Haircuts for senior bondholders?

mack32

Hey guys,

just wondering if anyone had any views on Brian Lenihan's insistence that senior bondholders rank equally with depositors? if you consider that the rankings in the insolvency acts only apply in the case of an insolvent company then i cant see why we cant make the senior bondholders, e.g in anglo, share some of the loss?

this article takes the same view - http://www.politics.ie/economy/141595-ft-ireland-steps-back-into-ring.html

you'll need a ft.com subscription to read it but the relevant parts are quoted in the above link

other countries have legislation in place to allow for burden sharing in restructuring and the gov is threatening same here but by akll accounts it looks like we could be waiting!

it seems wrong that bondholders (even senior ones) should be treated as untouchable, after all it was never meant to be a risk free arrangement!!

ive had a look around but can't really find anything on it so was wondering if we could get a discussion going here?

Tom Young

Peter Mark or Tony and Guy?

I find the Polish Shop on Capel Street great for a cheap chop.

maidhc

Tom Young wrote: »

Peter Mark or Tony and Guy?

I find the Polish Shop on Capel Street great for a cheap chop.

I'm all for levities, but that is not at all funny.

mach32 wrote:

it seems wrong that bondholders (even senior ones) should be treated as untouchable, after all it was never meant to be a risk free arrangement!!

Agreed. Seems like a decent deal, make sh1tloads of money when times are good and don't loose when things go down the toilet. That is lots of things, but not how the "market" is meant to work.

I see two options:
1) Pay them and we call in the IMF. We loose our sovereignty.
2) Don't pay them, tell them take a hike, they probably send in team america world police, and we loose our sovereignty anyway, but it will be one hell of a ride.

And dont bore me with legalities. If the government introduced a constitutional amendment in the morning permitting bondholders be hung drawn and quartered it would sail through.

Victor

Is this not because of the banking guarantee?

If that guarantee wan't there, the banks would have no funds.

maidhc

Victor wrote: »

Is this not because of the banking guarantee?

If that guarantee wan't there, the banks would have no funds.

I dont know, that is a very simplistic view. The guarantee was introduced because of a perceived liquidity issue with the banks. This of course was based on bad information, the problem was the banks were actually insolvent.

The reason the banks now "have" funds is that we own all Anglo, most of AIB and had to bail out BoI. None of them are doing much lending, I know this for a fact.

The bondholders to my eyes are now some kind of super preferential creditor, which they should not be.

We (the government) completely ****ed up from what I can see, but the question from a legal persepctive is can we shaft the bondholders, because we can't afford to pay them back.

mack32

Well the issue seems to revolve around s.275 of the companies act 1963 which says that unsecured creditors in the same class rank pari passu, basically bondholders and depositors are these unsecured creditors. Importantly, 275 only apples in a winding up.

The gov seem to be relying on this as justification for not enforcing haircuts on senior bondholders. The problem is that we're not in a winding up, nor does pari passu mean equally - it's a term reserved for winding up situations and not intended to deal with this type of thing

ArtSmart

Lenihan hinted that the issue was more than a legal one, in that these senior bond holders were particular pension funds etc. (in an interview and only a throwaway sentence)ie, not so much that they won't give us monies in the future, more than it would cause further damage elsewhere., in turn damaging us. But i'm guessing.
Eventually what the story is might come out, but i'd be surprised if it was purely a legal issue.

mack32

taken from a dail debate on 20th october - http://www.kildarestreet.com/debate/?id=2010-10-20.662.0

Brian Lenihan Jnr (Minister, Department of Finance; Dublin West, Fianna Fail)
I would like to put that on the record. Given the nature of the banking crisis, it is understandable that commentators and some Deputies would canvass, examine and explore various options. Regarding Deputy Michael Ahern’s question, were such a decision taken, someone would need to take responsibility for it. That responsibility would be a grave one. I mentioned the legal issue, in that senior bondholders rank equally in our law with depositors, so any haircut would apply equally to depositors, which would have a significant economic consequence for the State and its reputation abroad. Apart from that, there are practical economic considerations, including the fact that other banks and the NTMA rely on bond finance to fund themselves. All of this finance is accessed on international markets, often from the same borrowers who finance the different institutions. While there is some validity in the distinction drawn between sovereign debt markets and bank debt markets, there is also considerable overlap, including reputational overlap. In addition, Ireland has managed to attract a great deal of international investment in the multinational sector. Were Ireland to default on senior debt, it would raise serious reputational issues within that sector.

ArtSmart

yeah, i listened to that speech. still something not being revealed. (in my paranoid opinion)