The value of subordinated junior bonds in Anglo Irish Bank with a face value of €280 million have at least trebled over recent months as international markets anticipate a payout.
The bonds traded as low as 12 cent in the euro after Anglo was liquidated last year. The Irish Times understands these are now fetching over 35 cent in the euro. The value of these bonds have not significantly changed despite claims by politicians they will not be paid out on, indicating the market does not believe these statements.
Instead investors believe proceeds from the liquidation will far exceed expectations, as the value of the former bank's assets in Ireland and internationally recover.
Large stockbroker firms are competing to acquire the bonds from their holders on behalf of investors prepared to speculate on a positive outcome of Anglo's liquidation. Holders of this tranche of junior bondholders have included Deutsche Bank, a German fund called Xaia Investment, and a number of Irish investors.
The Anglo bonds have been traded frequently, making it difficult to determine who holds them now and who is trying to acquire more. They could ultimately be worth up to 100 cent in the euro each but they carry a significant litigation risk.
Quinn family
The subordinated junior bondholders are expected to rank behind parties suing the bank who include the family of former billionaire Seán Quinn, suing for €4.5 billion.
A source close to the Quinn family said they had taken legal advice six months ago that concluded their claim against the bank, if successful, ranked ahead of the €280 million subordinated junior bondholders.
Other legal sources said this view was broadly shared in the market, but investors felt it was likely the State would either win its case or reach a settlement with the Quinns – which would still see money left over.
Subordinated junior bondholders will have to wait until litigation ends before they will be paid out. Including appeals, a final decision on Quinn is not expected until 2020 unless both sides agree in the meantime.
The reasons for optimism among subordinated junior bondholders are clear. There are €1.7 billion in bonds which rank ahead of them to be paid but the bank’s remaining assets are enough to cover them.
Liquidators’s assets
The liquidators of Anglo still have about face-value loans of €2.5 billion to sell which could fetch €1.5 billion. In addition, the liquidators have the former assets of the Quinn family and former assets in America, including a hotel in
Boston
, to sell for €500-€800 million.
The bank has cash from selling assets including National Asset Management Agency bonds to include in the payout pot. Together, these assets appear to be enough to repay junior bondholders at least 70 cent in the euro, provided no litigation against the bank is successful.
