Sorry, remind me why we are paying the bondholders again?

[BoyRacer]

It’s not dead, it’s resting - P O Neill → fistfulofeuros.net/afoe/its-not- … s-resting/

Financial Times 22 November 2011:
In the longer term lending markets, Europe’s banks have largely been unable to raise new senior unsecured debt, the bread and butter of their funding, in recent months as investors fret over the effects of the eurozone crisis.
Since the beginning of July, the region’s banks have sold a collective €11bn of senior unsecured debt according to Société Générale data. That compares to €121bn raised year to date, and about €150bn raised annually in 2009 and 2010. In the longer term lending markets, Europe’s banks have largely been unable to raise new senior unsecured debt, the bread and butter of their funding, in recent months as investors fret over the effects of the eurozone crisis.Since the beginning of July, the region’s banks have sold a collective €11bn of senior unsecured debt according to Société Générale data. That compares to €121bn raised year to date, and about €150bn raised annually in 2009 and 2010.

Irish Times 19 November 2011 processology on the 2010 Irish IMF/EU program –
Tension surfaced as [Brian] Lenihan [Finance Minister] sought to raise the possibility of imposing losses on senior bank bondholders, to ease the burden on the State, which the ECB opposed but the IMF believed would be feasible. Fearing an outburst of contagion in wider bank markets, the ECB insisted that a “relatively small amount of money” was at stake against the risk of destabilising the total stock of European banking debt. But the IMF refused to yield, saying the question should not be ruled out. “The idea smouldered in the background,” says a source. The ECB kept seeking to have the notion taken off the table entirely while the IMF and the government sought the opposite. Legal advice was taken, yet there was no end to the stalemate.

So the ECB is requiring Ireland to make payment in full to legacy bondholders in Irish banks with the rationale of not scaring the market for senior unsecured bank debt … a market that is now, of its own accord, dead.

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Frankfurt’s difficulty is Ireland’s opportunity - Fintan O’Toole → irishtimes.com/newspaper/opi … 01092.html

Most of the Anglo and Irish Nationwide debt has not been repaid. It was recorded as public debt in 2010 (giving us one of the largest deficit to GDP ratios ever incurred by a state during peace). But it is being funded through giant IOUs or promissory notes.

The promissory notes for Anglo and Irish Nationwide total €31 billion. The interest on these notes, as set out by Michael Noonan in September, is €17 billion. We are to make annual payments of €3.1 billion up to 2024. The payments continue at smaller, but still significant, levels until 2031. A child born in 2008, when the bank guarantee was given, will (unless she emigrates) still be paying a chunk of her taxes towards Anglo and INBS when she is 23. Actually, even these mind-boggling figures don’t tell the whole story. The truth is that the Department of Finance doesn’t actually know how much the total cost of the promissory notes will be. Michael Noonan’s written reply to Pearse Doherty on the subject in September contains the phrase “It is difficult . . . to isolate precisely the exact cost of the interest payments on the borrowing undertaken to fund the promissory note payments.” We’re borrowing money to pay the interest on the money we’ve borrowed to bail out Anglo and Irish Nationwide – and we don’t know how much it is. But the official estimate is that in 2013, when the interest payments kick in, the annual cost will be €1.8 billion. To put this in perspective, the interest alone on the promissory notes is nearly three times the annual yield from the new 23 per cent rate of VAT.

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Shift in focus on Anglo promissory notes - Harry McGee → irishtimes.com/newspaper/fin … 48420.html

The government has quietly downgraded its campaign to persuade the European Central Bank to change the terms of the €30 billion of promissory notes it issued to bail out Anglo Irish Bank, according to an authoritative Government source.

The efforts by Minister for Finance Michael Noonan to seek a reduction from the ECB in the 8.2 per cent interest rates being charged on the notes or extend the term of the loan has not really worked, said the source. In all, Ireland will have paid a total of €16.8 billion in interest when the debt matures in 20 years’ time.

It is understood the lack of headway with the ECB was a motivating factor for Taoiseach Enda Kenny bringing up the issue of Ireland’s €63 billion bank recapitalisation bill at the EU summit last weekend. The Taoiseach asked other EU leaders to allow a more sustainable way for Ireland to pay back the loans it has taken.

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