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Bank of Ireland offers a hard offer to share and bond holders following plans to rescue bank

June 3, 2011‐ Dublin, Ireland

The Bondholders of the Bank of Ireland had been presented a hard decision to make. They are made to take up a 10 percent of face value in cash for their bond holdings or to take 20 percent for equity alternative, both of them being tough and hard alternatives for them.

The decision of the bank to infuse 4.2 billion euros ($6.1 billion) in fresh capital was taken so as to save the bank, apparently at expense of the bondholders and shareholders. Some sections of the business media reported this act as a 'bond-burning programme' or a 'burden sharing deal'.

This decision has already hit the markets hard. The shares of the bank fell 22 per cent when the bank of Friday said that up to 2.2 billion euros ($3.2 billion) in new stock was announced. The new stock will be offered as part of an offer to buy back debt at a steep discount using both cash and equity. The offer allowed the bank to buy back about 2.6 billion euros worth of Tier 1 and Tier 2 subordinated debt securities.

It appears that LME (Liability Management Exercise) offer provided now would be a better one as the Irish government appears to take a severe move on those bondholders who declines the present offer. The government appears to be giving more sweetening news to those who opt for shares rather than the cash offer.

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