Iceland Largest Bank Planning to Refinance $1.54 Billion in Debt

  • Landsbankinn may head to the markets later this year
  • Bank planning to refinance debts owned by failed lender LBI

Iceland’s Landsbankinn is planning this year to begin refinancing as much as 200 billion kronur ($1.54 billion) of debt issued to its failed predecessor Landsbanki Islands, both helping the country lift its capital restrictions and reducing its cost of financing.

An upgrade in the bank’s credit rating "has led to interest rates becoming, it seems, more favorable than what we have in our debts towards LBI,” Steinthor Palsson, Landsbankinn’s chief executive officer, said in an interview in Reykjavik on Sept. 4. “It may be mutually beneficial for us to head to the market, finance the approximate 200 billion kronur in debt."

As Iceland’s government plans to lift restrictions in increments starting this year, it has said it will allow the creditors of failed lenders Landsbanki Islands -- now named LBI -- Glitnir Bank and Kaupthing Bank to sidestep the controls if they this year reach settlements that don’t jeopardize economic stability. To facilitate that process, LBI and Landsbankinn are looking into whether Landsbankinn can prepay the 10 bonds it has issued to LBI.

Landsbankinn was created by the government from the remnants of LBI, which failed in 2008. A year later, a committee of creditors took 18.67 percent of Landsbankinn and was compensated for the rest with 260 billion kronur in foreign-currency linked bonds. The government in 2013 bought out the rest when it issued a 92 billion-krona bond.

According to an deal reached last year, LBI extended the maturity of the bonds to October 2026, agreeing that the rate will remain unchanged at 2.9 percentage points over the London interbank offered rate through October 2018, after which it will rise incrementally to 4.05 percentage points after 2020.

Landsbankinn won’t seek to refinance the full 200 billion kronur in one go, said Palsson.

"We’d always do that in a few steps, maybe take a part of that this fall, which would assist LBI completing settlements with priority claimants," he said. "Then we’d return regularly to the market to refinance our debts with LBI and pay it back in full in a few years. That’s what we’re aiming for.”

In March, Arion 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, according to the bank’s Chief Executive Officer Hoskuldur H. Olafsson.

The positive reception of Arion’s issue is encouraging for Landsbankinn, said Palsson.

The trading in Arion’s bonds “indicates we can refinance our debts at more favorable terms than we now have," he said. "This is something we’ll look into in the coming weeks. Often, the first issuance is a little bit more expensive, but we’re confident that we can fetch rates which are considerably lower than our current cost of financing.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE