don’t see that as a hard-and-fast deadline. It’s a bigger operation than just the one repayment to be worked on,” said Craig Beaumont, the IMF’s mission chief for Ireland, said on a call with reporters on March 2. “I won’t speculate on exactly how the end March payment is dealt with.”

By the end of June, Anglo Irish had borrowed 38.4 billion euros from the Irish central bank, according to its interim report, published in August.

Debt

Under current arrangements, the government is contracted to pay an annual coupon of about 8 percent to Anglo Irish for the notes, which the finance ministry estimates would cost about 48 billion euros by the time the notes are repaid. In addition, the government must borrow or use tax revenues to make the annual 3.1 billion euro pay-down of the notes.

As the cost of saving the lender pushes up Ireland’s debt, Irish Finance Minister Noonan has indicated he may seek to use the euro-area bailout fund to restructure the cost of bailing out IBRC. In January, Noonan asked the troika to prepare a paper on how the Anglo Irish rescue cost could be eased.

“A lot of consensus” has emerged on tackling the country’s rescue cost for IBRC, Beaumont said on the call with reporters. He said risks to Ireland returning to the bond markets in 2013, following a three-year hiatus, “are a little on the high side” and he’d like to reduce them.

To contact the reporter on this story: Joe Brennan in Dublin at jbrennan29@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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