The Joint Special Liquidators for IBRC confirmed today that junior bondholders in the former Anglo Irish Bank will be fully repaid as part of the liquidation process.

Before today we knew these unsecured creditors would get 50% of their investment in Anglo back, but now they are set to have it all returned.


What's the background to this?

The Joint Special Liquidators of IBRC said that committed unsecured creditors will be paid a final dividend of 50%, having already received half of what they are owed.

This payment will commence in the coming weeks.

There's a bit of background to this that sets these payments in context.

IBRC - or Irish Bank Resolution Corporation - was set up in the aftermath of the financial crisis in 2011 and was made up of the failed lenders Anglo Irish Bank and Irish Nationwide.

In 2013 the decision was taken to liquidate IBRC and attempt to repay as many of its creditors as possible.

In a liquidation process, there's a priority system that decides the order in which groups that are owed money are paid.

For example, employees owed pay are ranked ahead of shareholders who took a risk by acquiring shares in the company.

Then you have secured creditors, and unsecured creditors, who would have bought more risky debt with a lower chance of a return but at a better interest rate, and they are paid last.

The new payment confirmed today means that junior bondholders in Anglo, who bought a relatively risky type of the bank's debt to try and make money, will receive all of their investment back.

And in some cases these risky investors would have bought up the bank's debt for much less than its original value, so this group is in-line for a big windfall.


Q. Is the fact these junior bondholders are likely to be repaid in full likely to be a controversial issue?

That's very likely. The taxpayer had to put nearly €30 billion into Anglo Irish Bank and €5.4 billion into Irish Nationwide during the financial crisis, and are now at the back of the queue in terms recovering this money after the failure of both lenders.

But around €270 million of junior bonds were bought by distressed debt and hedge funds during the crisis at deeply discounted rates, with the investors knowing full well it was a high-risk investment.

While most junior bondholders in Anglo agreed in 2010 to accept just a fifth of what they were owed from their investment after the Government threatened to inflict bigger losses on them, a group of these junior bondholders refused to take part and accept any losses.

And now this group is set to receive its risky investment of around €270 million back in full, while the tax payer is unlikely to recoup much of its near €30 billion investment during the crisis to prop up Anglo and Irish Nationwide.

And, as already mentioned a large cohort will likely still even make a large profit on their risky investment.

Not surprisingly, that is unlikely to sit too well with many, given that those deliberately entering into a risky investment in a failing bank hoping to get a windfall are not going to lose out.

But the the State and the taxpayer will likely suffer losses in the tens of billions of euro because the government of the day invested in Anglo by buying shares, and shareholders will be the last group to be paid out during a liquidation and there will likely be little or no money left to pay them with.


Q. The State is set to benefit somewhat from the liquidators' payment to unsecured creditors though?

Yes, aside from its investment in Anglo via shares, the State also holds around €1.2 billion in bonds.

The State is considered an unsecured creditor for this €1.2 billion investment as opposed to a shareholder.

We know 50% has already been repaid - so €600 million - and with today's announcement the State is set to get the other €600 million back.


Q. What will be done with the money?

Minister for Finance Paschal Donohoe said that money will go to the Exchequer and will help reduce Ireland's borrowing costs.

He also said he expects the State will get more money back from Anglo, after the bondholders are paid.

The Joint Special Liquidators, Kieran Wallace and Eamonn Richardson, also confirmed they expect the State will recover further funds following the repayment of other creditors, but no time frame in relation to this payment has been given. 

In May, the Special Liquidators said the liquidation of IBRC will likely be completed by the end of 2022, so some time yet to run on this.