Credit event ruling sought for AIB

The International Swaps and Derivatives Association (ISDA) was asked yesterday if a failure to pay credit event has occurred at Allied Irish Banks after it ruled last week that a restructuring event took place.
By The Newsroom
Published 21st Jun 2011, 10:02 BST

State-owned AIB had said it did not intend to pay the coupon on a Lower Tier 2 note which was due on June 5 and had a 15-day grace period, likely triggering the request which was submitted anonymously as a “general interest question”.

The bank raised 1.6 billion euros in capital last week when the vast majority of its junior bondholders opted for large losses on their holdings rather than risk a state-imposed wipeout.

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The ISDA had ruled that the restructuring event happened on June 9 when AIB suspended interest payments and extended the maturities of most of its outstanding junior debt ahead of the buyback.

The ruling meant that sellers of insurance against AIB defaulting will have to pay out of credit default swaps (CDS), which had a net notional value of $507m in the week ending June 3, according to data from the Depository Trust & Clearing Corpora- tion.

Holders will likely trigger their CDS under a failure to pay credit event because the payout is expected to be higher and more straightforward than under a restructuring event.