- Payments on old bonds are at `the discretion of the bank'
- Bonds avoided a bail-in during Ireland's financial crisis
Allied Irish Banks Plc said its return to the subordinated debt market won’t automatically lead to a resumption of coupon payments on about $150 million of junior bonds that escaped a bail-in during the financial crisis.
“We do not believe that the AT1 issuance triggers any requirement to pay a coupon” on the old bonds, Niamh Hennessy, a spokeswoman for the state-owned lender, said by e-mail. “Payments are at the discretion of the bank.” AT1, or additional Tier 1, notes are the riskiest form of bank debt.
The Dublin-based lender halted payments on the old bonds, including 78.7 million pounds ($120 million) of 12.5 percent notes, in 2009 as part of a government rescue. The notes have risen this month amid optimism that the bank’s first sale of junior debt since Ireland’s banking crisis enhances the prospects for an eventual resumption of payments.
“There is definitely a gap between investor expectations and the issuer’s,” said Gildas Surry, an analyst and portfolio manager at Axiom Alternative Investments, who advises clients owning the 12.5 percent bonds.
Lack of Clarity
Surry said he was “disappointed” by an investor meeting with AIB last week, where he discussed the old notes. The bank should clarify its position on whether it will resume payments before starting the additional Tier 1 sale, he said.
“We haven’t seen an issuer doing an AT1 while not having resolved such a difference of views,” he said.
Hennessy declined to say whether the lender intends to pay coupons on the old bonds after its EU state-aid restructuring plan ends in late 2017. It can’t make any discretionary coupon payments before then.
The lender plans to sell at least 500 million euros ($530 million) of additional Tier 1 bonds. It last week sold 750 million euros of 10-year Tier 2 notes, callable after five years. The issue was six times oversubscribed, according to the bank.
AIB inflicted about 5 billion euros of losses on junior creditors as it struggled following the Irish real-estate collapse in 2008. The remaining old notes avoided a bail-in in July 2011 because of a lack of a quorum. Instead, payments were halted and maturities were extended to 2035 from 2019.
The 12.5 percent sterling notes due in June 2035 have risen to about 93 pence on the pound from 87.6 pence on Oct. 29 when Bloomberg News reported that the bank planned to sell new subordinated debt.
The government will probably hold an initial public offering for AIB next year, Finance Minister Michael Noonan has said.