Bank of Ireland Plc is close to completing an offer that allows junior bondholders to swap their debt for equity in the lender, according to two people familiar with the progress of the negotiations on the plan.
Ireland’s government, which owns 36 percent of the Dublin-based lender, may initially permit the bank to proceed with a voluntary debt-for-equity swap offer, rather than seeking a court order to weaken the terms of the bonds, according to the people, who declined to be identified, because details are not yet complete.
The bank aims to convince as many as possible of its junior debt holders, owed 2.8 billion euros ($3.96 billion) at the end of December, to take part, they said. The lender is working with government officials on the plan, which may be submitted to Finance Minister Michael Noonan for approval as early as tomorrow, according to a third person.
Ireland’s government, which has injected 46 billion euros into its banks in the past two years, is seeking to share the cost of bailing out the country’s lenders. The Irish central bank in March ordered Bank of Ireland to raise 5.2 billion euros in capital by the end of July, to boost reserves and cover loan losses.
The take up of the debt-for-equity swap will determine how much needs to be raised from a share sale. The government has promised to provide any capital the bank cannot raise privately. Officials from Bank of Ireland and the Finance Ministry declined to comment.
“A debt-for-equity swap is probably a better deal for the taxpayer than a straight cash tender,” said Tom Jenkins, an analyst at Jefferies International Ltd. in London. “It’s going to be very difficult to structure, given that some bondholders won’t be able to hold equity but it has the advantage of respecting the seniority of the various levels of investor.”
Bank of Ireland was down 1.6 percent at 18.5 euro cents at 4:29 p.m. in Dublin trading, having earlier fallen as much as 8.5 percent.
Bank of Ireland’s 747 million euros of 10 percent, senior subordinated bonds due 2020 rose 6 cents on the euro to 55.5 cents, a gain of 6.2 percent, according to Bloomberg Bond Trader prices. Its 201 million euros of 4.625 percent bonds due 2019 gained 2.2 cents to 48.7 cents, the prices show.
The Finance Ministry will probably tell the bond holders that the government will take whatever steps are necessary to force losses on junior bondholders that do not participate in the debt-for-equity swap, according to the two people.
On May 11, Allied Irish Banks Plc said it would offer to buy back junior debt at a discount of as much as 90 percent of face value, after Noonan obtained a court order allowing him to alter the terms of the bonds.
The order is currently being challenged by two New York-based investment firms, Abadi & Co. and Aurelius Capital Management LP. The case is set to be heard by the Dublin-based High Court on June 2.
-- With assistance from John Glover in London. Editors: Dara Doyle, Mark Gilbert