Irish Bank Joins Shift Away from English Law Ahead of Brexit

(Bloomberg) -- Irish lender AIB Group Plc added its name to a growing list of borrowers shunning English law for their riskiest bank bonds in preparation for life after Brexit.

The state-owned bank used Irish law for a sale of contingent convertible bonds on Wednesday that are set to replace its existing English-law governed notes.

The move reflects a wider trend among European banks. Only 14% of euro-denominated CoCo paper sold by European lenders this year is governed by English law, down from more than 40% before 2019, according to data compiled by Bloomberg.

European regulators have warned that bail-in bonds may not count as loss-absorbing regulatory capital after Brexit. Last year Elke Koenig, head of the euro area’s bank-failure agency, said that securities issued by euro-zone lenders under English law will become “third-country issues.” The Single Resolution Board said at the time that about 100 billion euros ($109 billion) of securities could lose their loss-absorbing status.

The exodus from English law is a blow to the U.K.‘s financial industry just weeks before the nation is due to leave the EU, potentially without a deal in place.

A spokesman for AIB said that the issuance is in line with recent transactions. The bank issued senior non-preferred notes, higher-ranking debt, under Irish law in May.

“There has been a general trend in 2019 of issuers in multiple other jurisdictions increasingly using the relevant local law, with AIB simply part of a wider trend,” the bank said in a statement. “The choice of local law is something investors understand.”

Still, investors have previously shown a preference for English law as a system for settling potential disputes between creditors and borrowers in debt restructurings. Most English law CoCos have been issued by non-U.K. banks.

Now that is all changing and it’s not confined to the CoCo market. The European Stability Mechanism, the euro-area’s bailout fund, cited Brexit among the reasons that it’s adopting Luxembourg law for all its euro-denominated debt starting this month. Last year the International Swaps & Derivatives Association published new master agreements that govern credit-default swaps under Irish and French law, aiming to make it easier to settle contractual disputes after the split.

To contact the reporters on this story: Tasos Vossos in London at tvossos@bloomberg.net;Katie Linsell in London at klinsell@bloomberg.net

To contact the editors responsible for this story: Hannah Benjamin at hbenjamin1@bloomberg.net, Chris Vellacott

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