THE INTERNATIONAL Swaps and Derivatives Association was asked yesterday if a failure-to-pay credit event has occurred at AIB after it ruled last week that a restructuring event took place.

State-owned AIB had said it did not intend to pay the coupon on a Lower Tier 2 note which was due on June 5th and had a 15-day grace period.

This was likely to have triggered the request, which was submitted anonymously as a “general interest question”. The bank raised €1.6 billion in capital last week when the vast majority of its junior bondholders opted for large losses on their holdings rather than risk a State-imposed wipeout.

Also yesterday, AIB announced it was exercising its call option on the remaining junior bondholdings at the rate of one cent per €1,000 or currency equivalent.

The association had ruled that a restructuring event happened on June 9th when AIB suspended interest payments and extended the maturities of most of its outstanding junior debt ahead of the buyback.

The ruling meant sellers of insurance against AIB defaulting will have to pay out of credit default swaps, which had a net notional value of $507 million (€354 million) in the week to June 3rd.

Holders will likely trigger their credit default swaps under a failure to pay credit event because the payout is expected to be higher and more straightforward than under a restructuring event.

A credit event is jargon for default on payment, breach of bond covenants or other event that casts doubt on an issuer’s ability to service its debt.

– (Reuters)