Allied Irish noteholder objects to amendments ordered by government

By Angela McDaniels

Tacoma, Wash., May 16 - Allied Irish Banks plc's tender offers prove that the Irish Ministry of Finance has "egregiously discriminated" against U.S. investors, according to Aurelius Capital Management, LP.

Aurelius is the investment manager for three funds that own bonds covered by the offers. The funds have appealed the subordinated liabilities order issued last month at the request of the Irish Ministry of Finance. Under the order, the bank had to amend some of the terms of the bonds.

Aurelius said the Irish Ministry of Finance discriminated against U.S. investors by excluding them from the bank's prior tender offer at a higher price and then imposing the "punitive" subordinated liabilities order.

Allied Irish Banks is offering 10% to 25% of par in the current offers. It offered 30% of par for 11 series of notes in a tender offer in January.

"It adds insult to injury that the ministry obtained the SLO without first allowing AIB to conduct a coercive tender offer of the sort that worked for Anglo Irish Bank without resort to an SLO. Despite these missteps, AIB has already generated about €3 billion of capital through prior bond tender offers without an SLO," Aurelius said in a new release.

"When procuring the SLO, the ministry misled the Irish High Court by blaming bondholders for the January tender's disappointing outcome without disclosing to the court that AIB had prohibited U.S. investors from tendering. Only now, when seeking bond tenders at far lower prices, is AIB complying with U.S. securities laws.

"The SLO represents a cure that is far worse than the disease. Resorting to the SLO rather than a commercial restructuring would save only a miniscule percentage of the amount needed to recapitalize one bank, AIB, yet it would chill foreign investment in Ireland for years to come."

Aurelius said it does not object to the bank holding the tender offers while its appeal of the subordinated liabilities order is pending.

The subordinated liabilities order is part of the Central Bank of Ireland's Prudential Capital Assessment Review, under which several Irish banks have been ordered to deleverage and increase capital.

As previously reported, the amendments extended the maturity dates of some securities to 2035 and made interest payments on them optional. Others were amended to remove any restriction on the payment of any distribution or dividend on, or any repurchase or redemption of, any other specified junior or parity securities.

The amendments also removed the requirement that the bank must pay any arrears interest on some of the securities upon the payment of any dividends. This is now optional.

The Irish High Court will hear the noteholder challenges to the amendments on June 2.

Offer details

The tender offers cover 18 series of notes, reserve capital instruments and preferred securities.

Concurrent consent solicitations are being held for the securities. AIB G.P. No. 1 Ltd. is soliciting consents to amend the terms of the three series of perpetual preferreds, and Allied Irish Banks is soliciting consents for the remaining securities.

Holders are being asked to vote in favor of an extraordinary resolution that will give the issuers the option to redeem or purchase all, but not a portion of, any securities that remain outstanding after the tender offers at a price equal to €0.01 per €1,000, £0.01 per £1,000 or $0.01 per $1,000.

The extraordinary resolution would also amend the terms of the three series of preferreds to remove any restriction on any repurchase or redemption by the bank of junior or parity securities in the event that the bank elects not to pay any scheduled distributions on the relevant preferreds (each a "dividend stopper").

Holders who tender will be deemed to have consented to the extraordinary resolution.

The bank is offering 25% of par for its:

• £145,000 of outstanding subordinated callable fixed/floating-rate notes due 2030;

• $39,316,000 of outstanding dated callable step-up subordinated notes due 2015;

• €48,534,000 of outstanding subordinated callable step-up floating-rate notes due 2015;

• £1,261,000 of outstanding subordinated callable fixed/floating-rate notes due 2025;

• €75,215,000 of outstanding callable subordinated step-up floating-rate notes due 2017;

• £35,357,000 of outstanding callable dated subordinated fixed-to-floating-rate notes due July 2023;

• £215,963,000 of outstanding 12½% subordinated notes due June 2019; and

• €628,448,000 of outstanding 12½% subordinated notes due June 2019.

The bank is offering 22.5% of par for its:

• €217.92 million of outstanding 10¾% subordinated notes due 2017;

• $108,104,999 of outstanding 10¾% subordinated notes due 2017; and

• £385,344,000 of outstanding 11½% subordinated notes due 2022.

Finally, the bank is offering 10% of par for the following:

• Its €53,793,000 of outstanding perpetual subordinated callable step-up notes;

• Its £58,608,000 of outstanding perpetual callable step-up subordinated notes;

• Its $100 million of outstanding subordinated primary capital perpetual floating-rate notes;

• Its €240,435,000 of outstanding 7½% step-up callable perpetual reserve capital instruments;

• AIB UK I LP's €191,398,000 of outstanding fixed-rate/floating-rate guaranteed non-voting non-cumulative perpetual preferred securities;

• AIB UK 2 LP's €95,041,000 of outstanding fixed-rate/floating-rate guaranteed non-voting non-cumulative perpetual preferreds; and

• AIB UK 3 LP's £36,728,000 of outstanding fixed-rate/floating-rate guaranteed non-voting non-cumulative perpetual preferreds.

No amount will be paid for any accrued interest or arrears of interest on the securities.

The offers for the 2015 euro notes, the 2017 euro notes and the 2023 sterling notes (together, the "delayed-settlement notes") will expire at 5 p.m. ET on July 20. The offers for the remaining securities will expire at midnight ET on June 13.

The meeting date for the consent solicitations will be July 22 for the delayed-settlement notes and June 16 for the remaining securities.

The settlement date will be July 25 for the delayed-settlement notes and June 17 for the remaining securities.

No offer is conditioned on a minimum principal amount of securities being tendered or the completion of any other offer. However, the purchase by the bank of any preferreds or perpetual reserve capital instruments is conditioned on the removal of the dividend stoppers for all series of preferreds.

The dealer manager for the tender offers is J.P. Morgan Securities Ltd. (contact Ryan O'Grady at 44 0 20 7779 2468 or ryan.ogrady@jpmorgan.com, or contact Sebastien Bamsey at 44 0 20 7777 1333 or sebastien.m.bamsey@jpmorgan.com). The tender and tabulation agent is Lucid Issuer Services Ltd. (contact Yves Theis or David Shilson at 44 20 7704 0880 or aib@lucid-is.com).

Allied Irish Banks is a Dublin-based financial services company.

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