Bank of Ireland sweeps away unfair bond offer

The Bank of Ireland has withdrawn controversial plans to pay private investors just 20% of the value of their bonds.

Investors in Bank of Ireland 13.375 perpetual subordinated bonds, many of them pensioners, will breathe a sigh of relief at the news that Bank of Ireland has withdrawn the offer of a deeply discounted cash or debt for equity exchange for their bonds. In a statement to the market the bank said it will be making a new offer at a later date. Holders will expect this to be higher than the previous offer.

Pensioners who were holders of the bonds had protested that the terms were unfair to small investors. The offer was 20p in the pound cash or 40p in Bank of Ireland equity for those with a minimum holding of €50,000. Because the debt swap was based on the 40% swap value, not the face value of the bonds, investors would have had to hold around £112,000 worth of the bonds or €125,000 worth to qualify for the higher offer. This was out of the question for most private investors. Bank of Ireland faced court action from campaigning investors furious that the terms so unfairly favoured larger investors. 

‘This issue was widely held by retail investors and there were problems with acceptance.’ explained Rik Edwards of broker Collins Stewart which makes a market in Pibs. ‘Most of the bonds held by retail investors were in certificated form and to participate in the share offer they needed to be held in Crest.’

According to Bank of Ireland acceptances had been low. This is not surprising given the very deep discount to the face value. The bank said that by close of business on Friday, about 12% of these bondholders had accepted the bank's offer. This compares with an overall participation level of about 74% of other eligible bondholders. Bonds already tendered in the offers will be returned to the holders.
 
‘There was never any reason to accept the cash offer because the market bid price was always higher,’ explained Edwards. Yesterday the bid for the bonds was 27.5p compared with the Bank of Ireland cash offer of 20p.

In a statement to the market the bank said it would make a new offer to bond holders at a later date. It said: ‘In doing so the bank will seek to address the unique difficulties that have been highlighted to date with regard to participation in the terminated offers by the holders of the £75 million 13.375 PSBs.’

Many of the small investors in these PIBS (permanent interest bearing shares) had originally bought them as Bristol & West Pibs. In 1997 they became junior debt of Bank of Ireland when the bank took over the building society. The bonds have a face value of £75 million, representing just over 3% of the junior bondholders on whom the bank is imposing losses.

The savage discount offered to these bondholders was part of the bank’s restructuring of debt to recapitalise the bank which plans a rights issue, underwritten by the Irish government to raise £3.6 billion (€4.2 billion).

The climb down will be a particular relief to pensioner Albert Kempster who was risking bankruptcy to fight the unfair terms of the Bank of Ireland offer and was set to take the bank to court tomorrow to prevent his savings from being wiped out by the debt restructuring plans.