ANGLO IRISH Bank yesterday passed the final stage of a process that will see subordinated bondholders who have not signed up to the bank’s debt-exchange see their investment virtually wiped out.

Earlier this week, Anglo announced that investors had agreed to an 80 per cent write down on €307 million of lower tier 2 notes due 2014, and €459.5 million of similarly ranked debt maturing 2016.

Anglo yesterday passed a resolution that will insert a clause in the terms of the bonds.

As a result of this clause being inserted, investors who did not swap the notes at the discount will be offered one cent for every €1,000 of bonds they hold at face value.

The decision is being perceived as a possible precedent for other similar debt-exchange exercises worldwide which impose burden-sharing on creditors.

It also has major implications for the credit-default swap market.

Credit default swaps pay the buyer the face value of the bonds in exchange for the underlying securities or the cash equivalent if a company should fail to honour its debt agreements.

Yesterday, credit-default swaps traders ruled that a “restructuring credit event” had occurred on the Anglo contracts, according to the International Swaps and Derivatives Association.

The association has already ruled that the subordinated bondholders should be compensated in the event of such a restructuring taking place.

Traders representing banks and investors will meet on January 4th, 2011, to decide if auctions to settle the contracts will be held, the association said.

Under the terms of the contracts, holders of swaps linked to both senior and subordinated debt can demand payment.

Market analysts believe that while some credit default swap holders will trigger their contracts, others may continue to hold on in the hope that they will recover more favourable rates.