N.Y. Hedge Fund Tries To Halt Anglo Irish Merger, Fund Transfer

Feb 15 2011 | 8:30am ET

Fir Tree Capital, a New York-based hedge fund, has asked a judge to stop Anglo Irish Bank merging with another distressed Irish bank and from transferring US$10.7 billion in assets out of the U.S.

Fir Tree, with offices in New York and Miami, invested in $200 million worth of Anglo Irish debt in 2005. Last week, Ireland’s High Court ordered Anglo Irish to start auctioning off its debt and to prepare to merge with Irish Nationwide Building Society.

In its submissions to a New York judge, the fund asks that Anglo be forced to promise not to see any of its assets or merge with an ‘insolvent’ entity, or transfer its assets out of the country.

In its submissions to the court, Fir Tree argues that Anglo’s decision to allow its loans to be moved into Ireland’s National Asset Management Agency (which functions as a bad bank for property development loans) at a 62% discount had the effect of “greatly reducing the assets available to pay creditors such as the noteholders.”

Fir Tree wants Anglo to honor its commitment to pay principal and interest on notes with face value of $200 million.

The fund also argues that the merger with Irish Nationwide breaches previous agreements between Anglo and noteholders:

“Anglo Irish Bank’s asset sales and the pending merger with INBS plainly and brazenly violate the Bank’s covenants in the Notes Purchase Agreement. In Section 9.3 of the Agreement, the Bank covenanted that it would refrain from consolidating with or merging into any entity unless that entity was solvent and agreed to assume all liabilities under the Agreement—yet INBS is not an investment-grade institution, and there is no assurance that it will assume the Bank’s liabilities as required by the Note Purchase Agreement.”

Fir Tree also claims that Anglo agreed when it issued the notes that any breaches or defaults would be adjudicated under New York law.

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