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Allied Irish Banks plans subordinated bond sale

(Adds context, quotes)

By Alice Gledhill

LONDON, Nov 17 (IFR) - Allied Irish Banks (EUREX: 558453.EX - news) is on the brink of issuing its first subordinated bond since being nationalised after the financial crisis, reaching a key milestone in its recovery.

The euro Tier 2 bond will be the bank's first attempt at a public subordinated offering since it imposed severe losses on subordinated debt investors during the height of the eurozone financial crisis. The bank was bailed out in 2009 and fully nationalised in 2010.

"It (Other OTC: ITGL - news) really is an important trade for them," said Chris Agathangelou, head of EMEA FIG syndicate at Nomura.

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"If it goes well, it sets up their whole capital plan. The fact that the roadshow has been so well supported already shows that people have been waiting for this and want to get involved."

Investor (LSE: 0NC5.L - news) meetings will take place on November 18 in London and Frankfurt.

Deutsche Bank (Other OTC: DBAGF - news) and Morgan Stanley (Xetra: 885836 - news) are joint global coordinators. BNP Paribas (Xetra: 887771 - news) , Deutsche Bank, Goodbody, Morgan Stanley, Nomura and UBS (NYSEArca: FBGX - news) are joint leads.

AIB, which is 99% state-owned and may float next year, has held discussions with European regulators about reorganising its capital structure.

It agreed to issue at least 750m of Tier 2 capital and 500m of Additional Tier 1 to achieve a net increase in its capital levels.

"It makes sense to do Tier 2 first. It's the strategy that SNS adopted, and it worked. If you start with the Tier 1, you're asking people to take a deeper capital position without the buffer," added Nomura's Agathangelou.

SNS bank, the successor entity to an institution that just two years ago saw the Dutch government wipe out its junior bondholders, received strong support for a Tier 2 bond in late October.

An investor thought AIB would be willing to pay up given the importance of the deal, particularly given the time of year and because the repayment of the 2009 preference shares depends on the issuance of new capital.

He thought a theoretical 10-year non-call 5-year structure could price in the 3.85% to 4% range. The transaction is expected to be rated B2/B by Moody's/S&P.

Bank of Ireland (EUREX: 1269463.EX - news) 's 4.25% 750m 10-year non call 5-year Tier 2 bonds issued last year were bid around 3.3% on Tuesday morning, according to Tradeweb prices.

AIB generated more capital, reduced its bad loans and increased its net interest margin in the third quarter, Reuters reporting on Tuesday morning.

Its fully-loaded CET1 ratio improved 90bp in the quarter to 9.2%.

The Irish lender won regulatory approval earlier in November to pay back 1.7bn of government bailout funds, beginning the process of repaying the 21bn it received during the crisis. In total, the state will receive close to 4bn ahead of a potential initial public offering.

Ireland (Other OTC: IRLD - news) 's Minister for Finance Michael Noonan welcomed the further details of AIB's proposed capital reorganisation.

"I am confident that the State will ultimately recover the full value of their 20.8bn investment in AIB in the years ahead," he said in a statement on Tuesday.

(Reporting by Alice Gledhill, editing by Julian Baker, Helene Durand)