Thanks to Karl D. for the tip-off on this story. Anglo Irish has announced that it will not be paying coupons on its Tier 1 subordinated bonds and that this decision was required by “The European Commission, as a condition of its approval of the Government’s capitalisation of the Bank of up to €4bn.” In a related story, the International Swaps and Derivatives Association has decided that a similar non-payment by Bradford and Bingley represents a “credit event” which will trigger CDS insurance. (Bloomberg story here, official announcement here.)
Presumably, Anglo’s actions will at some point trigger the same decision from the ISDA. This will mean that those Anglo bondholders holding CDS insurance will receive full payment. Anglo’s announcement also discusses its “liability management” exercise, in which it is planning to buy back outstanding debt at below par. Presumably, however, those insured by CDS will no longer be interested in a deal of this sort. It also makes it likely that much of the debt that Anglo is planning to buy back at a discount will be owned by CDS issuers.
Update: My presumablys were perhaps a bit presumptious. Commenter Eoin notes below that this is not (yet) a credit event. I have checked this elsewhere and am informed that the “reference” obligation that defines a credit event for Anglo is indeed a failure to meet Tier 2 obligations.