Icelandic Bank Sees Savings in Largest Ever Refinancing Plan

  • Arion converting $776 million into long-term funding
  • Bank's biggest refinancing ever, CEO tells Bloomberg

The successor to Iceland’s largest failed bank is converting 100 billion kronur ($776 million) worth of short-term financing into cheaper 7-year funding.

“We’re undergoing the largest refinancing plans the bank has undertaken,” Hoskuldur H. Olafsson, chief executive officer of Arion Bank, told Bloomberg in an interview last week.

Arion is the state-created offspring of Kaupthing Bank, which collapsed after the island’s economy crumbled in 2008 under $85 billion in bank debt. Kaupthing’s creditors now own an 87 percent stake in Arion, while the Icelandic government retains the rest.

In March, the bank sold 300 million euros ($337 million) worth of debt at 310 basis points over the benchmark interbank rate. Those bonds are now trading more than 24 percent lower, at 235 basis points, considerably less than previous issues, according the CEO.

The lower borrowing costs are a further sign that the island nation is returning to normalcy after the disastrous events of 2008.

With an end to capital controls drawing closer, the creditors of Iceland’s three largest failed banks have been given until the end of 2015 to complete a settlement or face a massive exit tax rate.

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