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Aurelius Squeezed Out for a ‘Few Cents’ at AIB, Lawyer Says

Aurelius Capital Management LP will challenge a court order changing the terms on Allied Irish Banks Plc’s subordinated debt, a lawyer for the investor said.

Bondholders are being squeezed out for “a few cents” with “no opportunity to participate in the future fortunes of the bank,” John Gordon, a lawyer for Aurelius, said at a hearing in the Dublin-based High Court today. The Irish government in April won a court order allowing it to make some interest payments on Allied Irish debt optional, and extend the maturity of some of the debt until 2035.

Allied Irish said on May 11 that investors holding about $3.7 billion of junior debt who refuse an offer that would impose losses on them of as much as 90 percent may be paid as little as 1 cent for every $1,000 of face value of their notes. Finance Minister Michael Noonan has said the challenge is “unfounded” and that investors face “severe measures” if the buyback plan doesn’t sufficiently reduce the bank’s liabilities. The bank was ordered by regulators to raise 13.3 billion euros to bolster its reserves against mounting loan losses.

Gordon told the court that, while his clients don’t object to burden sharing, the government can’t use extraordinary legislation to impinge their property rights. New York-based investment firm Abadi & Co. said last week that it would withdraw its challenge because it had to decide whether to accept Dublin-based Allied Irish’s debt buyback offer by June 9, before the court could rule on the case.

Debt Terms

Laws enacted last year allowing the Finance Minister to obtain court orders amending junior debt terms are meant to comply with the European Union’s so-called Credit Institutions (Winding-Up) Directive, transposed into Irish law in 2004. Gordon said Ireland didn’t comply with the law by publishing the order on time in the EU’s official journal.

Brian Murray, a lawyer for the government, said Aurelius made its appeal within the five-day window for challenges to the order.

The regulator’s 13.3 billion-euro capital requirement results in a “super-capitalization” of Allied Irish beyond what is required elsewhere in Europe, said Gordon, adding that the stated purpose of last year’s act is to “preserve or restore the financial position” of certain banks.

Judge John Cooke said that because Aurelius only owns two of the 18 subordinated-debt classes covered by the April order, that even if their case is successful the order may stand for the other 16 categories.

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