Friday, July 27, 2012

Reuters: Bankruptcy News: Anglo Irish judgement threatens bail-ins

Reuters: Bankruptcy News
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Anglo Irish judgement threatens bail-ins
Jul 27th 2012, 15:26

Fri Jul 27, 2012 11:26am EDT

* Anglo Irish "exit consent" for subordinated holders deemed unlawful

* Decision could unlock wave of claims against other similar coercive tenders

* Spanish banking bailout may have to be adjusted

By Christopher Spink

LONDON, July 27 (IFR) - The legality of so-called "exit consent" measures designed to coerce bondholders to take part in distressed exchange offers has been thrown into doubt after an English High Court judgement said that Anglo Irish Bank should not have used such methods in a 2010 bond exchange.

The exit consent mechanism allows bondholders that consent to an exchange to impose a coercive tender on non-consenting investors and was used by Anglo Irish and other Irish banks on their subordinated bondholders in 2010.

Greece's EUR206bn offer earlier this year to its private sector bondholders incorporated similar techniques to ensure the deal was possible.

Furthermore, Spain and the European Union are also proposing, as part of a EUR100bn bailout package, to impose losses on subordinated bondholders of certain Spanish banks to boost their capital.

Such moves have now been thrown into doubt by this judgement, as some such paper is governed by English law.

In November 2010, Anglo Irish obtained consent from 92% of its EUR750m 2017 subordinated bondholder to take an 80% haircut on their holdings. The outstanding 8% only received 1 cent for every EUR1,000 par value of such paper they held.

Munich-based credit fund Assenagon Asset Management, which had EUR17m of such bonds by par value, challenged Anglo Irish, now part of nationalised Irish Bank Resolution Corporation, in a London case last month.

This was the first time the legality of exit consents has been tested by the English courts.

In his judgement, Mr Justice Briggs said he was aware that the technique "has been put into significant use within the context of bonds structured under English law, in particular in connection with the affairs of banks and other lending institutions requiring to be restructured as a result of the 2008 credit crunch".

As such, he was conscious "that a decision on this point of principle may be of much wider consequence than merely the amount at issue between the parties to this claim".

Nonetheless, he concluded that it was not lawful "for the majority to lend its aid to the coercion of a minority by voting for a resolution which expropriates the minority's rights under their bonds for a nominal consideration".

He added: "The exit consent is, quite simply, a coercive threat which the issuer invites the majority to levy against the minority, nothing more or less."

APPEAL LIKELY

Steven Friel, a partner at Brown Rudnick said: "The judgement has widespread significance. Many bondholders who suffered losses from the use of exit consents by the Irish banks may now seek compensation. The judgement may also have an effect on the legality of exit consents in other jurisdictions, including in respect of the recent Greek sovereign debt exchange."

Freshfields is advising Irish Bank Resolution Corporation. Hill Hofstetter is acting for Assenagon Asset Management.

An appeal was likely to be strongly considered by the IBRC, said Friel, adding that it was a real possibility that the case would go all the way to the Supreme Court.

The IBRC said that it "has been granted leave to appeal to the Court of Appeal and is currently considering its options in this regard with its legal advisers".

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