# How much would burning the Anglo bondholders save the taxpayer?



## Brendan Burgess (16 Feb 2011)

I have not been able to find the answer to this anywhere and before I spend a lot of time on it, I wonder can anyone point to a link on the topic? 

As this is a factual forum, please don't discuss whether this is a good idea or not. Just stick to the facts. Based on the facts,we can have a more informed discussion on the merits of the strategy. 



unguaranteed subordinated bonds| €x billion
unguaranteed senior bonds issued before the gurantee|€y billion
Senior bonds issued with a government guarantee during 2010|€z billion

Total bonds|€6.9 billion 


> We know that €750 million matured at 31 January 2011. So it's down to €6 billion
> 
> Source:
> Debt securities in issue at 31 December 2010 were €6.9bn compared with €15.1bn at 31 December 2009.


I don't understand these figures. During 2010, Anglo issued €6 billion in bonds with the benefit of a government guarantee. This must not be included in the €6.9 billion figure above. 
* 
What is the status of the goverment's promissory notes? *
The government is committed to paying €25 billion into Anglo over the next 10 years. If Anglo is closed down, I understand that the promissory notes are payable immediately. So the government has to put €25 billiion into Anglo immediately. (Is this correct?) 

*What is the order of preference for Anglo's creditors? *
I guess it's something like the following: 


securitised bonds (Does Anglo have any?)
Owed to the Central Bank (as it's secured on the loan book)
Depositors and senior bondholders (they rank parri passu)
subordinated debt
the government's promissory note
shareholders.
*How much in subordinaed bonds did Anglo buy back with government guaranteed bonds? 

*
*What status has the government's 2009 investment? 
*The government put in €4 billion in 2009. Was this as preference shares? If so, I presume it ranks after the subordinated debt. 

*The mechanics of burning the bondholders
*Appoint a liquidator to Anglo 
The unguaranteed bonds lose everything
The government pays out on the guaranteed deposits and guaranteed bondholders

*Who owns the bonds? 
*The main question here is whether they are Irish owned or foreign owned. 
Are we burning Irish pension funds or American hedge funds?

*What is the current market value of these bonds? 
*I seem to recall that the subordinated debt is trading at 30% while the unguaranteed debt is trading at 70%. 

*What is the maturity date of these bonds? 
*
The earliest maturity date for the subordinated bonds is June 2014

The senior debt has 40 different maturity dates between now and 2018.  €350m matures on 2nd March 2011 and €1 billion matures on 2nd November 2011.
In total, €1.72 billion will mature this year.


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## Sunny (16 Feb 2011)

Brendan, I have tried to find information on this but next to impossible as Anglo have done a few private placements that there is no public information on. Best I can do is their update from Dec 10 where they say they have €6.9 billion of securities issued. I would imagine most of this is guaranteed but they don't give a breakdown. The amount of money to be made by going down this road is miniscule to be honest. (I am ignoring the money owed to central banks)

[broken link removed]


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## Brendan Burgess (16 Feb 2011)

Thanks Sunny

That is a good start anyway.


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## Brendan Burgess (16 Feb 2011)

*What are the options for burning the bondholders? *

_Anyone know the procedure. This is speculation on my part to get the ball rolling._

_*Enter into discussions with them to accept a haircut*, using cash to buy the bonds. Why would be do that? If the government wanted to do that, couldn't it just buy the bonds in the market? 

*Appoint a liquidator to Anglo
*All liabilities would become due immediately.
The state would have to put in €25 billion due on the promissory notes. 
Depositors would be paid off
The €12 billion of senior bondholders would get a part payment (might be nothing) 
The guaranteed bondholders would call on the government guarantee. _


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## Duke of Marmalade (16 Feb 2011)

_Boss,_ let's say the loan assets are worth nuffin on a liquidation or are totally pledged as collateral. Then the only assets would be any uncollateralised promissories/ liquid assets they have left, probably very little. 

Subbies would be torched. Depositors and seniors would share the residual (if any) pari passu. Then the government would make good the depositors and guaranteed seniors.

However, before that happens my understanding is that they are going to hive off the deposit book to some other institution. Key is what backing assets would go with that transfer, one presumes the good stuff. Not sure where the ECB/ICB fits in here. 

That would leave Anglo with a fistful of toxics and sufficient promissories to meet its regulatory capital obligations and sufficient collateral to cover the ICB/ECB. On a liquidation in these circumstances the promissories would be shared pari passu with the guaranteed and unguaranteed bondholders and the government would make good the former. 

On the other hand, I may be talking baloney.


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## DerKaiser (16 Feb 2011)

If the €12bn of deposit liabilities are removed from the balance sheet along with say €11bn of performing loan assets, that will remove depositors from the equation.

The state should then honour the promissory notes to the extent that the ECB are then paid off.

Ideally then the bondholders would be left on a balance sheet with no assets.  The guaranteed guys could call in their guarantee, the others can lick their wounds.


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## Brendan Burgess (16 Feb 2011)

I presume that the money due under the Promissory Notes must be actually paid? I don't think we would be legally able to renege on the Promissory Notes. 

So it is as if we had actually put €25 billion cash into Anglo already.


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## Duke of Marmalade (17 Feb 2011)

Brendan Burgess said:


> I presume that the money due under the Promissory Notes must be actually paid? I don't think we would be legally able to renege on the Promissory Notes.
> 
> So it is as if we had actually put €25 billion cash into Anglo already.


It is a promise, if you don't keep your promise you are in default. It is every bit as good as a bond (I think). I think the reason that it is not a conventional bond is that it is tailormade and quite flexible, it has been topped up already for example.

It is of course not as good as hard cash and that is why the ECB are requiring hard cash to be put into AIB/BoI. The view being that only hard cash will entice back depositors who these days don't even trust the sovereign.

In times when default is discussed quite freely, it is not then quite the same as having actually put in €25 billion in cash. If the sovereign defaults I imagine there will be a different approach to different constituencies. I don't see the government ever welching on the 11bn or so of Post Office certs. It might try to restructure its bond portfolio. And one would guess that in such a dire scenario a promise to Seanie's outfit would be something less of a priority.

In the meantime however it is as good as a bond or even hard cash for meeting Anglo's regulatory capital requirements.


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