Anglo bondholders

This has always been one of the great mysteries of Irish banking since the bailout. Who are the bondholders? The lack of information is a gift to conspiracy theorists, but also poses questions around who exactly the Irish public guaranteed in September 2008.

It occurred to me that it might be worth looking through the archives in relation to bond issuance, and in relation to any property deals Anglo was involved in in the years prior to nationalisation, such as:

In 2006 it was reported that: “The group’s North American business, approaching its 10th year in operation, has originated loans in excess of $15 billion and at their last reporting date of March 31, 2006, had current outstanding commitments of $4.5 billion.”

Or August 2006:

Anglo Irish Bank recently finalized $71.4 million in financing for the acquisition and renovation of the Sheraton Colony Square in Atlanta. Noble Investment Group and its joint venture partner AEW Capital Management, L.P. acquired the hotel on behalf of AEW Partners V, L.P., the fifth in AEW’s series of real estate opportunity funds. The hotel will be completely renovated over the next 12 months and will reopen as a W Hotel in late 2007. The 28-story, 462-room hotel is located at the center of Midtown Atlanta at the corner of Peachtree and 14th Streets.

Or September 2006:

Anglo Irish Bank today announced the purchase of a premier office building located in the center of Boston’s financial district at 265 Franklin Street from Boston Properties (NYSE:BXP) and the New York Common Retirement Fund. Cushman & Wakefield represented the seller on the transaction. The property was acquired by the bank for $170 million on behalf of Clarendon Properties.

The 21-story, 349,969-square-foot office building that includes a two-level parking garage occupies a full city block bound by Franklin, High, Batterymarch and Oliver Streets. The building was constructed in 1984 and renovated in 2002. The $11 million renovations included an expansive new lobby, more spacious floor plans, and upgraded building systems and restrooms. Major tenants in the building include Anglo Irish Bank’s North American headquarters; McCarter & English, LLP; Eastern Bank Corporation (regional headquarters); Keegan, Werlin & Pabian, LLC; Cadence Capital Corporation; and Fish & Richardson. McCarter & English, LLP will take occupancy in 2007 when the net operating income is expected to grow to approximately $10.2 million reflecting a stabilized cap rate of around 6 percent.

Or more recent bond issuance, 2010:

Nationalised Irish bank Anglo Irish Bank Corporation Plc (AIB) (DUB: CKL1) (OTC: AGIBY) is planning a two-part, government-guaranteed, euro-denominated, benchmark bond Dow Jones has reported, citing a person familiar with the deal.

The issue includes a two-year and a five-year tranche. Lead managers on this deal are Bank of America Merrill Lynch (NYSE: BAC), Deutsche Bank AG (NYSE: DB) (DBK.DE), JPMorgan Chase & Co (NYSE: JPM), Landesbank Baden-Wuerttemberg and Societe Generale SA (SocGen) (SOGN.PA) (OTC: SCGLY).

The bond is expected to be priced this week, subject to market conditions. Anglo Irish is rated ‘Aa1’ by Moody’s Investors Service Inc, ‘AA’ by Standard & Poor’s Corporation and ‘AA-‘ by Fitch Ratings.

But let’s take a look at other bond issuance. In January 2007, Anglo issued a five year bond for maturity in 2012. When bonds are issued, ‘book-runners’ are involved, who facilitate the issue. In this case HSBC, BNP Paribas and UBS were the book runners:

Rating:A2/A+ (Moody’s/Fitch)

Amount:Eu1.25bn

Maturity:25 January 2012

Issue/re-offer price:99.931

Coupon:three month Euribor plus 12.5bp

Spread at re-offer:three month Euribor plus 14bp

Launch date:Tuesday 16 January

Payment date: 25 January

Joint books:BNP Paribas, HSBC, UBS

Bookrunner’s comment:

HSBC– This was a fabulous trade. We had a book of over Eu1.6bn and 85 accounts involved. We went out early on Monday, deciding to waste no time with guidance of the 14bp area over Euribor and the book built quickly.

We were north of Eu1bn after a few hours but decided to leave the books open overnight in order to leave some time for Asia to have a look at the deal.

The issuer had two options: either to do a smaller trade at the tight end of guidance or do a bigger trade priced in line with secondary which would leave some small room for performance.

The issuer priced with no premium over secondary since the January 2011 were at 13bp over. The name is well liked by investors who are familiar with it and like the credit and Irish story. We sold 37% of the bonds to Germany/Austria, 32% to UK/Ireland with the bulk of the deal to banks.

UBS– The execution on this transaction was straightforward. We opened the books on Monday morning ahead of competing supply and we accumulated orders quickly.

What was interesting was the fact that real money accounts were the main drivers behind the demand, which makes a change — traditionally trading accounts tend to put orders in first and real money then follows.

Anglo Irish is a well liked name and the issuer does a lot of investor work and is very diligent, which clearly paid off with this deal. This was reflected in the order book which had 85 orders in total.

We had two options in terms of the transaction, which was to either do a larger print at the wide end of guidance or a smaller deal at 13bp, the issuer decided to opt for the larger size at 14bp over.

We had a Eu1.65bn order book in total with the majority of the demand coming from Germany/Austria and UK and Ireland. Since pricing, the deal has traded at 13.5bp over, which is the right amount of performance. We had demand from asset managers and bank treasuries.

Market appraisal:

“…all senior FRN deals are going well at the moment and coming either flat or through secondaries. This was another example of a transaction being well received by the market.”

“…a good deal, a further testament to the liquidity out there at the moment. Anglo Irish is a good name which does not come that often to the market, and when it does, comes in liquid sizes, which investors like.”

Of course it is worth remembering at this point what companies were meeting senior staff at the Department of Finance post bank guarantee. HSBC and BNP Paribas. And who was preparing risk reports for NAMA and Anglo on our behalf: HSBC.

Then we come to covered bonds, issued by Anglo later in 2007.

Anglo Irish bank is bringing unconventional assets into the burgeoning covered bond market.

Anglo Irish Bank is issuing the first covered bond backed entirely by commercial mortgage assets and bypassing the CMBS market. The bank will be making its debut on the covered bond market with a C2 billion programme. The structure of the issue will be broadly similar to conventional UK structured covered bonds, differing only in the make-up of the cover pool. Anglo Irish BankEs focus is on commercial lending but Irish ACS regulations limit the proportion of commercial mortgage assets in the cover pool to 10%, so the bank is issuing outside the legal framework.

Issuing this covered bond now raises the question why the bank didnEt wait for the forthcoming amendment to the Irish ACS regulations that would allow for covered bonds backed by exclusively commercial mortgage assets. “We planned this issue some time ago,” says John Bowe, director in the capital markets division of Anglo Irish. “We had no certainty that the legislation would be passed, or what the timetable for it would be.”

Another reason for not waiting to issue an Irish ACS under the new regulations is that to do so would require Anglo Irish to set up a separate ACS bank. This can take upwards of a year. By issuing this covered bond now, Anglo Irish can steal a march on those banks waiting for ACS regulations to issue commercially backed covered bonds under the new framework. “Issuing a UK structured covered bond now allows us to access the market ahead of the ACS banks,” explains Bowe.

Costs

But this advantage is tempered by the higher financing costs associated with issuing a commercially backed structured covered bond. The dynamics of commercial mortgages are different to residential ones, and they are generally considered more risky. Further, Anglo IrishEs cover pool is not very diversified, comprising only 153 loans to 40 different borrowers. Before granting the issue a triple-A rating, MoodyEs imposed an over-collateralization requirement of 17%.

Despite this, Anglo Irish sees a benefit in issuing this unregulated covered bond now. It regards the ability to access the covered bond market as very important, and will use this issue to build the foundations of further funding through this market. It is reasonable to assume, therefore, that Anglo Irish will look to make further, larger covered bond issues.

Bowe confirms this. “Through 2008 and 2009 we will become a much more regular issuer of covered bonds,” he says. “We are entering the market in an unconventional way, but going forward we will become more conventional, with larger issues and ACS.”

Growing assets

Anglo Irish is seeking to substantially increase its assets under management. The bankEs assets at the end of the financial year 2006 amounted to about C73 billion. It will aim to quickly raise that figure to nearer C100 billion.

The bank wants to be a long-term player in both the UK and Ireland. Some 42% of Anglo IrishEs assets are located in Ireland, with 44% in the UK. This gives rise to another benefit of issuing a structured UK covered bond. “We expect our UK assets to further exceed our Irish assets,” says Bowe. “So it is strategically important for us to have a UK covered bond programme.”

Covered bond markets have been rapidly expanding for some time now, and the first commercially backed covered bond is among a host of firsts in recent months, including, recently, the first German covered bond issued outside of the Pfandbrief structure, by Landesbank Berlin. Anglo Irish is ensuring its own position in the growing covered bond market, though in a fairly unorthodox manner. Its programme will comprise small, private-style placements aimed exclusively at high-quality European asset management accounts.

In time, Anglo Irish will look to make issues of jumbo size, attracting a broader spread of investors. It will also begin to align itself more closely with covered bond market conventions. “Our ambition is to do this on a more regular and mainstream basis,” says Bowe. “We want to be more consistent with other covered bond issues.”

Or another, this time a five-year sterling bond from October 2005, to mature in November 2010:

Rating: Aa1/AA-/AA+

Amount: 500m [pounds sterling]

Maturity: 1 November 2010

Issue/re-offer price: 99.955

Coupon: three month Libor plus 8bp

Spread at re-offer: Libor plus 9bp

Launch date: Thursday 20 October

Payment date: 1 November

Lead mgr: Citigroup

Bookrunner’s comment:

The deal was pleasing. We reached a book of 800m [pounds sterling] for a benchmark transaction attracting over 50 accounts. We did not hold a roadshow but the bank’s results came out on Monday this week so there was a well known and positive credit story.

We went to the market with plans to issue a benchmark at around 10bp over Libor area. In the end we were able to price a 500m [pounds sterling] deal at 9bp over, which was great.

The bank has an outstanding March 2009 in the market, which trades at 4.5bp over and the new deal has tightened slightly to 8.75/8.25.

Some 80% was sold in the UK, with the rest being distributed almost equally around the major financial centres.

Banks took 38% of the paper, with fund managers taking 35%. 11% went to insurance, with governments buying 10%.

Or sometimes companies like Ardagh Glass, which owes Anglo money. This bond issued last year:

A Eu300m seven year non-call four deal for Ardagh Glass Finance, one of the largest euro denominated high yield bond issues so far this year, brought the “bank disintermediation trade” to Europe last Friday (June 19).

The trend of companies using senior secured bonds to take out bank debt is one that market participants expect to continue as the leveraged loan market remains shut.

“There is a trend in the US of issuers doing senior secured bonds to repay bank debt,” said a high yield banker away from the deal. “ItEs one of the first ones weEve seen in Europe, but I think weEll see more of them because of the lack of liquidity in the bank market.”

The deal was issued at 98.116 with a 9.25% coupon and a yield of 9.625%. Citi was sole bookrunner.

Although the books were four times oversubscribed, the bond was priced at the wide end of the price guidance of 9.5%-9.625% because of the softening in tone of the high yield market at the end of last week.

“The issuer was keen to ensure that the deal worked well and that the company continued to be well regarded in the market,” said a banker on the deal.

The issue will be used to repay Eu150m of the privately owned glass container firmEs senior bank debt and a revolver, as well as for general corporate purposes. It will leave Ardagh with Eu220m of senior secured bank debt and about Eu180m of revolvers and undrawn facilities, all of which is owed to Anglo Irish Bank and due June 2014. The notes will be secured on the same basis as the bank debt they replace.

The borrower also has senior bonds (rated at B3/B-) as well as PIK notes (Caa1/B-) outstanding.

Ardagh last issued a high yield bond in June 2007, pricing a Eu310m 10 year issue at par with a coupon of 7.125%.

The deal was announced two weeks ago (June 12), and was roadshowed last week.

Or just two weeks ago:

Anglo Irish Bank yesterday raised 2.25bn through the sale of two bonds, which are covered by the extended state-guarantee scheme.

The bank raised 1.5bn of two-year notes, which were priced at 1.2 percentage points over the so-called mid-swaps market rate.

It equates to an interest rate of about 2.65pc.

Anglo also sold 750m of five-year bonds, which were priced to yield 1.65 basis points over the swaps rate.

This equates to an overall rate of about 4.05pc.

Debt market sources noted that the price of the five-year bonds for other Irish banks are currently trading at as much as 0.2 percentage points below the new Anglo bond.

This reflects market unease about the massively loss-making group and its ability to get a restructuring plan over the line.

“Still, the result is decent, given unease in the debt markets regarding the Greek (financial crisis),” said a senior market source.

Last week, Anglo revealed it posted a 12.7bn loss for the 15 months to the end of December, after stomaching more than 15bn of bad loan losses.

The group’s new management team is looking to split the bank into an internal ‘good’ and ‘bad’ bank, after NAMA takes more than half of its 70bn loan book.

The aim is to run down the bad element of the group over time.

Sources said both bond placements were oversubscribed, and that the National Treasury Management Agency as well as the Department of Finance were “happy” with the take-up of the deals.

Anglo’s customer deposits have almost halved to 27.2bn since the original government-guarantee scheme was introduced back in September 2008.

The group had been relying on a 23.7bn funding lifeline from central banks — including 11.5bn from the Irish Central Bank — at the end of last December.

This was up from 7.6bn 18 months ago.

Or another five year bond issued in 2005:

Rating: A2/A

Amount: $600m

Maturity: 27 July 2010

Fixed re-offer price: 99.931

Coupon: three month Euribor plus 12.5bp

Spread at re-offer: three month Euribor plus 14bp

Launch date: Wednesday 13 July

Payment date: 27 July

Joint books: HSBC, Nomura

Bookrunners’ comment:

Anglo Irish carried out a roadshow in Asia–visiting Tokyo, Hong Kong, Singapore and Kuala Lumpur–and the credit was well received over there. Anglo’s long-term strategy is to diversify its investor base, so Asia is a key factor in that. It had already done one roadshow in the region.

The catalyst for doing the deal this week was both the strength of the market and the strength of demand from Asia. We waited for the borrower’s EMTN documentation to be sorted out after the introduction of the EU Prospectus Directive and then went ahead with the bond.

We went out with pricing of 14bp/15bp on Tuesday morning in Asia and built a book which was just shy of $1bn. We had closed the books in Europe on Tuesday evening, but left them open for Asia until the Wednesday. Around $900m was still good at the revised guidance of 14bp over.

In the end, the demand we had could have supported a larger deal, but the borrower’s internal restrictions meant that we were limited to a $600m size.

The deal was priced in line with more highly rated entities that have come to the market recently. The borrower has not previously issued in dollars but has a 2009 and 2010 in euros, trading at 14.5bp and 15.5bp respectively. There is also a five-year dollar deal for Irish Life and Permanent that was at 14bp over. ILP is one notch better, but Anglo does tend to trade very well.

Around 41% was sold into Asia, which for a deal of this size is a phenomenal amount. Ireland and the UK took 32%, with 16% into Germany and Australia.

Bank buyers took 80%, government institutions 7% and asset managers 7%.

Market appraisal:

“… this was bang on the pricing and looked to be a good deal. Demand for dollar FRNs is strong and a decent product from a decent borrower is going to go well.”

“… it went well and it looked like the leads built a solid book and priced the deal in line with comparables.”

5 thoughts on “Anglo bondholders”

  1. You’re touching upon something that I’ve been thinking about recently – a thought which first came to me when it was revealed somewhere (apologies, but no direct source right now) that it was the Irish banks that were some of the biggest purchasers of the new tranches of Government debt being flogged on the bond markets.

    Knowing what we know now about Irish banks moving money around to suit each others balance sheets and other such cost arrangements, I wonder what the chances that the now infamous “bondholders” are actually the other Irish banks, and potentially the Irish government and the pension fund?

    If, for example, BOI has certain debts and it’s solvency is only
    barely acceptable because of it’s assets – I wonder how the bank would be fixed if a big chunk of those offsetting assets were Anglo bonds?

    Given the sometimes unrealistically attractive rates by Anglo on their bonds over the years, it’s unlikely that BOI would have turned down the chance to get a piece of that action.

    It would sort of give a whole new definition to the “systematic importance” that Anglo might have in the Irish banking system.

  2. I think that there was a story(The Phoenix?(The magazine that told us Anglo was bankrupt a month before anyone else knew)) that some Credit Unions had all their bond investments in Anglo. Not a good situation

  3. Sounds like the Anglo Irish Bank was a ponzi scheme accomplished with direct help by the other Irish banks. Why is Lenihan so slow to prosecute the individuals that have almost (if not actually) bankrupted this country ?

    Throw the perpretrators into jail – let them stay there until they start to co-operate fully with the Gardai and CAB. Then give immunity to the one who give the most useful information, i.e. that leads to a successful prosecution.

  4. it appears to me that the bondholders will be the only winners in this debacle…it is likely that the money currently being borrowed @ 6.9% to pay back the bondholders… is being raised from the self same bondholders!

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