Big pay day for crisis-era Irish bondholders

STEEL-nerved investors who bet that Ireland would not default in the worst days of the eurozone crisis got to collect their reward yesterday.

Holders of the last bonds issued by the Irish government before the 2010 EU/IMF bailout were repaid yesterday, in full and on time. That was in doubt through much of the crisis period, when the bonds traded at steep discounts.

The €1bn of debt was issued to investors in September 2010 at a yield – effectively the borrowing cost – of 6.023pc. The bailout deal was struck months later, as the State’s cost of borrowing on the markets became unaffordable.

The original bailout loans carried interest rates of more than 5pc, but were later slashed. Bonds that had already been issued continued to trade at knockdown prices. In July 2011, at the nadir of the eurozone debt crisis, the €1bn of September 2010 bonds could have been bought for €566m.

The implied yield at that point was 14.732pc. The State did not have to pay that ruinously high interest as the yield was a function of the price bonds were traded on the market.

Bondholders who bought at that price were paid the cash interest of 4.5pc a year – around 31.5pc in cumulative interest since mid-2011. Yesterday the bonds were repaid in full, including to those who bought them at close to half of the face value.

During the life of the bond Ireland’s credit rating fell from AAA to BBB+ with S&P and Fitch, and fell further to junk with Moody’s. It is currently rated A+.

Article Source:

< Back to News