One of the investment firms suing Minister for Finance Michael Noonan over the Government's plan to inflict losses on subordinated bondholders has withdrawn its legal action.

New York-based Abadi & Co Securities asked the High Court this morning for its case to be struck out.

A second case taken by Aurelius Capital Management is proceeding next Tuesday, although there are still outstanding issues over the discovery of documents in its action.

John Rogers SC for Abadi said that the company was withdrawing its action and that the Minister had agreed to pay a sum in respect of its legal costs.

He said that Abadi agreed to tender on their bonds which are the subject the proceedings in AIB's debt buy-back announced last month.

AIB, which is 93 per cent owned by the State, offered to buy back €2.6 billion of subordinated debt at a discount of up to 90 per cent on May 13th.

Mr Noonan welcomed Abadi's decision and said it vindicated the State's view that the challenge to the order regarding AIB's subordinated liabilities was unfounded.

"AIB has remained solvent due to the ongoing overwhelming financial support of the State and without this support the entire investment held by subordinated bondholders' would have been likely irrecoverable," he said in a statement.

"Therefore, I consider it entirely fair that subordinate bondholders should share in a proportionate manner in the burden of the recapitalisation costs of the banks."

Mr Noonan said the State would fight the challenge by Aurelius Capital Management.