The High Court has issued an order aimed at helping AIB to boost its financial position by buying back subordinated, or junior, debt from bondholders.

The Subordinated Liability Order was issued under the Credit Institutions (Stabilisation) Act 2010, the legislation introduced last year which gave the Finance Minister wide powers to sort out the banking system.

The court order will change the terms of interest payments on some bonds, extend the date for their repayment and allow AIB to buy back some debt.

Finance Minister Michael Noonan welcomed the move, saying it would ensure that AIB's subordinated debt holders share the burden of AIB's €13.3 billion capital needs and reduce the amount needed from the taxpayer. Some banks have been effectively making a profit by buying back subordinated bonds at lower prices than they were issued.

He said AIB intended to launch an offer to buy back its outstanding subordinated debt in the coming weeks. Mr Noonan said that if this was not successful, the Government would take 'whatever action is necessary' to ensure subordinated bondholders would share the burden of recapitalising AIB.

The Minister said there would a further statement on subordinated debt in Bank of Ireland and Irish Life & Permanent in the coming weeks.

Aim to make buyback more attractive to investors

The court's order on AIB means that interest which would normally be compulsorily payable on dated subordinate debt is now payable at the discretion of the bank. It also means that the date at which these dated subordinate bonds will become payable has been extended to 2035.

The order also ensures there will be no restriction on the bank's purchasing undated - perpetual - subordinated liabilities. There will be no restriction on AIB's paying dividends to shareholders even where it has not paid interest on its perpetual subordinated bonds.

The court heard that it was hoped today's order would mean that investors would be more likely to participate in the bank's buyback of its subordinated bonds..