You won’t have heard much recently from Minister for Finance Michael Noonan boasting about the €5bn that he saved this country by burning subordinated bondholders since March 2011. This was after the previous Fianna Fail administration had burned subordinated bondholders to the tune of €10bn. Remember there are two main types of bondholders – “subordinated” which have in some cases been burned to an extent and “senior” which have been 100% repaid – and it’s not news that we have been imposing haircuts or discounts on the repayment of some subordinated bondholders. But what is emerging is that these haircuts might be reversed and on at least three fronts, Minister Noonan is facing attacks by subordinated bondholders which threaten the €5bn haircuts he has imposed and perhaps even the €10bn haircuts that the previous Fianna Fail government imposed.
In 2013, in the UK, Anglo or IBRC as it is now known will be seeking to overturn an incredibly damaging UK High Court decision last summer which awarded a victory to a German holder of subordinated bonds. When asked about this appeal recently, Minister Noonan said he didn’t want to comment on ongoing litigation, but in truth, IBRC faces losses that could run into 10s if not 100s of millions of euros if the High Court victory is upheld and if other subordinated bondholders enter the fray on the back of the decision.
In the UK also, there is a group of former Bank of Ireland subordinated bondholders pressing their case.
And over in the US, we have the battle joined between the Cayman Islands hedge fund, Fir Tree Capital and IBRC or Anglo. At stake are US $200m (€152m) of subordinated bonds which were issued in 2005 and which are redeemable in 2015, and Fir Tree has attacked Anglo’s moves to impose a haircut. In the Dail recently, Minister Noonan confirmed that he has not sought to impose loses on Fir Tree “directly or indirectly” and that interest continues to be paid on the bonds, and that the principal will be repaid.
Today, we bring you the latest legal documents in the case. Just to bring you up to speed. In February 2011, IBRC, a company in which Minister Noonan owns 100% of the shares and is the sole shareholder, sold off assets associated with the deposits it was offloading, which resulted in a ratings downgrade for the bank. Fir Tree then went to New York courts claiming Anglo was taking action which would put at risk its right to 100% repayment. There ensued a legal battle at the New York District Court, which Fir Tree lost because the judge said the court didn’t have jurisdiction over the matter, and now Fir Tree has appealed that decision to the US Court of Appeals and it is understood the case is set to be heard on in early 2013.
Fir Tree’s case hinges on actions undertaken by the Irish government including setting NAMA which acquired Anglo loans at a steep discount and the sale of the deposit books and loan books at steep discounts which imposed further losses on the bank, which now is using those losses to justify imposing a haircut on subordinated bondholders. Fir Tree is particularly upset at the orders signed by Minister Noonan in February 2011 which resulted in the sale of deposit books and associated assets at Anglo to AIB/PTSB. The credit ratings agency Moody’s downgraded Anglo’s subordinated debt severely after this event, and Fir Tree say this deliberate act by the Irish government has led to it facing losses – the familiar terms of “dissipating assets” and “rendering itself destitute” are for a change thrown in Anglo’s face.
For its part, Anglo says that it was a broken bank without the aid of the Irish government and that when called upon by the Irish government to share these losses, holders of 92% of the subordinated bonds agreed to accept some degree of haircut.
The case was kicked out of the NY District Court because the judge believed that the Irish state involvement in the bank rendered the matter outside its jurisdiction. Fir Tree is appealing this
WARNING, the following two files are large! May take a couple of minutes to download.
36-1 is the original Fir Tree affidavit for the case and the Anglo responding affidavit with lots of interesting appendices
UPDATE: 28th January, 2013. It is reported by the Irish Independent today that the Fir Tree appeal is scheduled to be heard at 2pm on Wednesday 30th January 2013. Last week, Fir Tree sought to have the hearing postponed for two reasons – one, Fir Tree is in the process of selling the bonds to a number of buyers who don’t want their identities disclosed “because they consider their buying and selling strategies to be proprietary information” and secondly, the bonds need be reissued by IBRC after the originals were allegedly destroyed in Hurricane Sandy and the physical bonds are needed before a sale can be finalised. The judge in the US Court of Appeals rejected the request for the postponement, so it seems the case is going ahead on Wednesday.
UPDATE:31st January, 2013. The Irish Times managed to get a report of yesterday’s proceedings. It was a short appeal hearing and judgment has been reserved and is expected “in a matter of weeks”. The judge was reportedly unconvinced by the Fir Tree appeal against its failure to get satisfaction in the lower court, and the appeal judge appears to be unconvinced that Fir Tree have a case.