Creditor Rights - The Erosion Continues

The erosion of creditor rights continues.  This time Ireland has decided to jump into the game:

Ireland’s government will be able to force junior bank bondholders to share losses to protect financial stability under legislation published today.

The government may take action if “necessary for preserving or restoring the financial position of the relevant institution,” according to the Credit Institutions (Stabilization) Bill, published on the Irish Parliament’s website. Lawmakers will vote on the plan, which also gives ministers power to veto bonuses at bailed-out lenders, tomorrow.

Under the rules, the finance ministry and central bank would have to review an individual bank’s debt, the extent of government financial support it received and the chances that junior debt holders would be repaid if the lender were wound up. The government would then be able to seek a court order forcing bondholders to share the cost of rescuing the bank.

The law gives the government power to alter bondholders’ rights, including those regarding the payment of interest, repayment of principal, events of default and the timing of the payback of debt, according to an explanatory note, published on the finance ministry’s website. Effected subordinated bondholders may also be given a stake in a lender, it said. The powers will expire at the end of 2012, the ministry said.

“In terms of forcing losses on subordinated bondholders, the government is distinguishing between institutions in terms of how much state support they received,” Ciaran Callaghan, an analyst at Dublin-based NCB Stockbrokers, said by telephone. The law may let the government “take a more punitive position” in Allied Irish Bank Plc’s restructuring than in the case of Bank of Ireland Plc, he said. 

Full article here:  Bloomberg on Irish Banks