Bloomberg News

Ireland May Drop Anglo Irish Bondholder Loss Plan, Noonan Says

September 17, 2011

Sept. 17 (Bloomberg) -- Finance Minister Michael Noonan said the Irish government may reconsider its push for senior bondholders of Anglo Irish Bank Corp. to absorb losses.

Noonan said Ireland now was likely to pursue other angles rather than continue to press for bondholder losses, noting that European authorities are “dead set against” a coercive approach. The cost savings might not justify the potential hit to Ireland’s standing with markets, he told reporters today after talks with European Central Bank President Jean-Claude Trichet during a meeting of European Union finance ministers in Wroclaw, Poland.

“The amount of money outstanding in unguaranteed senior bonds in Anglo is just over three billion” euros, Noonan said. “If you did some kind of voluntary burden sharing you might gain 100 million” and “one wouldn’t risk reputation for that.”

Anglo Irish, the recipient of a 29.3 billion-euro ($40 billion) bailout, had its credit rating cut in June by Standard & Poor’s to CCC, four levels above default, after Noonan said senior bondholders may face losses. The ECB has consistently opposed this possibility.

Trichet said Ireland should learn from the aftermath of a European push for investors to share in the cost of a second rescue package for Greece, Noonan said.

“Private-sector involvement in Greece had a very quick knock-on effect into Italy and Spain, and private-sector involvement didn’t seem to be the way forward if you were trying to encourage the markets,” Noonan quoted Trichet as saying.

‘Burden Sharing’

“He said Ireland had done particularly well over the summer” and that bond spreads had narrowed, Noonan said. “He felt that anything to do with burden sharing might knock the confidence of the market and the spreads might go back out again and we might lose the ground we had gained.”

Irish officials will now reflect on Trichet’s advice, echoed by European Union Economic and Monetary Affairs Commissioner Olli Rehn, as they consider how to proceed, Noonan said. Trichet didn’t weigh in on a proposal to refinance the bank’s promissory notes, he said.

Future payments on Anglo Irish bonds won’t be an additional drain on government coffers, Noonan said. The provisions the government already has made include bondholder payments.

“There’s no new penalty on the Irish taxpayer,” Noonan said. “If we didn’t have to pay, there’d be an advantage to the taxpayer down the line, but I think we can get a much bigger advantage if we pursue another piece of negotiations around an alternative piece of financial engineering to the promissory note arrangement.”

The possible changes to the promissory notes haven’t yet been discussed with credit-rating companies, he said.

Noonan said Ireland may save more money than expected from interest-rate cuts on its government aid packages, based on preliminary EU estimates of its loans from the European Financial Stability Mechanism.

EU officials indicated that “the actual reduction will be 3.75 percent, which is very serious money,” Noonan said.

--Editors: Patrick G. Henry, James Hertling

To contact the reporter on this story: Rebecca Christie in Wroclaw, Poland, at Rchristie4@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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