Bank of Ireland tallies early results of exchange offers for 19 series

By Angela McDaniels

Tacoma, Wash., June 23 - The Bank of Ireland announced the results of its exchange offers and consent solicitations for 19 series of tier 1 and tier 2 securities through the early participation deadline, which was 5 p.m. ET on June 22.

The bank said it made the offers to certain holders that include, subject to some conditions, U.S. holders who are qualified institutional buyers as defined in Rule 144A of the Securities Act.

Holders have two options. Those who choose option one will receive euro-denominated allotment instruments issued by the bank plus accrued interest. Those who choose option two will receive a cash payment for their securities, and no payment will be made for accrued interest.

According to a 6-K filing with the Securities and Exchange Commission, holders had tendered the following tier 1 securities as of the early participation deadline;

• €128,749,000 of BOI Capital Funding (No. 1) LP's €215,866,000 fixed-rate/variable-rate guaranteed non-voting non-cumulative perpetual preferred securities, including €83,706,000 for option one and €45,043,000 for option two;

• $58,645,000 of BOI Capital Funding (No. 2) LP's $61,271,000 fixed-rate/floating-rate guaranteed non-voting non-cumulative perpetual preferreds, including $55.23 million for option one and $3,415,000 for option two;

• $10,597,000 of BOI Capital Funding (No. 3) LP's $19,797,000 fixed-rate/floating-rate guaranteed non-voting non-cumulative perpetual preferreds, including $8.31 million for option one and $2,287,000 for option two;

• £4.97 million of BOI Capital Funding (No. 4) LP's £5.07 million fixed-rate/floating-rate guaranteed non-voting non-cumulative perpetual preferreds, including £4.32 million for option one and £650,000 for option two;

• £39,867,000 of Bank of Ireland UK Holdings plc's £40,146,000 6¼% guaranteed callable perpetual preferreds, including £39,432,000 for option one and £435,000 for option two; and

• €119,873,000 of Bank of Ireland UK Holdings' €253,335,000 7.4% guaranteed step-up callable perpetual preferreds, including €104,621,000 for option one and €15,252,000 for option two.

The bank had received tenders for the following upper tier 2 securities:

• £8,446,000 of Bank of Ireland's (in substitution for Bristol & West plc) £75 million 13 3/8% perpetual subordinated bonds, including £4.1 million for option one and £4,346,000 for option two; and

• $68.75 million of Bank of Ireland's $75.14 million undated floating-rate primary capital notes, including $64.71 million for option one and $4.04 million for option two.

Tenders had also been received for the following lower tier 2 securities, all issued by the Bank of Ireland:

• C$33.45 million of its C$138,721,000 fixed/floating dated subordinated notes due September 2015, including C$33,285,000 for option one and C$165,000 for option two;

• C$338,461,000 of its C$89,733,000 of fixed/floating dated subordinated notes due September 2018, including C$38,459,000 of option one and C$2,000 for option two;

• €82 million of its €91.1 million callable step-up floating-rate subordinated notes due January 2017, including €82 million for option one and none for option two;

• €35.45 million of its €48.1 million callable step-up floating-rate subordinated notes due 2017, including €33.1 million for option one and €2.35 million for option two;

• £57,522,000 of its £57,736,000 callable fixed/floating dated subordinated notes due January 2018, including £57.4 million for option one and £122,000 for option two;

• £25,228,000 of its £27,117,000 of 10¾% subordinated bonds due 2018, including £24,805,000 for option one and £423,000 for option two;

• $499,285,000 of its $184,241,000 callable step-up floating-rate subordinated notes due July 2018, including $179,285,000 for option one and $320,000 for option two;

• €180.19 million of its €201,487,000 fixed/floating-rate subordinated notes due 2019, including €177,217,000 for option one and €2,973,000 for option two;

• £62.5 million of its £87,147,000 10% subordinated notes due 2020, including £62,113,000 for option one and £387,000 for option two;

• €531,758,000 of its €747,056,000 10% subordinated notes due 2020, including €527,835,000 for option one and €3,923,000 for option two; and

• £269,034,000 of its £272,128,000 callable subordinated step-up notes due September 2020, including £267,202,000 for option one and £1,832,000 for option two.

The bank said that if it accepts all of the securities tendered so far, it will issue €659,766,096 principal amount of allotment instruments and pay €7,878,700, $1,442,200, £1,530,500 and C$33,400 in cash.

The exchange rates used to set the amount of allotment instruments are 1.4279 dollars per euro, 0.89233 pounds sterling per euro and 1.388 Canadian dollars per euro.

The allotment instruments will automatically convert into ordinary shares on the conversion date, which is expected to be Aug. 12. The conversion price is €0.1156 per share. The minimum denomination of the allotment instruments is €50,000.

Bondholders who choose the equity option will receive an amount of allotment instruments equal to 20% of par for tier 1 debt securities and 40% of par for tier 2 debt securities. The amount will be 16% of par and 32% of par, respectively, for securities tendered after the early participation deadline.

Those who choose option two will receive a cash purchase price of 10% of par for tier 1 debt securities and 20% of par for tier 2 debt securities. The price will be 8% of par and 16% of par, respectively, for securities tendered after the early participation deadline.

When the offers were announced on June 8, the bank said the deadline for the receipt of tenders was expected to be July 7 for the vast majority of the eligible debt securities.

On June 14, the offer for the 13 3/8% bonds was amended so that all holders who tender by 4 a.m. ET on July 5 will be eligible to receive the total amount as if they had tendered before the early participation deadline of 5 p.m. ET on June 22.

The 13 3/8% bonds were issued in registered form, and a significant number of the holders hold their bonds in certificated form outside the clearing systems. The bank said this may make it difficult for these holders to participate in the offer by the early participation deadline, and it amended the offer so they would not be disadvantaged.

Consent solicitations

The bank is also soliciting consents to modify the terms of the securities to include an option for the issuer to redeem or purchase all, but not only some, of the securities that remain outstanding following the exchange offers at 0.001% of par.

No consent fee will be paid.

Bondholders will vote at separate meetings. Those who tender in the exchange offers are agreeing to vote in favor of the proposals.

The meeting for the C$138,721,000 of fixed/floating dated subordinated notes due September 2015 will be held on Aug. 10. The meetings for the remaining notes will be held July 7.

If the resolution is not approved, no allotment instruments will be issued under the exchange offers. Holders who chose this option will instead receive option two consideration, or they can receive their tendered securities back.

Bank to generate €4.2 billion

As previously reported, the purpose of the exchange offers and consent solicitations is to generate capital. The bank is required to raise €4.2 billion of core tier 1 capital in order to satisfy the regulatory capital requirements announced by the Central Bank of Ireland on March 31.

The Irish Minister for Finance wants to ensure that subordinated bondholders make a significant contribution to the core tier 1 capital requirement, according to the previous news release from the bank.

The Minister of Finance has stated its intention to "take whatever steps are necessary ... to ensure that burden sharing is achieved. Any further action, after investors have had an opportunity to take part in these [liability management exercises], will result in severe measures being taken in respect of the subordinated liabilities." The Bank of Ireland said that in these circumstances, the return received by bondholders may be materially below the cash purchase price in the tender offer.

An ad hoc committee of security holders has objected to the exchange offer, saying it is "fatally flawed because it fails to respect the fundamental principle that creditors must be paid ahead of shareholders."

The committee requested that the bank and the Ministry of Finance suspend their announced plans until the committee has had the chance to meet and attempt to formalize the terms of a privately funded financing plan.

Other elements of the bank's capital-raising efforts include a rights issue for €1.76 billion to €2.22 billion. The exact size will be €4.35 billion minus the core tier 1 capital generated from the actions taken in regards to the subordinated debt securities.

The bank will also place a €1 billion contingent capital instrument with the government. The five-year tier 2 subordinated instrument will carry a 10% coupon and will be convertible into equity at the higher of the bank's 30-day volume-weighted average share price and €0.05.

The dealer managers for the exchange offers are Credit Suisse Securities (Europe) Ltd. (44 20 7883 8763), Deutsche Bank AG, London Branch (44 20 7545 8011) and UBS Ltd. (44 20 7567 0525, 203 719-4210 or 888 719-4210).

The EC/CS exchange agent, DTC exchange agent and tabulation agent is Lucid Issuer Services Ltd. (44 20 7704 0880), and the CDS exchange agent is Equity Financial Trust co. (416 361-0152).

Bank of Ireland is a Dublin-based retail and commercial bank.

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