Hedge Funds Ireland Debt

Hedge Funds Ireland Debt

Hedge Funds Looking to Ireland Sovereign Debt Crisis

Hedge funds are looking for ways to profit on the Irish sovereign debt crisis. According to the Wall Street Journal, as the country's debt draws international concern, hedge funds are looking at Irish bank debt especially at the two largest private banks Allied Irish Banks and Bank of Ireland Group.
They are focusing on the treatment of about $9 billion in junior bonds issued by the banks that will be among the last to get paid off in any restructuring. Those bonds plunged in April as worries about euro-zone debt gripped the markets. As prospects of a bailout—and a recapitalization of the banks—increase, hedge funds say they see opportunities in the lowest-ranked debt of Allied Irish and Bank of Ireland.

Bonds that rank low on Allied Irish's capital structure are up 20% to around 55 cents on the dollar since Friday, as anticipation of a rescue loan reaches fever pitch. Junior debt owed by Bank of Ireland, the stronger of the two, thanks to limited commercial-mortgage exposure, bottomed out around 65 cents last month and has recovered to the 70s this week.

It is what comes after a bailout that distressed investors are trying to handicap.

The junior debt doesn't benefit from the explicit government guarantee awarded to the senior debt. So the risk remains that junior bondholders may be forced to take a hit on their bonds under any restructuring, whether under Irish or European oversight. Source

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