Eight new Floating Rate Treasury Bonds have been issued to discharge the Promissory Notes liability consisting of:
- a 25 year bond of €2bn maturing in 2038 with an interest rate of 6-month Euribor plus a margin of 2.50%;
- a 28 year bond of €2bn maturing in 2041 with an interest rate of 6-month Euribor plus a margin of 2.53%;
- a 30 year bond of €2bn maturing in 2043 with an interest rate of 6-month Euribor plus a margin of 2.57%;
- a 32 year bond of €3bn maturing in 2045 with an interest rate of 6-month Euribor plus a margin of 2.60%;
- a 34 year bond of €3bn maturing in 2047 with an interest rate of 6-month Euribor plus a margin of 2.62%;
- a 36 year bond of €3bn maturing in 2049 with an interest rate of 6-month Euribor plus a margin of 2.65%;
- a 38 year bond of €5bn maturing in 2051 with an interest rate of 6-month Euribor plus a margin of 2.67%; and
- a 40 year bond of €5bn maturing in 2053 with an interest rate of 6-month Euribor plus a margin of 2.68%.
The bonds will pay interest every six months (June and December).
This information is set out in tabular form on the NTMA’s website at the following link: http://www.ntma.ie/news/ntma-issues-eight-new-floating-rate-treasury-bonds-in-exchange-for-promissory-notes/
It was also highlighted in this presentation that the interest costs shown were best estimates.
The Deputy has requested the projected annual capital and interest schedules for the portfolio of bonds. With regard to the capital element the €25bn par value will be repaid in line with the schedule given above. With regard to the interest projections, as the Deputy will be aware, the Irish Government Bonds that have been issued in exchange for the Promissory Notes are floating rate bonds. The coupon on these bonds is 6-month Euribor plus a margin ranging from 2.50% to 2.68%. Given the nature of this floating rate it is impossible to be accurate with regard to the exact interest cost in 2013 to 2015.
As part of the explanatory information that was released by the Department of Finance in relation to the transaction last week, estimates were produced which showed an interest expense of €750 million for 2013, €875 million for 2014 and €950 million for 2015. A copy of this presentation is available on the Department of Finance website under the following link: http://www.finance.gov.ie/viewdoc.asp?DocID=7543
With regard to the projected annual cash return to the State from the Central Bank of Ireland this is also impossible to forecast accurately due to the associated cost of funding that the Central Bank of Ireland must pay to the ECB, the floating rate interest that it receives on the bonds that it holds and any mark-to-market implications for valuing the bonds. Again, estimates were produced in the explanatory information that was released by the Department of Finance in relation to the transaction last week. This assumed zero mark-to-market implications for the bond as it was not possible to estimate if the bonds would trade upwards or downwards post issuance.
Under the old financing structure IBRC would have held the Promissory Notes for a weighted average of 7-8 years, whereas under the new structure the Central Bank of Ireland will hold the bonds for a weighted average of 4c.14.3 years.
The net present value of the portfolio of bonds is €25bn which is equal to the par value of the Promissory Notes that they have replaced.
With regard to the net present value gain in this arrangement, as the Deputy is aware, the calculation of a net present value is based on a number of mathematical assumptions, including what discount rate to apply and assumptions around future refinancing rates, all of which will depend upon the outcome of future events. These assumptions can have a material impact on the ultimate valuation which is subject to a wide range of possible outcomes. For that reason, the Department did not produce a net present value figure for publication last week and I am not in a position to give one now. I can assure the Deputy that a key determinant of the value of the new arrangement was debt sustainability.
The Central Bank of Ireland will sell the bonds but only where such a sale is not disruptive to financial stability. They have however undertaken that minimum of bonds will be sold in accordance with the following schedule: to end 2014 (€0.5bn), 2015-2018 (€0.5bn p.a.), 2019-2023 (€1bn p.a.), 2024 and after (€2bn p.a.).